Japanese brewers are looking past China's $57 billion beer market to a country with less than one-tenth the population: Vietnam.
Japan's oldest beer maker, Sapporo Holdings Ltd., pulled out of China in 2004 and is boosting production in Vietnam. Rivals Asahi Group Holdings Ltd. and Kirin Holdings Co. have bought Southeast Asian companies to help offset domestic beer sales that have slumped for at least six years.
The brewers are making the fastest growing major economy, China, a lesser priority because of slowing population growth and strong competition. The Japanese companies' push to tap younger markets in Southeast Asian countries such as Vietnam may boost sales and margins. It also pits them against global brands including Amsterdam-based Heineken NV and Copenhagen-based Carlsberg A/S.
Vietnam "has 90 million people whose average age is 28 years and love to guzzle beer," said Yoshiyuki Mochida, who heads Tokyo-based Sapporo's international business. "It's an era of the warring states for business in Vietnam. If you fall asleep there, your head will be lopped off."
Vietnam retail beer sales will probably rise 20 percent to 96 trillion dong ($4.6 billion) this year, or less than a tenth of China's 360 billion yuan ($57 billion), researcher Euromonitor International estimated. The country's beer consumption per capita was 27.2 liters last year, trailing China's 31.5 liters and equivalent to about a third of that in the US, according to research by Kirin.
Asahi gained 0.5 percent to 1,703 yen as of 12:43 p.m. in Tokyo trading, Kirin rose 1.6 percent to 938 yen and Sapporo climbed 1 percent to 305 yen.
While China accounted for 71 percent of the Asia-Pacific region's beer market by volume last year, it contributed 16 percent of profit, Heineken Chief Executive Officer Jean Francois van Boxmeer said Dec. 8. The average price of beer in China is about 25 euros ($33) per 100 liters, compared with 51 euros in India, 60 euros in Vietnam and 182 euros in Australia, he said.
Asahi is looking at Indonesia, Vietnam, Thailand, the Philippines and Malaysia for potential acquisitions, said company President Naoki Izumiya. China's beverage market will be hurt from 2015 by slower population growth from the nation's one-child policy, he said.
Japanese brewers, serving a home market with per-capita consumption of 45.4 liters, need to look to countries such as Vietnam for growth. The Japanese beer industry's 2010 domestic sales by volume, including lower-malt drinks, is 18 percent lower than a decade ago after sliding for six consecutive years, according to Kirin's research.
Facing the facts
"Consumption is tied in with population and we have to face this fact squarely," Kirin Chief Executive Officer Senji Miyake said.
Kirin has a head start in Southeast Asia, said Akane Nakagawa, an analyst at Mitsubishi UFJ Morgan Stanley, with an "outperform" rating on the stock and a 1,500 yen price target. Sapporo, which started beer production in Southeast Asia last month, is next, she said.
While Asahi lags behind the other two, it may benefit from synergies as it integrates Malaysia's nonalcoholic drink maker Permanis Sdn., which it acquired in the second half of 2011, Nakagawa said.
Nakagawa has a "neutral" rating on Asahi, which has gained 8.3 percent this year, compared with a 17 percent decline for Sapporo and a 19 percent drop for the broader Topix index. Kirin has declined 18 percent.
Southeast Asia offers opportunities because of a relative absence of competition, said Mikihiko Yamato, an analyst at JI Asia who recommends buying Kirin shares. The "best-case scenario" would be for the Japanese companies to buy closely held beverage makers where they can negotiate directly with the owners, he said.
Japanese brewers have found China a tough place to do business because a handful of brands dominate China's beer industry.
"Their market share there can't rise," said Tokushi Yamasaki, an analyst at Daiwa Securities Capital. "Competition is too fierce in China."
China Resources Enterprise Ltd., the maker of Snow beer with SABMiller Plc., has a 22 percent share, Tsingtao Brewery Co., part-owned by Asahi, has 14 percent, and Anheuser Busch InBev NV has 12 percent, according to Euromonitor.
"There are giants in the Chinese beer market and we have no chance to go it alone," said Kirin's Miyake. "There is still a chance for us in Vietnam from our market analysis."
China's population is also aging. People over 60 years old accounted for 13.3 percent of the population last year, nearly 3 percentage points higher than in 2000, according to government statistics.
The median age of Vietnam's population is 27.8 years, compared with 35.5 years for China's 1.3 billion people, according to the CIA World Factbook. Vietnam's population will grow 1.2 percent to 90.4 million next year, according to International Monetary Fund estimates compiled by Bloomberg.
Government estimates in China, which put in place a one-child policy in 1979, show population growth slowing in the decade through 2010, compared with the previous 10-year period.
The total population of Indonesia, the Philippines, Vietnam, Thailand and Malaysia will expand to 553 million in 2016 from 519 million this year, according to IMF estimates compiled by Bloomberg. Japan's will probably contract 1.1 percent to 127 million in the same period, the data show.
Southeast Asia also offers the potential for higher beer margins. Asahi's operating margin of 9.7 percent in the third quarter compares with 27 percent for the Philippines' San Miguel Brewery Inc. and 22 percent for PT Multi Bintang Indonesia, according to data compiled by Bloomberg. Kirin owns about 48 percent of San Miguel Brewery, which dominates the Philippine beer market.
Vietnam may be an easier market to break into because the beer market isn't dominated by a few low- and mid-priced brands. Saigon Beer-Alcohol Beverage Corp.'s Saigon has the biggest market share of 33 percent, according to Euromonitor, while the Heineken brand has 7.7 percent.
Carlsberg's namesake has 1.1 percent and other brands it sells, including Huda and Tuborg, have at least 8 percent. Japanese brewers' shares were too small to be tracked by the researcher.
Vietnam, which has become a production hub for companies from Intel Corp. to Honda Motor Co., is aiming for 6 percent gross domestic product growth next year, Prime Minister Nguyen Tan Dung has said. Japan's economy is set to expand 1.66 percent next year, according to the median of nine economist forecasts compiled by Bloomberg.
"˜No cultural walls'
The chances of Japanese brewers succeeding in Southeast Asia are high, said Mitsubishi UFJ's Nakagawa. "Vietnamese have no problems consuming Japanese products and there are no cultural walls."
Local and global competitors may be pressured as the Japanese brewers come in. "Among the imported beer makers, Carlsberg and Heineken will see a hit with the Japanese brewers coming in," said Mizuho Securities analyst Hiroshi Saji. "But the market as a whole will expand, so everyone should gain."
Heineken "welcomes competition" and is already competing with Japanese companies in other Asian markets, John-Paul Schuirink, a spokesman, said by e-mail. The company has been gaining market share in Southeast Asia, he said.
Asahi, which entered China in 1994, bought about 20 percent of Tsingtao after facing competition from local brands. Kirin, which faced similar difficulties, formed a soft-drink venture with China Resources Enterprise.
Sapporo pulled out of China after about eight years and exports small amounts from Japan. It intends to increase beer production as much as fivefold in Vietnam by 2019. Mochida said his company will now "go hunting and be concentrating on Southeast Asia for the next 10 years."