San Miguel beer invades India, cuts Vietnam operations

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MANILA -- Brewer San Miguel Corp. has inked a licensing agreement with Associated Breweries and Distilleries Pvt. Ltd., a leading brewer in India, to manufacture and distribute the Philippine company's Pale Pilsen there.

"Our tie-up with ABD reflects our intention to establish a significant presence in a huge market like India. We are definitely pushing ahead with our regional expansion," said San Miguel president Francisco Eizmendi. However, San Miguel has slashed its production work force by 25% in Vietnam due to soft market conditions.

India is viewed as a growth market with a population of around 900 million and a growing middle class. ABD owns and manufactures one of India's leading beer brands, London Pilsner Beer, along with London Diet, a low-calorie brew, and London Draft Beer.

But San Miguel believes it may have overestimated its capability to expand to Vietnam. According to Victor Aquino, general director of San Miguel-owned Golden Dragon Brewery, the company has so far laid off 85 workers. The brewery is now left with 250 workers and operates at 60% capacity.

Stiff competition from foreign and local brands, high costs of distribution, and the generally low penchant of Vietnamese for beer are the root causes, Mr. Aquino says. "Our expected volume was not realized; we were too optimistic about the market; and we overestimated the capacity of demand," he explains.

Other foreign brewers are also finding Vietnam a tough market. French brewer BGI, for instance, after incurring losses sold its holdings in a joint venture brewery to Australian giant Fosters.

Copyright April 1998, Crain Communications Inc.

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