Bell Pottingers survey of Asias key financial markets found investors increasingly looking to raise their exposure to the UK

Bell Pottinger's survey of Asia's key financial markets found investors increasingly looking to raise their exposure to the UK

Having focused (virtually) on Brazil in his last piece, this month our correspondent Ian Shackleton travels to Asia. Here, the former analyst shares a few thoughts on how the region might take on the West when it comes to beverages.

  • Asia may yet have a role to play in the end-game in beer

At my new home [Bell Pottinger] we have just published a survey of Asia investor opinion, and it was rather well timed as we went live on the day that the UK announced the start of the Brexit process. Rather surprisingly to many, our survey in key financial markets in Asia found that investors are increasingly looking to raise their exposure to the UK, despite the political uncertainty which exists. As always in investment decisions, it is important to see this news in a relative context - although equally bullish on the US, we noted that there was coolness on the Eurozone, and respondents were cautious on their home markets as well as on China, due to concerns about global protectionism.

Our survey was mainly focused on institutional investors and brokers, but it is probably a good indication of corporate intentions in Asia. And it got me thinking whether some of my historic views about the future shape of the global beer industry might be open to question. For many years I wrote about a global beer industry that was going to follow the tobacco model in concentrating on four to five large global players, with most of those being based in the West, either in Europe or in the US. On first glance, the Anheuser-Busch Inbev purchase of SABMiller supported this trend, and has certainly led to the creation of a probably unassailable number one in global beer, with a share of the global profit pool of about a third.

But, on the other hand, it has encouraged some further fragmentation, and in particular it has allowed Asian operators to increase their presence. So Asahi has bought most of the European assets of SABMiller, and China Resources has bought out 100% of the CR Snow business. And there are other Asian brewers reported to be keen to expand their reach - such as San Miguel and its interest in Vietnam's Sabeco. Although, I would accept that it is not all one-way traffic as we saw Kirin exiting its disastrous purchase in Brazil in January.

And do not forget that global tobacco already has a major player based out of Asia in the guise of Japan Tobacco. It is not impossible that the mega-brewers of the future not only include the Western companies AB InBev and Heineken, but also have room for an Asian player.

If you would like a copy of our survey "How Asia views the West", please email me on ishackleton@bellpottinger.com

  • Western-style spirits still rule… but they may not always be under Western management

And in spirits, could it be the same? It is only a few years since Diageo was looking to buy up local spirit brands in Asia, such as Hanoi vodka in Vietnam and Shui Jing Fang baijiu in China. It looked like the large Western companies could dominate, by adding a portfolio of local brands to their already strong international range in the region. Diageo then looked at merging distribution of its local spirits in China with some of its international brands, but decided against it. Certainly the appetite for more local brand purchases in Asia looks limited.

Sure, most of the Western companies continue to have a strong presence in international brands in markets like China, although investors do not see these as offering quite the growth opportunity as they did a few years ago.

In the meantime, Japanese company Suntory established itself as a top-three player in global spirits with the Beam purchase in 2014. Interestingly, the company has talked about the opportunity from the deal to use Beam distribution to sell more Japanese whisky around the world, which is reminiscent of the language used when many Western companies bought local brands in emerging markets in the past few years. It also gave the company major exposure to the US spirits market, which probably looks to offer the most secure growth story of any global market over the next few years. And, also in 2014, the Philippines company Emperador bought out the Whyte & Mackay Scotch whisky business.

There are some other large spirits operators in Asia that have a lot of financial power but are still very narrowly focused from a geographical point of view. The market capitalisation of Kweichow Moutai, the largest baijiu company in China, is now GBP59bn (US$73bn), which is slightly ahead of Diageo at GBP57bn.

Now let us be clear - having sampled baiju on several occasions, which to me is definitely an acquired taste, I am not suggesting that it offers a serious threat to Johnnie Walker as an international brand; however, it is not impossible that we see more Asian companies as owners of Western spirits assets in future.

  • Even the position of Coca-Cola and PepsiCo may not be unassailable

Surely the hold of Western companies over global soft drinks looks secure and the opportunity for Asian investment here is limited? After all, The Coca Cola Co accounts for around a quarter of global soft drinks volumes, with PepsiCo as number two and Nestlé with its waters as number three. Yet the positions of Coca-Cola and PepsiCo may not be as secure as they first appear. Their strong market share is predominantly based on their strength in carbonates, a category that does appear to have gone ex-growth in developed markets, battered by health concerns - whereas there continues to be a growth opportunity in many non-carbonate segments. It is interesting, then, that Suntory Food & Beverage, as the highest ranked Asia-based operator, would claim the fourth slot in global soft drinks: Its portfolio is much less skewed towards carbonates.

Even in carbonates, the large American brands do not have it all their own way. When I was in Malaysia to do some of the interviews for the Asia survey, I happily partook of some of the Fraser & Neave carbonated soft drinks, now owned by ThaiBev. And of course F&N was once the bottler for Coca-Cola in Malaysia until they parted company, so they have presumably a good skillset in making such beverages. And they had put their own mark on some of these drinks - what I would usually call Ginger Beer or Ginger Ale has become Ginger Ade. But I happily finished the can and did not call for a Coke.

Ian Shackleton spent 25 years working as a beverages analyst at Nomura, Lehman Brothers and Credit Suisse. He is now a principal at financial communications company Bell Pottinger.

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