Jul 7, 2013

Thaibev to spend 1.2Bn baht on sports marketing in 2014


Thai Bev Marketing Co plans to spend 1.2 billion baht (about S$50M) on sports marketing in 2014 to internationalize Chang's image and attract global drinkers. According to Senior Marketing Manager Khun Lathitham, it will be a 20% increase in promotion costs from 2013.

For readers who follow the English Premier League, they would have seen the name Chang proudly emblazoned across Everton's jerseys. Chang beer is also the official sponsor of popular clubs Barcelona and Real Madrid, as well as the Thai national football team. For many sports fans, especially football fans, beer goes hand in hand with watching a game.

Although no plans have been revealed, it is expected that Chang will have a role to play in the Fifa World Cup next year. Thaibev is gunning for accelerated growth by tapping F&N's strong business network in the ASEAN region.

Thaibev has spent money in music marketing via GMM Grammy domestically, and to reach drinkers globally, sports is the right channel. Chang is heavily dependent on marketing campaigns due to the nature of its business.

We can recall that Chang beer was reasonably successful at an early stage in 1995. It was able to enter the market with advertising and public relations and bump the market leader, Singha off to play second fiddle. The low selling price of Chang appealed to the people, who had diminished purchasing power in the economic crisis of 97. By 2000, Chang commanded a market share of about 60%.

The ASEAN Free Trade Agreement threw a spanner in the works as it came into effect in Jan 2010. It eliminates tariffs on imported beer from ASEAN members. It allowed foreign brews better access to the Thai market. Just 2 years before that, in 2008, Chang lost its market leader position to Singha. Chang has since embarked on aggressive marketing campaigns in sports and music activities. Chang currently holds about 30%, behind Singha at about 60%.

To put a sobering note on this, we recall the 1Q13 update on Thaibev's international business. In 1Q13, it reported a decrease in sales of 17% over 1Q12, with the bulk of the decline caused by Scotch whiskey and YLQ spirits in China.

Thaibev will be spending heavily on marketing, not just for Chang, but also for its young line of non-alcoholic drinks under Serm Suk. It is interesting to note that Singha introduced a new line of beer, Leo, as well as into non-alcoholic beverages such as water and sodas back in the 90s as it was losing out to Chang.

We should be expecting tamer results from the upcoming updates because;
1. Some whiskey sales were one-off in 2012.
2. Entertainment budget caps in China.
3. Weak distributor depletion in USA

Beer segment does not enjoy the fat margins enjoyed by liquor, and while the baht is expected to weaken, I hope volatile swings are minimized. Exporters, do not simply benefit from a weak currency, but a stable currency. The strengthening of the baht had been deflated by relentless foreign outflows without the central bank having to intervene much. Hopefully, this and the dollars thrown at marketing will prove fruitful in the coming days for investors.

What is distributor depletion?
Alcohol companies sometimes have sales incentive agreements with their distributors. The distributors may report depletions monthly, which are the total number of cases (of product) sold to retailers excluding non-income generating factors. The alcohol company will then credit the distributors by a set amount of money for depletions during a set period of time.




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