Comment - Soft Drinks & Water - ThaiBev: Asia’s Hidden Giant
This month, Ray Rowlands turns the spotlight on ThaiBev and explores how, by stealth and shrewd planning, the liquor conglomerate has also developed into a leading player in the Thai soft drinks market.
To most people outside of Thailand the Thai Beverage Public Company Limited (more generally referred to as ThaiBev) may seem an enigmatic entity. Though exposed to the company logo every time they watch Everton FC play, it is questionable as to how many soccer fans actually realise that the word 'Chang' emblazoned on the Everton team's shirt accompanied by two elephants is actually the emblem of ThaiBev.
ThaiBev is not only Thailand's largest beverage company but also one of the biggest in Asia. It was incorporated in Thailand in October 2003 to consolidate all the beverage interests of the principle shareholder, Charoen Sirivadhanabhakdi, under a single holding company. Thaibev was subsequently listed on the Singapore stock exchange in 2006.
Today, the company controls around three quarters of Thailand’s spirits market with products such as Mekong spirit and Sangsom rum whilst also being responsible for a third of the country’s beer market, (Chang is the second biggest selling brand there). However, what is often overlooked is ThaiBev’s significant involvement in the soft drinks industry.
Since its stock exchange listing, ThaiBev has extended its non-alcoholic business interests considerably. Today it has seven non-alcoholic beverage facilities in Thailand, and also carries out international manufacturing and distribution activities. Through a process of product innovation and acquisition, the company has accumulated an extensive portfolio of soft drinks, including bottled water, juice drinks, energy drinks, iced tea and ready-to-drink coffee.
Sitting alongside Chang beer is Chang bottled water. Available in both still and soda water format, Chang (which is the Thai word for elephant) is amongst the top ten brands in the country's bottled water market. Despite Chang beer receiving more company attention than its sister brand, Chang water is raising its profile in a very fragmented market that is enjoying double-digit annual growth.
Towards the end of 2011, ThaiBev further strengthened its position in the domestic water market by buying a large chunk of shares in beverage producer and distributor Serm Suk from PepsiCo. This followed the earlier announcement that Serm Suk was cancelling its PepsiCo bottling agreement. This gave ThaiBev access to Crystal, Thailand’s second largest bottled water brand, and over-night more than tripled its water market share.
Serm Suk is also a distributor of Oishi iced tea from the Oishi Group, which commenced operations in Thailand with the opening of a Japanese buffet restaurant chain in 1999. It subsequently entered the iced tea market in the third quarter of 2003 via its restaurant chain. By 2005, Oishi was the brand leader in a category that exceeded 200m litres and which was growing at 20% a year. When the iced tea market dived in 2006, practically halving in size due to product overkill, Oishi still maintained its leadership.
Despite the bubble having burst, Charoen Sirivadhanabhakdi obviously saw the longer term opportunities. It was announced at the beginning of January 2006 that a 34% stake in the Oishi Group was being sold to Nakorncheun Co Ltd, an investment firm that forms part of ThaiBev. Today ThaiBev has an 89% shareholding in the iced tea producer.
Charoen’s gamble paid off. Oishi iced tea has subsequently gone from strength to strength, more than recovering the domestic volume it lost in 2005 whilst building its export activities which cover 18 countries from Laos to Barbados. It has also diversified its tea range, which now includes lemon flavoured black tea, peach flavoured green tea, green tea with rice and unsweetened green tea. In June last year it introduced Oishi Chakulza, Thailand’s first sparkling green tea. Meanwhile, new beverages have been added to the portfolio including Amino OK still drink in 2005 (subsequently renamed Amino OK Plus), Seiki still drink in 2006 and Coffio iced coffee in 2008.
Whilst the Thai iced tea market has only developed over the last decade, energy drinks have a far longer history and have achieved a much better international recognition, thanks to Red Bull. Yet, in reality, the two categories are of a similar size. The main three brands of energy drink sold in Thailand are M150, Krating Daeng and Carabao Daeng. Carabao Daeng was only launched in 2002 through the entrepreneurial efforts of musician Yuenyong Opakul (aka Ad Carabao) and executives of the Tawandang German Brewery. By the following year, it was already vying for second place in the energy drinks market against Krating Daeng. This battle has continued ever since. The main change is that Carabao Daeng is now supported by the financial muscle of ThaiBev which took a two thirds share in the brand in late 2008.
ThaiBev also took over the Wrangyer energy drink business from the Vesvarute family in 2008. At the time, it was claimed that the brand only held a 2% market share. In 2009, sales were reported at THB480m (US$15.2m) last year and were expected to reach THB750m in 2010. The brand is now one of the top best selling energy drinks in the country. Other brands in the Wrangyer line-up, such as Black Up iced coffee and Power Plus Electrolyte, have reinforced ThaiBev’s non-alcoholic offerings, as has those of SPM Foods and Beverages (SPM) in which the Thai giant acquired a majority shareholding in 2007. SPM is primarily engaged in the manufacture and distribution of mineral water drinks, sports drinks, fruit juices and other complementary soft drinks (e.g. Fruitnette jelly drink).
In 2010 a ThaiBev spokesperson said that the company expected to increase the sales contribution made by non-alcohol products from less than 10% to about a two-digit share in three to five years. With reported volumes in excess of 500m litres in 2011, the company may well have already achieved this goal.
Today, it is one of the top five soft drink producers in Thailand.
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