The geographical size of Taiwan belies its political and economic importance on the global scene. Just as in China, its entry into the WTO has had some startling repercussions for domestic and international beverage companies. Glen Smith reports

The turnout at the Taipei International Wine & Spirits Show, held from August 15 to 18, said everything one needs to know about the Taiwan spirits market. Few foreign distillers and brewers exhibited - they had already got their hands bitten off probing the market in the late 1980s. And, in their stead was a crocodilian swarm of local distributors and retailers poised to claim their next victim - the newly dethroned Taiwan Tobacco & Wine Monopoly Board (TTWMB), which under various names and governments, Chinese and Japanese, has ruled the island's alcohol market since 1901.

Today the TTWMB has problems galore after a delayed, two-punch combo nailed it squarely on the chin. First, in 1987, imported beer, wine and spirits were allowed entry, and ever so slowly - a hefty 'monopoly tax' and limits on advertising impeded their progress - they chipped away at the TTWMB's 100% market share. This year brought a more onerous challenge. Taiwan's entry into the WTO on 1st January this year leveled the playing field, as the government replaced the dreaded 'monopoly tax' on imports with an 'alcohol tax' levied against domestic and imported alcoholic beverages alike.

Whisky, Cognac and other distilled spirits pay NT$185 per liter. For beers, it's NT$26 per liter, while a there's a sliding scale of NT$7 per cent alcohol per liter for wine.

The TTWMB had no choice but to comply. On 1st July, it began steps toward privatization and rechristened itself the Taiwan Tobacco & Liquor Corporation (TTLC) - a symbolic move - and started talking about branding and marketing, a field totally alien to its monopolistic habits and doubtless difficult for it to learn. Even with its former price advantage, the TTWMB lost most of the market for hard liquor.

The TTWMB is terribly stingy with its sales figures, but a clerk there begrudgingly offered that, in 2001, on the eve of Taiwan's entry into WTO, imports claimed 92.6% of whisky, 78.1% of brandy - the two major categories - and more than 50% of other Western style liquors. Equally secretive are the importers, but customs' statistics offer a clue. Whisky is the leader, with 11.2m liters imported in 2000, followed by brandy [7.4m] and grape wine [6.3m]. White liquors - vodka and gin - however, are in the low hundred thousands.

The TTLC distills these liquors, but they lack the imports' brand cachet. Instead it offers scores of concoctions - jade spring plum, lychee liqueur, double deer brand ng ka py, young antler liqueur - that recall a night, circa 1930, on the Shanghai bund. Hardly surprisingly, they're not big sellers anymore. In the monopoly's statistical yearbook for 2000, two products accounted for 85% of sales on a volume basis - 1.6 billion liters of rice wine (also used for cooking) and, significantly, 3.9 billion litres of beer.

Beer is the TTLC's mainstay, and for past two decades, it has generated half of its sales. 3.9 billion liters were sold in 2000, producing income of NT$22.4 billion, or 47.9% of the monopoly's total of NT$46.8 billion for that year. Despite its dull, generic name, Taiwan Beer has fended off imported brews since they stormed the island in the mid-1980s.

Taiwan Beer is a national icon, and it's still sold in a 600ml brown bottle used since the 1940s or earlier.

This is significant because, even today, the tall bottle is a defining element of a guy get-together. Or put another way - serious drinking. The typical 'night out' begins with a reason - someone got a raise or someone is back in town - but any excuse will do. The venue is a night market noodles stand, a seafood restaurant or a KTV [a local variant of the karaoke bar].

The table piles high with food, and as if by magic, tall bottles of Taiwan Beer appear. [Brand choice is irrelevant: usually there isn't one.] Tiny glasses are filled round after round, toasts are offered, oaths are sworn, and stamina is tested. Taiwanese style drinking is communal - so tall bottles are in, and small cans are out - and the host is obliged to get his guests drunk - so the cheaper the beer the better.

Taiwan Beer has these bases covered - it's the cheapest [the imports used to pay a NT$30/liter monopoly tax], it can be shared [most imports come in cans or 350ml bottles], and it is everywhere [The TTWMB has four breweries, and a fleet of trucks that deliver to 63,000 beverage points-of-sale. The imports, regardless of distributor, can't touch that with a stick]. Miller once cracked this market - referred to as the 'restaurant' channel - by aligning with Country House, the Sunkist distributor, but has since parted ways.


"The importance of Taiwan's 'restaurant' channel is undisputed"
The importance of Taiwan's 'restaurant' channel is undisputed. Through the late 1990s, Taiwan Beer's 600ml bottle accounted for more than one third of all beer drunk on the island. In 2000, TTWMB sold 169.9m litres in this format [35%], and another 192.1m liters in 350ml cans [39.9%], which together a light and dark brew gave it 395.7m litres [82.2%]. Imported beers totaled 85.8m litres [17.8%].

Imported beers claim they will double their market share as Taiwan Beer adjusts its price to reflect the NT$26 per liter alcohol tax.

Nonsense! The truth is most foreign beers have thrown in the towel, and their marketing is feeble. Less than 1% of last year's sales was pumped into above-the-line promotion [total beer sales of NT$37 billion saw total adspend of NT$323m]. In the first half of this year, five of them - Heineken, Tsingtao [April launch], Kirin, Asahi and Beck's [May re-launch] - spent NT$90.2m, or 93% of the period's NT$96.9m in advertising. The rest rely on word-of-mouth, posters and leggy girls in revealing garb sent to bars and discos to pass out 2-for-1 coupons.

Today, there are 182 imported beers on the island, and the winners among them are Heineken, Tsingtao, and Kirin, for example, which have local branch offices to oversee distribution.

The same can be said for liquor. Johnnie Walker and Suntory have top tier distributors [Diageo and Country House] that can penetrate the network of neighborhood bars, city discos, rural KTVs, mom-and-pop groceries or exceedingly rare liquor stores scattered across the island. Ditto, the imported brandies and Cognacs.

The only other hope is to cut a sweetheart deal with a major convenience store, supermarket chain or hypermart. While the TTWMB slumbered through the 1980s and 1990s, a handful of Taiwan food and beverage companies built a whole new retailing environment. The best example is Uni-President Enterprises Corporation, which manufactures thousands of branded foodstuffs and 'owns' the channels that sells them, such as the more than 3,000 7-Elevens it operates for its US partner.

Beer, wine or liquor supplicants must pay stocking fees and guarantee - in cash - minimum sales. Uni-President is not alone. Other Taiwan corporations have wrapped their octopus-like arms around food or beverage production and major distribution and retail channels.

Expert Analysis

The Market for Alcoholic Drinks in Taiwan

Comprehensive investigation into the market supplies essential sales data for 1997-2001 in addition to forecasts to 2006. Product coverage includes beer, wine, spirits, cider/perry and FABs.

 

It has a strange déjà vu about it. WTO or no WTO, Taiwan remains a distributor's market, and it is this new breed of merchandisers - not the foreign brands - that will teach the tottering TTWMB the lesson of the century. In the press, TTWMB is talking about laying off 5,000 of its 12,000 employees, selling real estate and consolidating resources, while these new players - Uni-President, Kuang Chuan, Hey Song, King Car and others - are spin-doctoring plans about building local breweries, planting vineyards, buying foreign wineries, licensing excess capacity with Japanese distillers and launching biotechnology subsidiaries and more.