Interview: Jean-François van Boxmeer; Yoshinori Isozaki
The relaxation of sanctions has bolstered foreign interest in the fast-moving consumer goods (FMCG) sector. Why are international brands eager to re-enter the beverage segment?
JEAN-FRANCOIS VAN BOXMEER: Myanmar is an exciting place to be. It has all the ingredients to become an attractive destination for significant foreign direct investment: a stable political environment, as demonstrated in the recent elections; economic growth; a young and growing population; a trend of urbanisation; and an ambitious government and aspiring people. It is reminiscent of Vietnam 20 years ago. Today Vietnam is one of our largest markets.
More international brands will recognise this potential and, like us, invest ahead of the curve. Our new business recognises the potential. We want to grow with the country. We want to add value to Myanmar’s economy through our operations by supporting small and medium-sized enterprises (SMEs), such as millers, but also the smallholder farmers we buy rice from for our local beer brand.
Myanmar is a new opportunity for many firms. There is a limited number of local players in most industries, and big global companies are testing the waters. We moved quickly when the opportunity to invest in the country presented itself. We wanted to have first-mover advantage. We are building a business from scratch, in line with our global standards and ways of operating. We want to raise the bar in Myanmar in terms of safety and quality standards. This requires investment in our employees and our suppliers. We are committed to doing this.
YOSHINORI ISOZAKI: This market has huge long-term potential. We were lucky to be able to invest in Myanmar Brewery (MBL), which has been established for over 20 years here with a market share of around 80%, excluding smuggled beer. MBL has a very dominant position, and is well structured and well managed. However, although Myanmar has huge potential, it is very difficult for us to start a business from scratch here. That is why we were lucky to have an opportunity to invest in this company.
Myanmar has a very good beer culture for an emerging market with not necessarily 100% refrigerator ownership. They prefer to drink their beer cold but they don’t put ice in their glasses. So I like the beer culture of Myanmar – they serve beer chilled and also their quality is high.
The other thing is that usually the beer market grows according to GDP growth per capita in every country. However, in this market people drink a lot of beer. Usually in an emerging market, rich people drink beer and others prefer local, high-percentage alcohol. The more the economy grows, the more people shift to lower-alcohol products like beer. But in Myanmar, even though their income is not as high as in other countries, some of them drink as much beer as other countries’ consumers, so that is why I think we have a lot of potential here.
If those people had more money they would probably spend more on beer. They are not wealthy people but they drink a lot of beer. That’s a unique point of Myanmar’s beer culture. For MBL, we still have a lot of potential as well in terms of the population and also maybe economic growth.
Are rising incomes having an impact on the medium-term outlook for the beverage market?
YOSHINORI: There is a strong correlation. The more the economy grows, the more beer consumption will rise. For the last few years beer consumption has increased at a rate higher than GDP growth. We estimate that the market size is around 3m hectolitres, which is 300,000 kilolitres, so around 4 to 5 litres per capita per year. With income levels on the rise, consumption will increase by maybe one or two beers per capita in a relatively short period. You also have to factor in smuggled goods: as the market becomes more developed the government will be able to control the import of products more rigorously, which will translate into a bigger market for local producers. If you think about the per capita consumption levels of 30 or 40 litres in Thailand or Vietnam, you can see the huge potential here.
So I think that the growing economy will help in two ways. One is the simple correlation between beer consumption and market growth. The other is that market growth will definitely provide new types of outlets that will attract younger people, including women, to consume alcohol products.
VAN BOXMEER: Our experience in countries at a similar stage of development shows that as income rises consumers want to spend more on brands. Urbanisation is happening. The retail and hospitality sectors will grow, particularly new restaurants and bars. This creates opportunity. People will be looking for new experiences and high-quality, aspirational brands that they have an affinity for.
It will not happen overnight. Myanmar is a long-term investment. We entered Vietnam in the 1990s, and it took more than a decade to build a strong profitable business. Myanmar has the same potential. The country must continue to engage, learn and share ideas with its neighbours and the wider world. This will help ensure that its people will fully benefit from the opportunity.
Investing in education is vital. To grow, companies like ours need people entering the labour market that are willing to learn and have the capacity to excel in the roles we will offer.
In addition, the government must continue its focus on fighting bureaucracy, creating an investment environment that encourages long-term commitment from companies and being open with all parties on shared issues of concern. It must also put in place laws to facilitate trade and economic growth. It is important to continue to invest in infrastructure and encourage openness. We are seeing this in action. It needs to continue.
We are highly optimistic as there appears to be a drive to work towards a better future for all. Our experience in emerging markets is that there will be highs and lows; sometimes it will be two steps forward and one step back. A long-term view is needed. Myanmar will be an important country for Heineken for many years to come.
How will the operating environment in the beverage sector evolve with rising competition?
VAN BOXMEER: Competition is healthy. It makes us all work harder to win the minds and hearts of consumers. In Myanmar we are the challenger. There is already a large, well established player with strong brands that enjoys roughly 80% market share, but this does not dampen our enthusiasm to win in the areas we choose to compete in. We have a strong brand portfolio. Our success around the world has been based on building brands that connect with the lifestyles of consumers, on bringing innovations to the market and encouraging responsible consumption of alcohol. We will do this in Myanmar.
YOSHINORI: The competition will get more and more fierce, and we have to get ready for this. Globally in most markets there are only two or three players. Recently in the mature markets there are many craft beers, but the typical market situation is that there is a duopoly or three players.
Here we have Myanmar beer, Dagon beer, Mandalay beer, and now Heineken and Carlsberg, five major players. Fierce competition. However, it is good for consumers to have choice. It is not a big market yet, so perhaps unnecessary competition is a waste. I hope that we are going to have more healthy drinking. I personally would like to create a situation where beer can help people enjoy themselves with friends to make the world more sociable.
How can SMEs capitalise on expansion in FMCG?
VAN BOXMEER: SMEs can ride the wave of investment by multinational companies. They should quickly adapt and provide the quality of products and service that these companies demand. It is not easy, but it provides a fantastic opportunity. This often requires an upgrade of safety measures, quality checks and product specifications, but once an SME passes these tests it will have large numbers of potential customers. It is worth the investment.
We are contributing to this through our local operating company, and are training and supporting local SMEs. We also work with our suppliers, like rice farmers and millers, to upgrade their standards. We make joint action plans and support them with our knowledge and international best practices. We also implement our Supplier Code, which provides clear guidelines on what is expected of any company that works with Heineken anywhere in the world. All business partners need to sign the Supplier Code, and are audited. Those in Myanmar that meet these international standards are likely to be inundated with business opportunities. Those that don’t will find themselves on the outside looking in.
YOSHINORI: If major manufacturers grow, supporting industries can benefit. To capitalise, it is important that infrastructure – especially roads, bridges and connectivity – is improved. Beer is a mass-production industry. Even MBL has to sell a lot to make profit. It is a mass-production business.
So we have to produce more and in that sense, big suppliers can benefit. But for small enterprises like transportation and retail outlets or distribution companies – especially for the end-user or outlets and retailers – I think our effort to expand the whole beer industry would benefit them by stimulating consumers to try new beer. Unless we get better infrastructure, transporters and distributors will struggle from the cost point of view. Wages have been increasing significantly for the last couple of years. I think the worst-case scenario is that we deliver or distribute more products but less profits. That is a business-to-business concern.
What can be done to strengthen manufacturing levels prior to ASEAN economic integration?
YOSHINORI: There is room to improve. Decades of sanctions meant that people could not move around globally, so there is a lack of exposure. In terms of information, knowledge and skills there is still ground to make up. Beer is a very interesting product. There are many types of beer in the world, and people’s choice will become wider and wider. Myanmar will experience that as well. But at the moment it is difficult for us to brew different kinds of products. We don’t have as much flexibility as other global players. So we have to be careful because we have limited capacity to introduce very innovative products. However, in the future this market will follow others, and we need innovation in terms of quality, taste, packaging and so on.
VAN BOXMEER: It comes down to quality, reliability, safety and speed. This may appear straightforward but it is hard to get right. It isn’t about cheap prices. If the products are not reliable or safe, eventually you will lose. Myanmar needs to invest in production facilities and produce quality products in a safe environment. It has the ability to benefit from a lower cost base than many of its competitors in the region, but that is only relevant if it supports this with a steady supply of well educated workers and an investment-friendly regulatory environment. This can be achieved by engaging with companies that are willing to invest, discussing their needs, identifying issues and finding solutions for all. Spending time now on getting this right will ensure that Myanmar’s future will be one of sustained growth from which everyone can benefit.
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