Making strides at home and abroad
 The city of Liverpool is home to two of the most fanatically supported football clubs in the English Premier League (EPL): The red half of Liverpool and the blue half of Everton, both of which finished the 2007/08 football season in fourth and fifth place respectively
With their stadiums located barely a kilometre apart, both clubs are coincidentally also shirt-sponsored by beer companies – the Reds by Carlsberg and the Blues by Chang.
But while Everton may have been one of the first EPL clubs to recruit players from China, Chang is not a Chinese, but rather a Thai brew by Thai Beverage. The club's home turf at Goodison Park is in fact the only venue where Chang Beer is available on tap in the country.
ThaiBev, which is majority-owned by Charoen Sirivadhanabhakdi, Thailand's richest man according to Forbes magazine is an amalgamation of all the alcohol beverage production and distribution businesses of the Sirivadhanabhakdi family who owns the best known alcohol brands in Thailand – including the likes of Chang, Archa, Sangsom, Mekhong, White Tiger and many others.
It is currently the market leader in Thailand with the lion's share in both the beer (49%) and the spirits or liquor (74%) segments. The domestic market accounts for 96.4% of the group's total sales of 100,840 million baht for financial year 2007. Net profit was Bt10,380 million.
The fact that the Blues had finished fifth and hence qualified for next season's UEFA cup competition in Europe is a huge boost to the Thai brewer, which has been stepping up efforts in the past two years to promote its alcoholic beverages outside of Thailand to new overseas markets such as Australia, continental Europe, UK and USA as well as grow sales in Asia.
Overseas sales are expected to grow with new global initiatives starting with the acquisition of a Scottish distiller of premium single malt whiskies, Inver House, in October 2006. The fact that Inver House exports to 85 international markets also means that there will be more cross-selling opportunities for other ThaiBev products in markets abroad.
A wholly owned subsidiary, International Beverage Holdings Ltd (IBHL) has also been set up and task with opening new markets and raise exports of Chang as a premium imported beer.
Most of the initial market penetration in the US will be through Thai, Vietnamese, Cambodian and Asian fusion restaurants on the East and West coast. Since its launch in the US which accounts for 30% of Chang exports, the beer is now sold in 16 states and more than 25 metropolitan centres. Efforts to break into the spirits market in the US are also underway with the launch in May this year of its Mekhong rum, which is positioned as a premium mix for high-end cocktail drinks.
As Sirivadhanabhakdi who is the group chairman notes in the company's annual report (2007), "We intend to continue what we call a 'premiumisation' process by launching higher margin products to lift our portfolio into the standard and premium ends of both spirits and beer."
Strength of distribution network
Richard Jones, the company's assistant vice president for investor relations and corporate communications explains to SIAS e-magazine that ThaiBev which was listed on the Singapore Exchange in May 2006 had previously built its foundation on sales to the rural areas of Thailand where most of its spirits are sold.
It's the spirits rather than beer, he says, that make up the bulk of alcohol consumption of the rural folks in the villages who find it more economical to mix spirits with higher alcohol content with soda or water.
It's for that reason that ThaiBev did not venture into the beer market until 1995 with the launch of Chang Beer. Subsequently, another new brew Archa was launched in 2006 to solidify the group's stranglehold in the economy brand segment of the Thai market. Chang, Chang Draft and Archa currently account for 57.7% of the market share in this segment of the Thai market. The economy segment accounts for about 8 out of 10 bottles or 84% of all beer sold in the country by volume.
The fact that ThaiBev was able to steal the march from its domestic rivals within such a time is a testament to the group's distribution network of more than 400,000 outlets, mostly Mom & Pop stores in Thailand, says Jones.
He points out, "A lot of times, the first things you will see when you step into these corner shops which account for 93% of our sales outlets are ThaiBev products. The other 7% comprises Tesco and Carrefour hypermarts and 7-Eleven outlets. We have the largest distribution network after Coca Cola in Thailand. A lot of the shipments are sold cash on delivery with half of the cost collected as liquor tax which makes ThaiBev one of the biggest sources (about 5%) of tax revenue for the Thai government."
With its 18 distilleries, three breweries and five new distribution centres across the country, ThaiBev enjoys a competitive edge over its rivals in that it can deliver shipments at a lower cost, says Jones. Such a network also lends itself for business from distribution of fast moving consumer goods (FMCG) for other third parties, he adds.
Jones says that it's precisely because of the strength of this distribution network that ThaiBev is confident of capturing 3% to 5% of the higher-end beer market in Thailand within a year of the launch of a new lager brew, Federbrau, which will be ThaiBev's first premium beer.
Federbrau, which is launched this month, will initially be sold in 1,500 outlets, half of them in Bangkok. The high-end market for beer, which incidentally only accounts for 6% of total beer sales by volume in Thailand is currently dominated by Heineken (72.5%) followed by Asahi (3.9%). Jones however points out that it took Asahi three years to hit the 4% mark.
Non-alcoholic acquisitions
But it's not just alcoholic drinks that will drum up ThaiBev sales in the coming years.
The group has sounded its strong intentions to expand into non-alcoholic beverages market with the acquisition in January this year of the Wrangyer Beverage Company, one of Thailand's leading maker and distributor of energy drink and ready-to-drink coffee for Bt 420 million (US$13.3 million).
This was closely followed by an offer in February to acquire a stake in another energy drinks company, Carabao Tawandang, which produces energy drinks under the trade name Carabao and Red Carabao.
Then in May, ThaiBev announced that it intends to take up a 43.9% stake of the Thai-listed Oishi Group for Bt 3.1 billion (US$94 million). Besides operating more than 80 Japanese sushi, ramen, cafe and bakery outlets with home delivery services in Thailand, Oishi is also a maker and distributor of soft drinks, juices, bottled green tea and premium coffee drinks.
According to Oishi president and CEO, Tan Passakornatee, the market for bottled green tea drinks which was worth Bt7 billion in Thailand last year is expected to grow to between Bt8 billion and Bt10 billion in 2008. He is confident of Oishi maintaining its 60% market share of the green tea market and expects to open at least 10 new Osihi outlets this year.
While the Oishi acquisition is still subjected to the approval of its shareholders, Jones points out that the non-alcoholic beverages would be distributed through the same existing ThaiBev channels without the need to invest heavily in additional distribution networks. He expects ThaiBev to raise Wrangyer's 4th position and current market share of about 5% in Thailand in the near future on the strength of ThaiBev's distribution channels.
"The energy drinks segment is growing at 3% a year while coffee drinks is one of the fastest growing non-alcoholic beverages here at about 10%. Customers who buy the energy drinks will likely be going to the same outlets for their spirits, sodas or beer for their cocktail mix." says Jones who estimates profit margins for energy drinks to be about 10% for coffees and 16% for green teas.
Looking forward, Jones also reveals that ThaiBev has locked in a fixed raw material cost for the next four years for its supply of hops and malt used in its spirits production. These ingredients account for about 5.5% of production costs. In light of inflationary costs, he says that the move will enable the group to maintain its margins. "A lot of players, especially the smaller ones could get into trouble," he adds.
Analysts have also noted that the spectre of rising raw material prices will discourage beer companies from competing on prices due to impact on their margins. Says Alan Lok of SIAS Research, "I think they would be more reluctant to cut prices more aggressively in order to gain market share, and this would work in ThaiBev's favour. The group's strong distribution network also serves as a deterrent to any new entrants in the domestic Thai market."
He also adds that ThaiBev's strong cashflow business will also allow the group to capitalise on any acquisition opportunities to grow it market share and profit margins.
If not, Lok says that investors can always count on the management's policy of a dividend ratio of not less than 50% for Thai Beverage shares.
By A J Leow (June 2008)
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