Liberalisation in the Thai beer industry has created a price war, leaving the oldest and most established player in the market, Boon Rawd Brewery, exposed. Keith Nuthall talks to its export director Palit Bhirom-Bhakdi and finds the US and the Thai food craze could help the brewer through the crisis at home.
Palit Bhirom-Bhakdi cuts a refined figure in the robust world of international brewing. He is relaxed and softly spoken, a demeanour that suits the roots of the Boon Rawd Brewery Company which was launched by the Thai aristocrat Phraya (Lord) Bhirom-Bhakdi in 1933.
It was the country's first brewery, a novelty at the time as Thailand does not have an ancient beer tradition. The Kingdom's sub-tropical climate is not exactly conducive to the growth of the aroma hops which Boon Rawd imports from the US and eastern Europe. For many years, Thai beer meant Boon Rawd's Singha brand, accounting for more than 90% of national sales.
Things, however, have changed. Thai law once protected the company's status but now the country's beer industry was liberalised five years ago, enabling competitors to chip away at Boon Rawd's position, such as Danish brewer Carlsberg, and Dutch giant Heineken, which have started brewing locally.
This was compounded by the fact that the key Thai spirits sector remained under government control, with production in the hands of a private monopoly the Sura Maharaj/Surathip Group, headed by the politically well-connected Baht billionaire Charoen Sirivadhanabhakdi.
It used its legally protected position to bolster an attack on the Thai beer market using controlled aggression worthy of the toughest Bangkok kick-boxing bouts. "We have taken a beating," admitted Bhirom-Bhakdi, who was reluctant to release any figures of the full extent of the crisis.
Sura Maharaj/Surathip teamed up with Carlsberg to launch Chang Beer as a home-spun down-market rival to Singha, using financial reserves built up from its spirits monopoly to bankroll costly loss-leaders designed to punch Boon Rawd out of the market place.
It has also used its position as the only source of cheap white liquor - the traditional tipple of Thai peasants - to lever Chang into the arms of shops and vendors.
Bhirom-Bhakdi and his colleagues have not been amused. They have launched the low market Leo beer to counter Chang and have been lobbying hard for an end to the spirits monopoly, which would enable them to tackle Sura Maharaj/Surathip on its home ground.
Last year, Boon Rawd's hard work had seemed to pay off, with the Thai government announcing the liberalisation of the liquor industry, putting the country's large state controlled distilleries up for sale. But the beer company was to be disappointed. It failed to buy any of the concessions, which were snapped up by their existing owners and two related families.
At the moment, they are also idle, while Sura Maharaj/Surathip sells of its old stock, but in two years' time, said Bhirom-Bhakdi, "it is likely the families will split and go their separate ways. "Whether this helps us depends on how much they break and how much they compete."
While having to beat off new foreign and domestic competition, Boon Rawd also had to deal with the fallout from the Asian financial crash in 1997, which was sparked by a collapse in Bangkok's property market and provoked the worst recession in Thailand in living memory.
Prior to the collapse, the company's production had been growing at more than 18%-20% a year, (more than one million hectares, enough to open one brewery every 12 months). But since then, Boon Rawd has lost market share, which is to be expected. But with Chang at rock bottom prices, the elder statesman has found itself in double trouble, with reports that its market share has fallen below 50%. This can partly be explained by the Tiger economy years that enabled Thai drinkers to buy beer instead of cheap white liquor. They are now reluctant to drop their new tipple.
Meanwhile, sales of Chang have actually risen during the recession, contributing to an annual 5% rise in beer consumption. "Realistically the beer market should be declining," said Bhirom-Bhakdi, "but it is not." He also accused Sura Maharaj/Surathip of subsidising Chang by boosting the price of its white liquor from 35 Baht for a 630 ml bottle to 50/60 Baht, an increase that has had to be born by the very poor, or else they would not have any alcohol at all.
According to Bhirom-Bhakdi, this extra revenue has resulted in Chang being sold at wholesale prices as low as 200-280 Baht a 12 (630 ml) bottle case. The retail result has been Chang sold at 20-35 Baht a bottle, compared with Singha's considerably more expensive 48 Baht. He said: "Branding is probably the most important element of beer sales anywhere in the world, except when the economy collapses and people can't afford it."
With such trouble at home, it is no surprise that Boon Rawd has been seriously looking to develop its export sales performance for the first time. Bhirom-Bhakdi was appointed as General Manager - Export only last year with a brief to expand foreign sales. Conversely, the financial crisis has helped exports, with the collapse in the Baht from 38/Pound to 60/Pound cutting prices. He is currently reviewing the country's export strategy. Until the crash, Boon Rawd concentrated on the booming domestic market, with the result that its export volumes have barely reached 5% of total production.
Bhirom-Bhakdi said: "The main reason why export has been limited is because the domestic market has been a priority for us. No-one was really committed to the export side. "There is still a lot of room in most markets, especially the US. It's a huge market, it's a very open society and the beer market is at a very mature stage, with a rise in micro-breweries and imports. "They are shifting from the standard beers to more exotic types. That's where we come in. We have a fairly unique beer, which is unlike beers from this region. It is a lager with strength, taste and bitterness."
Whatever is decided, Boon Rawd is likely to capitalise on the booming popularity of Thai food. It estimates that there are 6,000 Thai restaurants worldwide. "We have benefited from that," he said. "We are using the popularity of Thai food as a way in."
Keith Nuthall
Palit Bhirom-Bhakdi cuts a refined figure in the robust world of international brewing. He is relaxed and softly spoken, a demeanour that suits the roots of the Boon Rawd Brewery Company which was launched by the Thai aristocrat Phraya (Lord) Bhirom-Bhakdi in 1933.
It was the country's first brewery, a novelty at the time as Thailand does not have an ancient beer tradition. The Kingdom's sub-tropical climate is not exactly conducive to the growth of the aroma hops which Boon Rawd imports from the US and eastern Europe. For many years, Thai beer meant Boon Rawd's Singha brand, accounting for more than 90% of national sales.
Things, however, have changed. Thai law once protected the company's status but now the country's beer industry was liberalised five years ago, enabling competitors to chip away at Boon Rawd's position, such as Danish brewer Carlsberg, and Dutch giant Heineken, which have started brewing locally.
This was compounded by the fact that the key Thai spirits sector remained under government control, with production in the hands of a private monopoly the Sura Maharaj/Surathip Group, headed by the politically well-connected Baht billionaire Charoen Sirivadhanabhakdi.
It used its legally protected position to bolster an attack on the Thai beer market using controlled aggression worthy of the toughest Bangkok kick-boxing bouts. "We have taken a beating," admitted Bhirom-Bhakdi, who was reluctant to release any figures of the full extent of the crisis.
Sura Maharaj/Surathip teamed up with Carlsberg to launch Chang Beer as a home-spun down-market rival to Singha, using financial reserves built up from its spirits monopoly to bankroll costly loss-leaders designed to punch Boon Rawd out of the market place.
It has also used its position as the only source of cheap white liquor - the traditional tipple of Thai peasants - to lever Chang into the arms of shops and vendors.
Bhirom-Bhakdi and his colleagues have not been amused. They have launched the low market Leo beer to counter Chang and have been lobbying hard for an end to the spirits monopoly, which would enable them to tackle Sura Maharaj/Surathip on its home ground.
Last year, Boon Rawd's hard work had seemed to pay off, with the Thai government announcing the liberalisation of the liquor industry, putting the country's large state controlled distilleries up for sale. But the beer company was to be disappointed. It failed to buy any of the concessions, which were snapped up by their existing owners and two related families.
At the moment, they are also idle, while Sura Maharaj/Surathip sells of its old stock, but in two years' time, said Bhirom-Bhakdi, "it is likely the families will split and go their separate ways. "Whether this helps us depends on how much they break and how much they compete."
While having to beat off new foreign and domestic competition, Boon Rawd also had to deal with the fallout from the Asian financial crash in 1997, which was sparked by a collapse in Bangkok's property market and provoked the worst recession in Thailand in living memory.
Prior to the collapse, the company's production had been growing at more than 18%-20% a year, (more than one million hectares, enough to open one brewery every 12 months). But since then, Boon Rawd has lost market share, which is to be expected. But with Chang at rock bottom prices, the elder statesman has found itself in double trouble, with reports that its market share has fallen below 50%. This can partly be explained by the Tiger economy years that enabled Thai drinkers to buy beer instead of cheap white liquor. They are now reluctant to drop their new tipple.
Meanwhile, sales of Chang have actually risen during the recession, contributing to an annual 5% rise in beer consumption. "Realistically the beer market should be declining," said Bhirom-Bhakdi, "but it is not." He also accused Sura Maharaj/Surathip of subsidising Chang by boosting the price of its white liquor from 35 Baht for a 630 ml bottle to 50/60 Baht, an increase that has had to be born by the very poor, or else they would not have any alcohol at all.
According to Bhirom-Bhakdi, this extra revenue has resulted in Chang being sold at wholesale prices as low as 200-280 Baht a 12 (630 ml) bottle case. The retail result has been Chang sold at 20-35 Baht a bottle, compared with Singha's considerably more expensive 48 Baht. He said: "Branding is probably the most important element of beer sales anywhere in the world, except when the economy collapses and people can't afford it."
With such trouble at home, it is no surprise that Boon Rawd has been seriously looking to develop its export sales performance for the first time. Bhirom-Bhakdi was appointed as General Manager - Export only last year with a brief to expand foreign sales. Conversely, the financial crisis has helped exports, with the collapse in the Baht from 38/Pound to 60/Pound cutting prices. He is currently reviewing the country's export strategy. Until the crash, Boon Rawd concentrated on the booming domestic market, with the result that its export volumes have barely reached 5% of total production.
Bhirom-Bhakdi said: "The main reason why export has been limited is because the domestic market has been a priority for us. No-one was really committed to the export side. "There is still a lot of room in most markets, especially the US. It's a huge market, it's a very open society and the beer market is at a very mature stage, with a rise in micro-breweries and imports. "They are shifting from the standard beers to more exotic types. That's where we come in. We have a fairly unique beer, which is unlike beers from this region. It is a lager with strength, taste and bitterness."
Whatever is decided, Boon Rawd is likely to capitalise on the booming popularity of Thai food. It estimates that there are 6,000 Thai restaurants worldwide. "We have benefited from that," he said. "We are using the popularity of Thai food as a way in."
Keith Nuthall
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