Heineken, one of the world’s largest brewing companies, is back in the Burmese market 20 years after its first attempt, when they had been condemned and sanctioned by the country’s former military rulers. They are now challenged to expand into a market with intense competition but incredible potential.
As it enters Myanmar, Heineken is also racing with its European competitor, Carlsberg, a Danish brewer. Being the third and fourth largest brewers in the world by sales respectively, the fight between two companies is proving to be intense.
Heineken opened a manufacturing site last Sunday, which emphasizes this tension as Carlsberg had opened its own site only 2 months earlier.
As Myanmar turns from a no-go zone to a coveted new market, the brewers around the world have their eyes on the country Roland Primez, Heineken’s president for Asia Pacific, said that it is very clear there is a huge potential for growth in the Myanmar beer industry, and that it is not surprising all the international players are looking at the market.
The region is very attractive because of its youthful population, and as both companies’ sales slag in European markets, international expansion is now more important for Heineken and Carlsberg than ever.
However, the two European brewers are also faced with big challenges that will not be easy to overcome. “Breaking into a market in which the incumbent is a state-owned monopoly is difficult and can be expensive,” says Javier Gonzalez Lastra, an analyst at Berenberg.
“Heineken should be prepared to make losses initially to make money over the long term, because Myanmar has huge growth potential.”
Indeed, Myanmar Brewery has a very strong presence in the market with a market share of around 80%. It now manufactures at the site Heineken left behind during its earlier tenure and is 45% owned by Union of Myanmar Economic – an opaque conglomerate that is closely related to the military and now trying to buy out its joint venture partner, the Singapore-based and Thai-owned Fraser and Neave.
Furthermore, the locals’ consumption habits will prove a challenge to overcome. Heineken estimates that Burmese people only drink 3 liters of beer per person a year, representing not even a 10th of the figure in Vietnam. Heineken’s brewery sites near Yangon have the capacity to produce almost 2 liters per person for each of the country’s more than 51 million people.
Both Carlsberg and Heineken have shifted their focus from Eastern Europe to Asia and are operating through joint ventures with local partners. Given that locals earn just a few dollars a day and that local beers cost on average 50 cents, Heineken and Carlsberg’s ambitious plans will pay off only in about 3 to 6 years. They believe the long term prospects are worth the wait.
Although the competition in this new market looks tough, battling in Asia is nothing new to the European brewers: Heineken was challenged to win control over Asia Pacific Breweries in the past, while Carlsberg’s joint venture in Thailand with ThaiBev ended acrimoniously in 2005.
“It’s not the first time for us that we face this kind of leading company and competitors,” says Heineken’s Mr Pirmez. “It will be tough – but fair.”