Trouble is brewing in Cambodia. The country’s second beer factory will come on stream later this year, and plans are already being drawn up for the almighty marketing battle that will ensue. Some of the 48 brands now pushed at consumers are certain to fall in the fray.
At the front line will be Angkor lager, now brewed in the southern port of Sihanoukville by Malaysian joint venture Cambrew, and Tiger, which should roll out of Asia Pacific Brewery’s US$46 million plant from September.
"This year we are making lots of money and building up our war chest," said one Cambrew executive. "Next year it will be all-out war. Between us we will kill most of the imported brands in about six months. Then maybe we will sit down with Tiger and talk."
All-out war is a scary prospect in what is already probably Asia’s most viciously competitive beer market. Importer after importer complains of astronomical promotional costs and gossamer-thin margins. "But if it has to be ‘you drink one bottle, you get one free’ for a while to maintain our market, then we are ready for that," the Cambrew executive said.
Brave talk in the industry obscures who is really selling what. Rick Linck, general manager of Asia Pacific’s Cambodia (APB) Brewery joint venture, estimated that its brands – ABC Stout and Anchor as well as Tiger – presently held 50 percent of a total market he said was between 22 and 25 million liters a year.
With 10 to 15 percent a year growth forecast for the entire market and ambitious plans to capture up to another fifth of the country’s beer sales, Linck said he saw no difficulty in keeping his 17 million liter plant busy in its first year and expanding it to 26 million liters by the end of 1997.
He would do well to expand sales from the 10 million liters presently imported as fast as possible. The ingredients shipped in for the beer (and everything but the water will have to be imported) will be duty free for one year, then rack up tariffs of between 35 and 50 percent.
Meanwhile, Angkor marketing manager Saysana Phommasy claimed a 60 percent market share of the market for its domestically-brewed brands. And customs department records showed imports of 18.6 million liters a year in 1995. It does not take a mathematical genius to see that the figures do not add up.
"In every figure there is a kind of truth," said Linck. He refused to give a brand by brand breakdown, but a fair whack of APB’s 50 percent market share is likely to come from ABC. "Not to be arrogant, I think I can safely say we are the stout market," he said, with an immodest grin.
Cambrew meanwhile, seems to be basing its own 60 percent market share assessment on the lager market alone. It hopes to change that. While it does brew some stout under the Angkor label, it is its recent import deal with Guinness that will probably dent ABC’s supremacy.
The import figures, too, are misleading. Much of what comes in to Cambodia, where import duty and other taxes add up to some 64 percent, finds its way over the porous Vietnamese border into a thirsty market whose own taxes, if paid, would be nearly three times that much.
"There is transshipment, but it is impossible to know how much," said Chua Qwong Liang, whose Lubritrade Trading is the sole importer of Belgian beer Stella Artois. "We pay our taxes on imports, give it to our distributors, and say ‘OK, that’s your area; we don’t want to know about it’."
The smuggling market may shrink if the government acts on what Phnom Penh businessmen said was a tacit agreement to support domestic breweries by upping import duties. "I am 100 percent sure that the government will move to protect local production," said Cambrew’s Saysana.
Importers groan at the thought. "Our margins are already this thin," said Lubritrade’s Chua, holding his thumb and forefinger a hair’s breadth apart.
Such is the scramble for market share that most importers distribute goods on consignment, only getting paid for their first order when the second order is made. "We have to pay the tax as soon as we import, but we ourselves don’t get paid for months and months. Sometimes not at all," said Pen Bunthoeun, sales executive responsible for Budweiser beer at Tan Ching Hak Cambodia.
Many importers privately admitted that the "not at all" payment hiccup comes more frequently than just sometimes. Some companies try to close the aching gap in cash flow by setting a time limit on consignment goods. "If retailers do not sell (the product) in two weeks or a month, they return it to us," said a sales executive at Szetah, which imports Carlsberg. But everyone plays the game.
"We can’t afford not to take the risk, because if we don’t, someone else will," said Lubritrade’s Chua. Keeping up with the competition at all costs is also the motor that drives the industry’s lavish promotional engine. Besides squadrons of "beer girls" there are the umbrellas, the pens, the cash prizes hidden under bottle tops, ring pulls or scratch cards, the gifts for the bride and groom who choose to serve a certain brand at their wedding.
Not surprisingly in this cut-throat world, few are willing to discuss in any detail what they spend on promotion. Tiger put its advertising budget at between US$2 million and US$3million, while Cambrew said about a fifth of the cost of a bottle of beer was made up of promotional spending.
For new imports, the proportion is much higher, and many of the 48 brands on the market will probably drop out over the next year. "In purely economic terms, around a quarter of that number would be comfortable," estimated Linck. "But there may be other reasons, such as just spending money to increase market share."
Just spending money may seem an odd business goal, but in a country like Cambodia, which is strong on cash and weak on banking regulation, it can be an easy way to launder money.
Whatever the reasons, high priests of the Adam Smith school could use the Cambodian beer market to illustrate one of the sermons of free market philosophy: Competition is good for the consumer.
Waving at a rack of premium beers from all corners of the globe, each can priced at US$0.80 or less, one Phnom Penh resident mused: "What more could you possibly want?"
Copyright 1996 Asia Times.
(c) 1996 Chamber World Network International Ltd.