Indonesia: Ban on sales of drinks in convenience and other small stores to hit global brewers Heineken and Diageo
Heineken and Diageo are braced for sales of beer in Indonesia to go flat when a government clampdown comes into force on April 16 that could affect half the country’s beer sales, The Financial Times reported on April 13.
Diageo, the world’s biggest spirits company, has called on the government of the world’s fourth-most populous country to postpone the controversial ban on sales of drinks with less than 5 per cent alcohol volume — mainly beer — in convenience and other small stores.
The decision, announced in January, is another setback in the markets on which global drinks companies are increasingly pinning their growth hopes.
Several emerging markets have shifted from promising to problematic lately, notably China, where sales of expensive cognac and whisky have fallen sharply following president Xi Jinping’s anti-corruption drive.
This has hit profits at drinks groups, including France’s Pernod Ricard and Rémy Cointreau. China’s clampdown on extravagant spending has also led to a drop in beer sales because fewer people are eating out.
The Indonesian government says its measure is aimed at reducing under-age drinking and loutish behaviour outside minimarkets. But the decree is also seen as another sign of the rising influence of Islamic groups in a country that is home to the world’s largest Muslim population.
Amsterdam-based Heineken has a roughly 70 per cent market share of beer sales in the former Dutch colony through its majority-stake in Multi Bintang, producer of Bintang local beer. It also brews Diageo’s Guinness under licence.
Heineken called the ban — which will affect an estimated 55,000 small retail outlets that sell about half the country’s beer — “an extreme measure” that was unlikely to solve the problem of underage drinking.
The hit to sales for Heineken and Diageo in Indonesia is likely to be “significant, but small in the context of group sales”, said Sanjeet Aujla, analyst at Credit Suisse. Indonesia is estimated to account for less than 2 per cent of each company’s total sales, but the domestic beer market has been growing at 5-6 per cent a year, according to the International Wine and Spirits Record, the London-based drinks research group.
Indonesia’s Brewers Association decried the lack of dialogue with the industry, saying the regulation “threatens to undermine Indonesia’s attractiveness for investors” and would be bad for tourism, especially in Bali, Jakarta and other visitor hotspots.
Diageo, which has highlighted Indonesia as a growth market, urged the government to delay the measure “for at least another 12 months, so that workable solutions can be reached with multiple parties to achieve the government’s objectives, such as tackling underage drinking”.
The London-based producer of Johnnie Walker whisky and Smirnoff vodka said the ban could increase the risk of illicit alcohol consumption, responsible for hundreds of deaths a year, because large tracts of Indonesia are not served by the larger supermarkets that are allowed to sell beer.
The Southeast Asian drinks market has proved rough going at times for multinationals confronted with varied and changing regulations, anti-alcohol religious sentiment and entrenched local rivals.
Advertising restrictions in Southeast Asian countries have hampered the international drinks groups that want to challenge popular local products.
In Thailand, where protests by Buddhist monks and anti-alcohol campaigners forced ThaiBev to suspend an attempt to list on the stock exchange in 2008, drinks-makers are not allowed to depict their products in their publicity.
15 April, 2015
