Asia: An Emerging Market
March 1, 2007
Asia: An Emerging Market
By ELIZABETH FUHRMAN
Dominated by alcohol drink sales, the Asian beverage market continues to develop and expand
Asia is a four-letter word being said more often lately. Asia is ginormous — a worthy combination of gigantic and enormous — because the market is just that big, and its growth and potential growth for beverages is even larger.
Beverage sales in China, India, Japan, Philippines and Thailand totaled more than $561.7 billion in 2006, according to Euromonitor International, Chicago. Japan led beverage sales for the Asian countries with more than $308.8 billion, followed by China with more than $163.8 billion in sales. Trailing the two market giants, India saw more than $44.3 billion in beverage sales, Thailand reached more than $25.3 billion and the Philippines more than $19.4 billion in sales.
Alcohol drinks dominate the beverage market in Asia, and the spirits market is controlled by locally produced beverages with long-established patterns of consumption, Euromonitor says. As a result, the performance of individual markets was influenced significantly by the advancements of individual categories. For example, in India, locally produced whisky ranks as the largest spirit category, and its strong performance drove overall spirits growth in the market. Likewise, locally produced rice-based vodka drove spirits growth in Vietnam.
Investing in China’s market growth, Diageo plc made its first acquisition in the country in 2006 with a 43 percent stake in Sichuan Chengdu Quanxing Group Co., the owner of Shanghai-listed Sichuan Swellfun Co., which makes Swellfun spirits brand, which includes a traditional Chinese liquor or baijiu. The deal made Swellfun the first baijiu brand with foreign interests, and made Diageo the second-largest shareholder in Chengdu Quanxing. Diageo entered the Chinese market in 1995, selling Johnie Walker and J&B, and has seen double-digit growth on the mainland in recent years, the company said.
Remy Cointreau SA co-founded the Dynasty Fine Wines Group in 1980, to become the first foreign company to own a Chinese wine venture. To further grow in Asia, Remy has decided to quit the Maxxium joint-venture distribution network by March 2009 to gain more control over distributing its Cognac and Champagne in Asia. The company said it would create its own Asian distribution network to build the premium brands in emerging markets.
|New product introductions in Asia*|
|Carbonated Soft Drinks||214||272|
|Fruit/Flavored Still Drinks||259||335|
|Juice & Nectars||553||806|
|Malt & Other Hot Beverages||147||171|
|Meal Replacements & Other Drinks||129||160|
|RTD Coffee & Tea||548||701|
|*Asian countries included in totals are China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.|
Source: Mintel Global New Products Database
Euromonitor predicts India’s most popular spirit, Indian whisky, should facilitate moves by multinationals to drive demand for blended Scotch. Late last year, Beam Global Spirits & Wine Inc., Deerfield, Ill., entered a new category in the Indian spirits market with Indian Made Foreign Liquor brand Whisky DYC, which followed the launch of Jim Beam Bourbon in India.
Whisky DYC, an established brand in Europe, was adapted for the Indian market, and is a blend of Indian grain and imported aged malts. DYC will be blended and bottled in India. Positioned as an “affordable luxury,” Whisky DYC offers premium quality at an affordable price, making it desirable to aspiring Indians, Beam Global Spirits & Wine says. The launch of DYC will contribute to the expansion of the Beam Global India portfolio and add distribution strength to the company’s flagship brand Teacher’s, the No. 1 Scotch whisky brand in the “bottled in India” Scotch segment, the company says.
The dominating South Korean shochu category only offers standard and economy varieties of the traditional Japanese distilled spirits, because of weak economic conditions in the country. South Korea’s biggest selling shochu brand in 2005 was Jinro’s economy brand Chamjinsulro, which accounted for 50 percent of volume sales, Euromonitor says. The South Korean market is very concentrated with local companies performing well in their local region.
In Japan, the premium local spirits market is limited, with the greatest majority of sales either economy or standard-priced products. Due to poor economic conditions in Japan during the past decade, the Japanese have continued to trade down in all alcohol drink categories.
Anchored by consumer beliefs that shochu is healthier than other spirits because of its lower alcohol content, Japanese sales grew by 36 million cases between 1997 and 2006, which was pushed by response for standard and economy brands. The market is relatively fragmented with no brand having volume sales of more than 10 percent in 2005, which offers multinational companies a chance for market entry, Euromonitor says. Strong growth is expected to continue and an improved economic outlook could see consumers trading up. The increased popularity of shochu has led to an increase in the number of shochu bars, especially in urban areas.
Also with a large local specialty spirits market, Thailand’s market of 63 million cases consists of economy products such as Sura Khao and mixed spirits like SangSom, Euromonitor reports.
More than half of Taiwan’s 4.2 million case market in 2006 consists of a category classified as “other spirits,” which is made up of Chinese spirits and Chinese herbal spirits of predominantly standard and economy brands, Euromonitor states. In 2006, these spirits saw a decline, following duty increases that were passed on to the Taiwanese.
The spirit markets in Singapore, Hong Kong and Vietnam are small and have no sales of specialty local spirits, with consumers already used to Western spirits such as Scotch, Euromonitor says. The Vietnamese market has potential for growth, but with the combination of high import duties and low disposable income, contraband sales are prevalent and growth, in turn, is limited.
Generally, prospects remain limited for local specialty spirits in Asia, according to Euromonitor. Currently China and Japan hold the most opportunity in the short term, but still the premium local spirits market is consolidating quickly. In 2000, the top nine brands accounted for less than 17 percent of volume, but by 2005, this had grown to just less than 30 percent.
|Asia beverages sales (in millions of dollars)|
|Asian speciality drinks||$4,831.70||$5,816.90|
|Asian speciality drinks||$10,532.20||$12,509.80|
|Asian speciality drinks||$76.6||$112.6|
|Asian speciality drinks||$274.2||$340.5|
|Source: Euromonitor International|
Wine wages on
In 2005, the mushrooming Chinese economy was a key factor behind a 2.6 percent increase in regional wine volume sales, more than double the 1.2 percent in 2004, Euromonitor says. China’s share of regional volume rose to 54 percent in 2005, increasing its lead over Japan at 27 percent, and South Korea at 8 percent.
Euromonitor credits China’s wine volume growth to the growing popularity of Western lifestyle trends, the promotion of the health benefits associated with moderate wine consumption, a shift away from spirits with high alcohol content to products with a lower alcohol content, the falling price of still grape wines due to reduced taxation and the effects of World Trade Organization entry and government campaigns supporting grape wine consumption.
The fastest growing Asian wine markets in 2005 were India and the Philippines, although their combined share of regional volume in 2005 amounted to less than 1 percent, Euromonitor says. Vietnam and Malaysia also showed promising growth, albeit from low bases. In value terms, Japan remained the dominant force in the region, accounting for some 63 percent of regional wine sales, but second-place China again increased its share in 2005 to 23 percent from 21 percent in 2004.
During the 2000 to 2005 timeframe, Japan experienced annual declines in wine volume sales, falling by a further 6 percent in 2005 to 1 billion liters. The key factor in this decline was the drop in demand for sake, which accounted for an estimated 75 percent of Japanese wine volume in 2005, due to increased competition from other types of alcohol drinks such as shochu and flavored alcohol beverages. Sake is forecasted to continue to experience falling sales in the mid-term, due to its outdated image. Taking advantage of this trend, wine manufacturers are expected to increase marketing for their products, with a special emphasis on red and white wines in smaller bottles, and functional, low-colorie wines aimed at women, Euromonitor says.
Beer is bustling
For beer, 2005 was a year of ups and downs. The region’s emerging markets all experienced steady growth, however, its key developed markets, Japan and South Korea, performed poorly, Euromonitor says. The divide had a marked impact on overall regional performance, with growth at just 1 percent in value terms, reflecting the negative impact of depression in two of Asia-Pacific’s three largest markets. In volume terms, growth was stronger, at 4 percent, reflecting the continued expansion in beer consumption in the region’s less developed sales areas.
The primary factor of growth in Asia’s emerging markets is sustained economic growth, with rising disposable income levels fostering greater consumer confidence and increasing consumption, according to Euromonitor. The continued expansion of the increasingly influential Chinese economy was again central to this trend. Rising demand for premium and imported lager can be directly linked to the generally upbeat financial environment, with consumers proving increasingly keen to trade up. Economy lager also performed well in 2005, highlighting the price sensitivity of the emerging Asia market.
Heightening emerging market growth was another year of strong multinational investment, as the leading global players looked to build considerable portfolios in non-developed markets. And at the beginning of this year, Anheuser-Busch International Inc. entered into a joint venture with Crown Beers India Ltd., which will give the U.S. brewer entry into the growing Indian beer market. The 50-50 joint venture will operate under the name Crown Beers India Ltd. In the past few years, A-B also has lifted its stake in Tsingtao Brewery to 27 percent.
Other international brewers have expanded into the growing market too. SAB Miller bought a stake in China Resources Snow Breweries in 2001, and the venture has become Asia’s biggest brewer by sales volume. In June 2006, InBev acquired Fujian Sedrin Brewery in southeastern China.
Soft drinks grow in spurts
While Asian per capita consumption of carbonated soft drinks may be the lowest in the world, the category has for a long time acted as the main component of the region’s non-alcohol beverage market, responsible for more than 30 percent of consumption at the start of the decade, reports Canadean Ltd., Basingstoke, England.
Asia continues to make gains in the international soft drink arena. Its contribution to world volumes has stretched from 17 percent at the beginning of the decade to an estimated 20 percent in 2006, Canadean reports. The global market itself has expanded by almost 30 percent during the same period, according to Wisdom, a database which supports all Canadean’s beverage research services.
Although soft drink sales continue to increase, the category’s importance is diminishing annually. By the close of 2006, Canadean expects bottled water will be close to taking over the No. 1 spot.
Indonesia and China comprise more than half Asia’s bottled water consumption, and Canadean says what happens in these two countries is influential for the region as a whole. China’s bottled water expansion only began in the 1990s. Before then it was not seen as a suitable substitute for traditional boiled water. Many years of product education coupled with economic development have driven the category forward, and it regularly records double-digit annual growth, states Canadean’s Chinese Soft Drinks Report.
Bottled water continued to lead the Chinese non-alcohol beverage market last year in terms of size, although the market has not yet been fully developed with regard to brand loyalty, industry standards and consumer awareness, Canadean says. Focusing on future opportunities, the key players are advancing by progressing infrastructures and distribution networks in order to gain leverage before a brand war starts. This trend is paired with anticipated stricter category standards that are likely to be implemented across the industry.
China is not only significant for growth of bottled water, it is also responsible for the largest volume of carbonates, juice and nectars plus still drinks consumed in Asia, Canadean says.
|Top 10 new product claims in 2006 in Asia*|
Number of New Products
|*Asian countries included in totals are China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
Source: Mintel Global New Products Database
Craft beers in China
The Brewers Association Export Development Program in partnership with American Craft Beer Partners, Pittsburgh, sent a mixed container shipment of American craft beers to mainland China. The assortment of American craft beers from Rogue Ales Brewery, Newport, Ore.; Brooklyn Brewery, Brooklyn, N.Y.; and North Coast Brewing Co., Fort Bragg, Calif., shipped late last year to Shanghai, China.
The shipment is a culmination of a three-year effort consisting of market research into opportunities for U.S. craft beer in China and reverse trade missions to the United States by leading Chinese beer distributors, says the Brewers Association, Boulder, Colo. Funds for this work came in large part from the U.S. Department of Agriculture's Emerging Markets Program. The beer is available at high-end bars and restaurants in Shanghai at a range of $4.50 to $7.00 per bottle. American Craft Beer Partners is working on agreements with on- and off-premise accounts to order larger volumes.
Three additional craft brewers will begin shipping to China this spring. Products from Boston Beer Co., Boston; Gordon Biersch Brewing Co., Chattanooga, Tenn.; and Kona Brewing Co., Kailua-Kona, Hawaii, will ship and appear with the three original breweries at SIAL China in May and host a beer and food pairing dinner to feature the U.S. craft brews.
Demand in developing countries in Asia is outpacing the global average for commercial refrigeration equipment, rising 8.5 percent annually through 2010, reports The Freedonia Group Inc., Cleveland, Ohio, in its World Commercial Refrigeration Equipment report.
China will be the fastest-growing national market, benefiting from above-average urban population growth and healthy gains in fixed investment, as well as rising income levels. Strong growth also will occur in India due to solid gains in the number of households with refrigerators, which will boost demand for refrigerated food items.
Reach-in and walk-in coolers and freezers are being used by food processors, restaurants and food retailers, and are expected to post solid gains in developing regions.