Comment - Soft Drinks & Water - Asahi in Expansion Mode

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As its Japanese home market struggles to expand Ray Rowlands of Drinksinfo Ltd looks at the recent overseas ventures that the Asahi Group has undertaken in its hunt for growth culminating in its latest foray, this time in the Indonesian soft drinks arena. 


As Japan’s biggest beer producer, you'd be forgiven for thinking that Asahi is best known for its brewing activities. However, the group’s interests also extend into spirits and wine but, more significantly, Asahi is a major player in the soft drinks industry. Its soft drink operations cover a range of product categories including soda, bottled water, juice and also health drinks. In fact, soft drinks account for around a quarter of group net sales value and this contribution is growing year-on-year.

Understandably, Japan represents a major chunk of Asahi’s total beverage business. But, this market is facing a number of issues that are inhibiting future growth. The country’s already-mature beverage industry is under pressure as a result of the aftermath of the global economic meltdown, coupled with the impact of an aging population. Japan is understood to have the highest proportion of elderly citizens of any country in the world, with more than 20% aged 65 or over. The combined effect of such negative influences has led to stagnating beer demand and a soft drinks market that is struggling to gain forward momentum. Competition is inevitably fierce and profit margins are being squeezed as a result of an established price-cutting trend. As if this wasn’t enough, the rate of sales tax is due to be increased next month from 5% to 8%.

In Asahi’s favour, the group is financially solvent, with annual net profits close to JPY62bn (US$603m), according to its 2013 financial report. It was this funding that facilitated the 2012 purchase of Calpis from Ajinomoto, raising the group’s ranking in the domestic soft drink market. Yet, whilst the purchase of the range raised Asahi’s profile at home, the group’s long-term strategy is to grow its business outside Japan, with the ultimate aim of becoming one of the world’s leading beverage suppliers.

This is a strategy equally being pursued by rivals Kirin and Suntory, which has seen all three players involved in a wave of acquisitions as the state of their domestic market has worsened.

Predictably, considering its origins, Asahi’s initial focus has centred on Asia Pacific. The group has undertaken a number of takeovers and joint ventures in the region in recent years to improve its platform for overseas expansion. In 2009 came the high-profile purchase of the Schweppes business in Australia followed by the absorption of the bottled water and juice activities of P&N Beverages in 2011. With Schweppes also being the bottler of the Pepsi range and the second largest soda company in Australia, these assets presented Asahi with a massive share of the Australian beverage market. This made it a close competitor to Coca-Cola Amatil, the country’s leading soft drink company. Across the Tasman Sea, in the same year that it acquired the P&N business, Asahi also bought the New Zealand Charlie Group, a leading fresh juice provider also active in the bottled water and soda business.

The acquisition of Permanis of Malaysia, which was completed towards the end of 2011, subsequently enabled Asahi to establish a base in South-East Asia and strengthen its ties with PepsiCo. Permanis had been instrumental in building the Pepsi business in Malaysia, making it into one of the top three operators in the country’s soft drinks market, behind F&B Beverages and Coca-Cola Malaysia. Permanis has made substantial investments in manufacturing, marketing and distribution since the Asahi acquisition as the Malaysian soft drinks consumption itself grows at a rate of 5% to 10% annually. It was also in late-2011 that Asahi’s affiliate company in China, Tingyi-Asahi Beverages (TAB), entered into a strategic alliance with PepsiCo, with TAB becoming PepsiCo's franchise bottler in China. The agreement is viewed as a ‘win-win’ situation as Tingyi’s distribution network broadens placement opportunities for PepsiCo’s products, while Tingyi’s portfolio is enriched with the addition of PepsiCo’s heavyweight brands. The US company holds around a third of the Chinese soda market.

In 2012, Asahi formed a joint venture with PT Indofood, a major player in the Indonesian food industry, with the aim of establishing companies to manufacture and market non-alcoholic beverages. The following year, the PT Asahi Indofood Beverage Makmur and PT Indofood Asahi Sukses Beverage subsidiaries completed the acquisition of PT Pepsi-Cola Indobeverages (subsequently renamed PT Prima Cahaya Indobeverages). The company is not a major player in this country’s soft drinks market, but still provides a useful foothold and, following an established theme, presents an opportunity to further tighten relations between Asahi and PepsiCo.

In the same year, Asahi and PT Indofood took control of the Tirta Bahagia Group, one of Indonesia’s top bottled water producers. Bottled water is the largest soft drinks category in the country and Indonesia, in turn, is one of the top ten bottled water markets by volume in the world.

Yet despite its string of recent acquisitions and partnerships plus a 22% increase in overseas net sales (all products) in 2013, Asahi is still said to lag behind both Suntory and Kirin in respect of revenue earned from foreign operations.

More overseas ventures must inevitably follow if Asahi is to catch up with its two Japanese rivals on the world stage as opportunities at home are squeezed even tighter.

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