The race to quench Southeast Asia’s thirst is on, but can Coca-Cola create enough fizz in the soft drink market?
By Philippe Beco
Myanmar, Cuba and North Korea have long been in the doghouse as far as American beverage companies are concerned. Yet Myanmar looks set to be welcomed back into the fold, with Coca-Cola Company planning to officially re-enter the previously isolated nation once the US government issues a general licence allowing US companies to invest in the country.
With a strong history of entering markets early, Coca-Cola’s return to Myanmar after a 60-year hiatus will further extend its reach in a dynamic and promising region. Rising disposable incomes, changing consumer spending habits and the spread of globalisation spells good news for the beverage industry in Southeast Asia, home to 600 million people.
Yet while the region offers a potential goldmine of new soft drink consumers, Coca-Cola, which has enjoyed unprecedented success in other parts of the world, has found Southeast Asia a harder nut to crack. Competitive and sophisticated, the region’s beverage market is “very complex and segmented”, says Laurent Notin from market research company, Indochina Research.
Besides competing with global brand names such as long-time rival Pepsi, Coca-Cola also faces stiff competition from established, successful Asian producers. Singapore’s Yeo and Pokka, Thailand’s Oishi, Malaysia’s F&N and the Philippines’ URC have developed a wide range of ready to drink (RTD) teas and coffees, Asian fruit and sugarcane juices, and soy drinks that cater specifically to the Southeast Asian palate and as a result enjoy commercial success.
“The local power players have held sway for a long time now,” says Olly Wehring, managing editor at just-drinks, an online news service for the global drinks industry. “The growth that Coke, Pepsi and their likes have become so used to in the West with their flagship international brands does not really work on the same scale in the markets in Southeast Asia.”
Differing lifestyle habits and strong local food traditions in the region make it a completely different market, with unique spending preferences. “[Asian cultures] offer challenges to brand owners as consumers are used to eating out many times during the day, and as such the wide availability of freshly made local beverages sold in hawker centres, food stalls and on the street remains core to the local consumption culture,” says Philippe Chan, Asia regional accounts director at Canadean, a UK-based marketing consultancy.
In Thailand and Vietnam, Coca-Cola is grouped as one of ten of the most popular brands that, combined, account for only 56% of the market. That figure drops to 52% in Indonesia, which has an increasing dependence on bottled water, meaning Coca-Cola individually ranks third, behind Danone Aqua, which tops the charts with a 38.6% market share, and cold tea specialist Sinar Sosro.
“Given the relative low income level and water hygiene issues, water remains one of the largest and fastest growing categories for packaged products,” explains Chan. However, as low pricing places pressure on margins, companies are focusing on developing higher margin categories such as RTDs with natural ingredients, juice drinks and Asian specialty beverages, as well as functional beverages such as sports and energy drinks, he says.
The region’s idiosyncratic tastes and habits certainly offer scope for innovation. Launched in Southeast Asia last year, Alo is an aloe-based drink that claims high levels of rehydration and was the recipient of the global innovative beverage of the year award in 2011.
In Vietnam, a family business spotted the potential of the region’s high margin market more than ten years ago, when it launched its massively successful energy drink Number One, followed by Zero Degree green tea in 2005 and Dr Thanh herbal tea in 2009. By cornering this niche market early, Tan Hiep Phat has grown into the country’s leading drinks company with 21% market share, knocking PepsiCo off the top spot, leaving URC, another RTD tea maker, in third place and Coca-Cola scrambling in fourth place with just 10.1% market share.
While Coca-Cola enjoys a more comfortable position in the Philippines, where it holds Wilkins and Viva, the country’s main water brands, and in Thailand, thanks to a large portfolio that includes Sprite, Fanta and Minute Maid, competition is heating up. Suntory, a Japanese food and drink group, recently launched the Mirai range of green teas through its Thai affiliate, Tipco, the country’s largest fruit juice maker. The teas come in unusual flavours, including honey and lemon and cherry blossom, and were developed specifically for Thai tastes.
“Each country in Southeast Asia has its own unique taste, preference and style of soft drinks,” says Karen Stanton of International Flavours & Fragrances Inc, a creator of scents and tastes used in a range of consumer products. “For example, Indonesia and the Philippines are dominated by powdered soft drinks while Thailand is more focused on functional soft drinks, with ingredients supporting beauty being particularly evident.”
However, with some 125 years under its belt and no stranger to competition, Coca-Cola has a number of strengths it can draw on to gain a strong position in the race to quench thirst in Southeast Asia. A marketing behemoth, it is well versed in fostering the loyalty of young urban generations who see fast food and carbonated sodas as a status symbol. Last year, the winner of Thailand’s Coke Music Award was given the chance to write a song with US pop-rockers Maroon 5. The brand was also the main sponsor of SoundFest, a music festival in Ho Chi Minh City that attracted more than 40,000 people last April.
In a region where corner shops are king (in Vietnam small sellers accounted for a 63% share of off-trade sales – made in shops rather than sales in drinking establishments – in 2011), Coca-Cola’s solid distribution network will reap rewards, says Notin. “Coca-Cola’s strength lies in its strong presence in all channels, from mobile stalls on motorbikes to mini-marts,” he adds.
This variety of selling points makes it crucial for brands to have a range of packaging formats at their disposal. “Across most Southeast Asian markets, returnable glass bottles are still seen as an entry level offering to many traditional eating outlets and general stores; whilst in food courts we are seeing more fountain dispenser solutions being offered by brand owners for their products,” says Chan, adding that the emergence of convenience stores will facilitate penetration of packaged products.
On the product development front, Coca-Cola is boosting efforts to narrow the gap on the booming ‘natural’ RTD market with Real Leaf, a tea brewed from 100% whole green tea leaves that was launched in the Philippines in 2010 and in Vietnam last year. In an attempt to secure a spot in the sports and energy segment, the company has recently launched Samurai, a vitamin packed soda, in several Southeast Asian countries, where it also sells its fruit-based drink Maid Pulpy – the first drink that Coca-Cola specifically developed in and for emerging markets.
“The company has shown a more aggressive approach in promoting new brands in recent years, especially in Indonesia and Vietnam,” says Yulia Fransisca, a research analyst at Euromonitor Singapore.
The company, whose global operating income reached $10.15 billion in 2011, can bank on its sound financial resources to develop its Asian brand portfolio through the acquisition of local producers. However, with stiff competition, it won’t be an easy victory.
In March, Japanese beverage group Kirin Holdings scaled up its majority shareholding in Interfood Shareholding Company, the Vietnamese business behind the Wonderfam drinks range. The move followed the $970m acquisition of a 14.7% stake in Singapore’s Fraser & Neave, the owner of the 100 Plus and F&N brands, as well as Tiger and Anchor beers. In July last year, Suntory established a joint venture with Indonesia’s Garuda Food Group to develop business there, and a month later it established a firm in Singapore to facilitate more mergers and acquisitions in the region.
“Companies will be looking at potential acquisitions and brand extension with existing local partners,” confirms Olly Wehring. “Southeast Asia will remain a colourful beverage market for several years to come.”
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