Asia Brewery to produce Tiger, Heineken beer locally this year

MANILA, Philippines – Asia Brewery, the beverage arm of the Lucio Tan-led LT Group Incorporated (LT Group), will capitalize on its partnership with Heineken International by producing two of the latter's most popular beers in the country.

Asia Brewery signed a deal last year with Heineken International to form AB Heineken Philippines Incorporated. The deal allows it to distribute and brew Heineken brands, notably Tiger beer and Heineken itself, in the country.

"The partnership just started and it looks promising. We want to be a decent-sized player growing profitability. Right now we're still importing the beers but we will be brewing soon," said LT Group president Michael Tan following the company's annual stockholders' meeting on Tuesday, June 20.

"We'll start producing Tiger beer first this year and then later move on to producing Heineken locally which we are trying for this year also," he added.

The move is part of the firm's plans to establish itself in the premium beer space which it sees as ripe to enter. It is also a way for the company to boost its presence in the local beer market where it has a 5% share based on its own estimates.

While Tiger beer is positioned in the mass market, Asia Brewery currently has 3 brands it describes as premium – Heineken, its own Brew Kettle, and Asahi.

"We'd like to cater to different segments of the market. So far, our existing portfolio is in the mass market so we would like to make it more premium," Tan said.

"There's more disposable income right now so people would want to trade up. The premium segment is quite small and dominated by imported beers but even that is small, around less than 1%," he added.

The premium segment is described as beers priced between P40 and P50 at groceries. Asia Brewery figures the segment is still relatively within reach of majority of the populace, especially with the economy at an upturn.

"It's a pyramid – the volumes are small but the margins are higher. I think for the particular segment beer, it would be easier because the competition is not as fierce. The strong beers are in the lower segment," Tan noted.

LT to upgrade breweries, Eton, PNB

Tan also said the company is "spending probably more than P600 million to upgrade its breweries to be able to produce the beers" but declined to give the exact figures.

Asia Brewery has two breweries – one in Cabuyao, Laguna, and one in El Salvador, Misamis Oriental.

Together, they can produce 4 million hectoliters, but only 25%-30% of capacity or just 1 million hectoliters is currently being produced. A hectoliter is equivalent to 100 liters.

The investments will be spent on retooling the production line in these facilities to produce both Tiger and Heineken.

The investment is part of the LT Group's larger plan to spend around P10 billion this year, P3 billion more than the P7 billion it spent in 2016.

Around P5 billion of the P10 billion will go to the group's real estate arm, Eton Properties. Eton has partnered with Ayala Land for a 35-hectare mixed-use township along C5.

Another P2 billion to P3 billion is earmarked for the group's banking arm, Philippine National Bank (PNB), to upgrade its IT and electronic systems. The bank is focusing on developing its digital strategy, which comes amid the recent system glitches of its rivals.

LT Group recorded an attributable net income of P9.39 billion in 2016, 42% more than the P6.6 billion in 2015.

PNB registered the largest share of the income with P3.42 billion or 36%, followed by the group's tobacco arm Philip Morris Fortune Tobacco Corporation with P2.58 billion or 27%.

Asia Brewery contributed 19% of the group's income at P1.75 billion, while Tanduay contributed P908 billion or 10%.

The remainder came from Eton at P388 billion or 4% and Victorias Milling Company with P142 million or 2%. – Rappler.com