Market research
Long considered a colourful place to do business, Asia has grown increasingly important for soft drinks companies who are chasing growth. Richard Corbett takes a look at the region and finds that the perceived risk is most certainly worth taking.
Taking the rough with the smooth is a pre-requisite for success in Asia
It has been an expensive November for Tetra Pak in Asia. Last week, the company announced that it will spend around US$110m on a new facility in Vietnam. The site represents a sizeable investment for Tetra Pak, and is a considerable endorsement of the opportunities available from the Association of South-East Asian Nations (ASEAN) and the Australasian markets that the site will serve. Around the same time, the firm confirmed that it would not appeal a near-$100m fine imposed by the authorities in China.
Both pay-outs serve to highlight the importance of the region for the future growth of the soft drinks category.
The ASEAN region comprises the ten states of Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. It accounts for 3% of the world's land mass and nearly 9% of the world's population. If the region was one economy, it would be the world's sixth-largest.
Economic expansion is a key aspiration of the ten countries, and considerable efforts are made to facilitate companies coming into the region. ASEAN is gaining a reputation as a good place to do business. Not surprisingly, many are seeing this well-organised trading bloc as becoming a safer bet for investment, especially as some of the so-called BRIC markets have lost their economic vibrancy in recent years.
The soft drinks industry is no different.
With today's Vietnamese juice nectar still drink market (JNSD) representing a relatively modest 1bn litres and the dairy, soy drinks & milk alternatives market approaching 2bn litres - according to Canadean - Tetra Pak is clearly looking at the bigger picture. Vietnam will be the hub of a large export operation for the group, reaching out to more than 600m consumers.
Of course, Tetra Pak does not just pack beverages but, with the help of Canadean's numbers for Cambodia, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam, we can begin to build up an indication of why the company is prepared to spend big in the region. The carton-dominated JNSD category (including iced tea) accounts for more than 8bn litres per year, which equates to over 20bn packs. Last year, the sector added more than 400m litres (over 1bn packs), representing a healthy year-on-year growth of 6%. Over the last decade, this market has more than doubled, in volume terms.
The sums for dairy drinks, meanwhile, look even better. The market for milk-based beverages in ASEAN is just shy of 10bn litres per year, and is rising even more rapidly. Last year, growth was 7% and, in the last ten years, demand has risen by 74%.
To assess the future potential in the region, one need only consider how low per-capita consumption in these markets is for these beverages. The average annual dairy beverage consumption is below 20 litres per capita; JNSD is lower still, at less than 15 litres. Consumers drink half the dairy drinks of the average global consumer, and 5 litres less JNSD. There remains plenty of slack in the market, then, and Tetra Pak will be hoping to grow with it.
If ASEAN consumption levels come even close to replicating the drinking habits of the Antipodeans (who will also be serviced by the new factory), then the prospects are brighter still. Australasians drink more than 100 litres of dairy drinks each and nearly 30 litres of JNSD. Unfortunately, Australasian consumers are drinking less dairy and fruit--based drinks today than previously, but this often means that they are spending more on their refreshment, giving the likes of Tetra Pak the opportunity to market more premium pack formats.
Tetra Pak's Vietnamese outlay, therefore, would appear to be more than justified by these figures. They also justify the group's decision to swallow the fine in China, imposed for an abuse of its dominant market position in the country.
Although Tetra Pak was 'convinced' that it had been compliant with the competition legislation of 2008, the group will not be appealing the fine. The main reason for this stance? The Chinese dairy drink and JNSD market is well over three times that of the ASEAN region. Tetra Pak cannot be seen to be kicking up a fuss that could compromise its position in a market where it hasa have been established for more than 40 years.
Historically, there has been a perception among some international businesses that China metes out unequal regulatory treatment on foreign companies, compared to domestic players. To have access to such a potentially lucrative marketplace, the theory goes, sometimes one must grin and bear it. The lessons learnt from the ill-feted joint venture between Hangzhou Wahaha Group and Danone seven years ago appear to have been heeded. Tetra Pak has taken the rap across its knuckles and returned to business as (nearly) usual.
Tetra Pak's expenditure in Asia this month has been spent in two polar opposite different ways. Ultimately, though, both represent money well spent.
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Sectors: Emerging markets – BRIC, Legislation, Soft drinks, Water
