About: Heineken N.V.
The world’s major beer brewers are all facing the same problem. As their tradition al markets become increasingly saturated, sales in these regions are slowing down, which means these companies must develop new markets in order to sustain growth.
Heineken (OTCPK:HINKF), the world’s third largest brewer, has set its sights firmly on Asia.
After completing the takeover of Asia-Pacific breweries a few years ago, Heineken is now looking to enter Myanmar.
The company’s move to engage this largely unexplored market is likely to help sustain organic sales growth going forward.
The country formerly known as Burma is one of Asia’s most secretive. For decades, it struggled under the rule of a military dictatorship that largely isolate its population from the res of the world.
Although the country’s armed forces still hold a considerable amount of sway in national politics, the last few years have seen a shift towards a more open stance on tourism and con- sumerism.
The government’s slow but steady move towards liberalization is expected to benefit the country’s population of 53 million, one of Southeast Asia’s largest.
According to Euromonitor, the middle class is expected to more than double in size by 2020, which offers lucrative opportunities for companies willing to take a gamble on this frontier market.
At the moment, Myanmar’s beer market is in its infancy. Heinken estimates that the company’s average beer consumption per per- son is only 3 liters per year, less than 10% of the aver- age in Vietnam, which is now Heineken’s third-largest market behind Mexico and Nigeria.
Beer sales in Myanmar rose 14% between 2009 and and 2013 and are expected to hit $675 by 2018. At the moment, some 80% of the adult population drinks beer produced by a com- pang linked to the military, leaving plenty of room for market share gains.
However, Heineken is not the only company that has its sights set on Myanmar.
Carlsberg earlier this year opened a $75 million brewery in the country, which will offer competition to Heineken’s new $60 million facility producing a beer called Regal Seven.
Heineken hopes that this brand will provide a stepping stone to its pricier offerings.
Heineken has shown in the past that it is serious about expanding into new markets, especially in Asia.
However, this may also be due to the fact that it is more in need of new growth drivers than its competitors.
In 2014, Heineken delivered organic revenue growth of 3.3%, versus AB-InBev’s 5.9%. Going forward, its estimated 2016 organic revenue growth of 3.9% is lower than both AB-InBev’s 4.5% and SAB-Miller’s 8.2%, according to Berenberg.
However, its relatively early entry into Myanmar could very well turn the tables on its two larger competitors, if the company’s huge success in Vietnam is anything to go by.
Heineken has a proven track record of success in Asia, and management clearly sees further opportunities in Southeast Asia specifically, which is quickly becoming one of the premier growth regions for the industry.
Last year, Asia Pacific overall contributed some 11.6% of Heineken’s group revenue, a figure which is likely to grow as it continues its capacity expansion in established markets and the development of new markets on the continent.
As brewers are increasingly turning towards the East in order to sustain growth, Heineken has set its sights on the frontier market of Myanmar. With the beer market there still in its infancy, and at the moment largely dominated by one major player, there are plenty of opportunities for growth as the middle class is expect¬ed to balloon over the next few years.
Heineken’s early entry in the space should allow it to profit from Myanmar’s slow but steady move towards liberalization, helping it to achieve the growth it needs to remain competitive.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
REF : SEEKING ALPHA
Source : The Traveller Vol 3, No.6 From July20 To 26, 2015