Competition intensifying in domestic malt liquor market
KUALA LUMPUR: The country's two listed brewers have indicated 2011 would be a strong year after posting impressive earnings growth in the last quarter.
But the ways that would likely be achieved would be different as Guinness Anchor Bhd (GAB) has made huge strides in the domestic mass malt liquor market (MLM) while Carlsberg Brewery Malaysia Bhd sees its operations in Singapore and the premium MLM as drivers of growth.
“All of the fundamentals in the business were strong. We are spending record amounts on advertising and promotion (A&P), overheads and investing in the brewery. We are getting into a real solid place with the business now,” said GAB managing director Charles Ireland in an interview recently.
“We are very pleased at how things are going. My chairman smiles at me, which is nice.”
That solid place Ireland refers to is being reflected in the group's financial results. For the second quarter, GAB posted a 47% increase in net profit to RM64.6mil from the same quarter a year ago.
At GAB, full-year net profit has grown for three consecutive years while pre-tax profit has for 10 straight years, with jumps pronounced over the last few years.
Analysts are expecting GAB to post a net profit of RM173.3mil for its year ending June 2011 and RMRM182mil for financial year ending 2012.
The improvement in recent performance, according to Ireland, has come as the brewer revamped much of the way things were done. There were more staff hires of its sales force, senior people moved to different roles to freshen the approach of Guinness brands, salaries were increased and the brewer worked closely with outlets selling malt liquor.
“When I got here, we worked our brands individually and in silos. I got everyone to put their plans on the table and look at the interdependencies and differences between the brands,” he said.
He said the coming together of individual plans allowed the brewer to focus on what the individual brands stand for.
Promotion of the brands has been a big focus by GAB as Ireland said the company's investments in A&P, promotion and trade support was well north of RM100mil.
“It's investment. We have spent a lot of time to find what the drivers of our business are and what makes for a wise investment. When we get confident something will work for us, then we back it with scale.”
Football has been a big marketing channel for GAB, with it hosting over 700 viewing parties last year compared with four when Ireland first came to the job four years ago.
Associating beer with football has reaped dividends, but it does not end there for GAB. It's spreading the promotion of beer to other events, and one of the latest examples was its work during Oktoberfest.
“Three years we did not do Oktoberfest and two years ago we spent less than a million. Last year we might have spent RM3mil to RM4mil, and this year we spent more than RM10mil. This produced the biggest first quarter we have ever produced in our history,” said Ireland on the impact its A&P compaign has had on the group's financial performance.
At the same time, sales have also grown as the quality of its brew improved as money and effort was poured into improving the product. GAB has won a number of awards for its beer and stout.
“Tiger is growing about 20%, Heineken is growing in the teens and Guinness is back in very solid growth and the latest numbers are double-digit growth,” said Ireland.
For Carlsberg, its fourth quarter ended Dec 31 saw net profit jump 51.7% to RM30.5mil as profit in the period was predominantly lifted by the performance of Carslberg Singapore which Carlsberg Malaysia bought in the final quarter of 2009.
Stripping out contribution from Carlsberg Singapore, net profit grew 2%.
Analysts are projecting Carlsberg will report a net profit of RM143.6mil for its 2011 financial year and RM154mil for next year.
“Carlsberg Singapore has shown very encouraging growth in the past one year with positive growth recorded across all channels, including the modern channels where Carlsberg Singapore put more focus in 2010,” said managing director Soren Ravn in an e-mail response last week.
“Overall profit grew by more than 50% in 2010. Outlook for the Singapore beer market looks positive while Carlsberg Singapore continues to perform across the causeway. We will continue to be innovative and active to come up with good strategy on pulling the two businesses together.”
Ravn said the MLM in Malaysia had been growing positively and saw strong growth coming especially from the premium segment influenced by better market conditions and increased consumer sophistication.
“We believe that we will have another good year based on strong branding and commercial plan,” said Ravn.
“We aim to target a higher percentage of growth again this year and capture broader market segment throughout. With good performance in both Malaysia and Singapore, we expect to 2011 revenue and earnings to be consistent.”
The approach both are taking, however, is different. With GAB gaining market share domestically, it claims the group now commands around 59% of the MLM in the country at the end of last year. It estimates Carlsberg's share has fallen to 41%.
“Hopefully we will see a 10th year of market share growth. It keeps us trying harder,” he said.
Ravn said Carlsberg's market shares was fairly stable over 12 months rolling period which is also confirmed through the Nielsen Retail Audit figures 2010.
He said Carlsberg Malaysia has successfully tapped onto the big opportunity in the premium segment and in Hoegaarden, it has the best selling imported beer and the fastest growing super premium beer brand in Malaysia.
“We outperformed the market in this segment and gained some good market share in 2010,” he said.
But when it comes to the flagship brands, GAB is confident its Tiger brand will eventually dominate in Malaysia.
“I can see a day when the Tiger brand alone is bigger than the entire competitor's company. It's getting close now,” said Ireland.
“I know their business number and we are getting into the territory.”
Ravn disputes that, based on assessment of the market during the latest Chinese New Year period.
“Carlsberg has again proven to be the leading brand. Carlsberg is also the preferred brand among the Malaysian drinkers confirmed through Millward Brown for full year 2010. The figures show that one out of every two drinkers prefer Carlsberg beer versus all other brands that's available in the market,” he said.
Another reason for the strong financial performance of the breweries has been the growing consumption in Malaysia.
On a hectolitre basis, consumption is approaching previous peaks seen years ago.
“We are now on the upstroke again but that ignores population growth. There are more consumers now then there were 10 years ago,” said Ireland. “In the beverage market, people generally drink a bit more the more developed the country is. As people move from poverty to the working class to middle class and have more disposable income, what they spend a bit more on is alcohol.”
Ireland thinks the growth of the MLM market will track GDP growth, unless there is a major excise tax increase in the future.
He does not think the better performance of the brewers should be an excuse for a future big excise tax increase. Such tax increases are passed on to the beer drinkers, who right now, based on GAB's estimates, pay RM1.4bil in such taxes a year.
Another reason is that excise duties on beer in Malaysia is the second highest in the world while per capita income is not.
“Malaysian consumers have to bear a huge tax burden already and our view is that it would be prudent to let the rest of the world catch up and at a point when Malaysian taxation is in line with other countries in Asia versus per capita income,” he said.
“The Government has taken the next 10 years worth of increases already.”
Ravn does not think there should be a fresh excise tax hike given the high rates being levied on consumers.
“We believe that the Government will not increase the excise duty as it will affect our tourism industry which is the key focus area in the Economic Transformation Plan,” he said.
