Achieving High Performance in the Asia Pacific Alcoholic Beverages Industry

Asia Pacific, simply put, offers a powerhouse opportunity in the world of alcoholic beverages. Just look at the numbers. Around the globe, alcoholic beverages today are a trillion-dollar industry, growing at 2.6 percent a year.

Asia Pacific’s share of that is $258 billion, already one-quarter of the business. It consumes one-third of all alcoholic beverages worldwide, and with a growth rate of 4.4 percent it is the fastest-growing region in the globe.

Conditions can temper the most optimistic scenario, of course, but one thing is certain. No global industry player can afford to ignore the vast potential of Asia Pacific. Certainly it takes agility and adaptability to succeed in this region. But Accenture research into high performance in the alcoholic beverages industry indicates that companies that position themselves smartly can be formidable competitors in this terrain—tapping into Asia Pacific’s ever-increasing demand for consumer goods and its rising power to purchase.

Who holds the wallet here? Largely China and India. These two nations will account for nearly 85 percent of the region’s projected growth in spirits, beer and wine. China’s share of that is put at 64 percent, with India a distant second. Japan remains the largest market for alcoholic beverages—huge at $87 billion—but is likely to shrink in the future given its demographically declining population and the rising popularity of non-alcoholic beverage choices.

In Asia Pacific, not only does the population size as a whole promise an upsurge in demand, so do shifting demographics. People continue to flock to the cities, and as they do, the middle class is expanding rapidly in Asia Pacific. One estimate is that by 2010, Asia’s middle class will be greater than the population of the United States. Add to that the fact that today’s consumers are younger. In India and Vietnam close to half the population is under the age of 25. Their changing lifestyles only add to the industry’s bright prospects.

What would be the alcoholic preferences of this rising number of consumers? Beer is likely to continue as the most popular choice. But spirits will probably see the biggest leap forward. This category may contribute to more than half of the industry’s growth in Asia Pacific through 2012. Beer and wine are likely to become increasingly popular, though they will grow more moderately than spirits.

Accenture’s research on high-performance businesses in the global alcoholic beverages industry has produced definitive insights. Our experience in the Asia Pacific region confirms that high performance is the route to success here as everywhere—with modifications for the particulars of the region.

Accenture research shows that high-performance businesses have successfully mastered the three building blocks of high performance, which contributes to their success. The three building blocks are:

Market focus and position—for strategic market domination
In the Asia Pacific alcoholic beverages market focus takes the form of strategic market domination. This is achieved through precise identification of markets and categories, advantageous mergers and acquisitions, and category building.

Distinctive capabilities—it’s about the brand, the scale and distribution
The high-performance businesses in the Asia Pacific alcoholic beverages market have built three capabilities:

• Brand and category leadership—Successful alcoholic beverage companies use aggressive brand and category reinvention to do that, targeting high-value customer segments. They also use consumer insight to identify new channels and ways of connecting with consumers.
  
  
• Route to consumer—The idea is to make a direct connection with consumers. Distribution excellence and collaboration with local players thus becomes necessary. To optimize that route to the consumer, successful companies use value-based customer segmentation, customer sales activation, trade investment optimization and distributor management. They also understand and operate within local regulations—further reason for collaborating with players that already know the territory.
  
  
• Leveraging scale—Competitive companies in Asia Pacific expand their regional footprint to offset slow growth in home markets such as Japan. They develop a regional operating model, use a global operations strategy, a tax-efficient operating model and optimize their logistics network.
  
  

Performance anatomy—staying nimble and quick
Many alcoholic beverages companies have been successful in managing their post-merger, post-acquisition environment. One reason is that most of them are nimble and quick. Another reason is because they build performance anatomy into the mindset of the organization.

The culture of a successful company in Asia Pacific embraces change and the additional brands and companies that come with acquisition. Yet it also remains value-based, defining the capabilities that deliver value, whether in mature or emerging markets.

As companies pursue high performance in Asia Pacific, they need to have a clear understanding of the three categories that make up the alcoholic beverages market in that region. How do the markets for spirits, beer and wine differ? Where is the future for each of these categories?

Spirits
Unquestionably, spirits dominate the growth charts in Asia Pacific. The spirits market a $90 billion business, and by 2012, that figure should reach $122 billion. Nearly 60 percent of the growth in spirits globally will come from Asia Pacific. To tap into that potential, companies will need to succeed in China and India because almost all of the growth in spirits will be in these two countries. China is now the largest spirits market in this region.

Beer
The Asia Pacific region now accounts for nearly one-quarter of beer sales globally in terms of value and one-third by volume. A $124 billion industry today, the beer market in Asia Pacific is predicted to reach $149 billion by 2012, which makes this region the growth driver for beer worldwide in the years ahead. China is an extremely important market, expected to account for 79 percent of the growth in this region’s market’s value. But other markets offer opportunity, too. Japan remains the largest beer market, at $42 billion, though it continues to shrink. Fastest-growing among all the markets is India—racing along at 14 percent.

Wine
Wine is a relatively small category in the Asia Pacific alcoholic beverages market, but it is growing—at $46 billion now, it is projected to reach $55 billion by 2012. As with beer and spirits, China is currently the most attractive wine market in Asia Pacific, offering both expansion and high profitability. It is now the second-largest market in the region, after Japan. As Japanese consumers begin to embrace the enjoyment of consuming wine, this market is expected to increase marginally. South Korea and Australia are players in this segment, too—with South Korea displaying a higher propensity to consume imported wine.

Customers in Asia Pacific want more of what alcoholic beverage companies have to offer—whether spirits, beer or wine. How does an alcoholic beverages company succeed in Asia Pacific?

Spirits
Set up a strong, highly localized distribution system. Compete in the right segments. Adapt to the social and legal environment, and formalize the monitoring process to assure appropriate response. Market the brand to build awareness.

Beer
Forge local partnerships with strong regional and national players to build manufacturing and gain distribution presence. Compete in the premium segment to enhance its profitability potential, more so in the developed markets. And, use trade activation with promotions to ensure brand availability in the large off-trade channel.

Wine
Find the right alliance partners—preferably those with local wine-selling experience and an effective distribution setup. Engage partners in the off-trade channel, such as retail, particularly in developed markets like Australia and Japan. Customers in Asia Pacific want more of what alcoholic beverage companies have to offer—whether spirits, beer or wine. How does an alcoholic beverages company succeed in Asia Pacific?