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By: Michael Schaefer

With Thai billionaire Charoen Sirivadhanabhakdi now in full control of Singapore’s Fraser & Neave following a US$11.2 billion deal, the outlines of a new competitive landscape in Southeast Asia have begun to emerge. The months-long standoff between Charoen and a group headed by Indonesia’s billionaire Riady family serves as a microcosm of this new environment, with vast, often family-owned conglomerates increasingly looking to expand well beyond their home markets.

The combination of F&N and Charoen’s Thai Beverage creates a powerful, multifaceted player in the region, with F&N’s strong position in soft drinks in Malaysia and Singapore (accounting from on-third and one-quarter of total off-trade volume, respectively, according to Euromonitor International estimates) neatly complementing Thai Beverage’s commanding position in Thailand’s growing alcoholic drinks market, where it accounted for more than 40% of total off-trade volume in 2011. While synergies are the first topic of discussion in any merger analysis, here the potential seems genuinely compelling, with F&N’s stable of powerful soft drinks brands complementing Thai Beverage’s position in beer and spirits. What’s more, one F&N’s most successful brands, sports drink 100 Plus, gives Thai Beverage a foothold in one of Southeast Asia’s fastest-growing categories, one where it has long struggled to gain traction. Finally, F&N’s 55% stake in Myanmar Brewery offers entry into one of the region’s most intriguing emerging markets, with the potential for massive expansion over the next decade.

Yet once again, the most striking element of the year-long lead –up to the final deal has been the degree to which it has been dominated by local players, often controlling local
brands. Following Heineken’s US$6.4 billion purchase of F&N’s stake in Asia Pacific Breweries in late September, the focus shifted entirely to a face off between two massive family-owned conglomerates, with Charoen Sirivadhanabhakdi on one end and the Riady family’s Lippo Group on the other. Going forward, this type of competition is expected to intensify, with nearly every major growth market in the region boasting one or more large, often vertically-integrated combines with a strong stable of brands and a well-developed distribution portfolio. Indeed, particularly in soft drinks, the situation is one where the largest global brands increasingly find themselves on the outside looking in. In the fastest-growing categories in the fastest-growing markets, it is local players who are leading the charge. Nowhere is this truer than in Thailand and Indonesia, where in high-growth categories like sports drinks, Asian specialty drinks, and RTD Tea, it is homegrown brands, like Sosro tea or M-150 energy drinks, which often account for the bulk of sales.

While it would be a massive overstatement to say that the global giants are in any way “losing” Southeast Asia, the path to profit is not getting any easier—the resources (and ambitions) of the largest local firms are immense, with regional (and even global) scale now very much within sight.

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