A Land with No Beer

17th April 2021

The economy is taking a hit in the weirdest ways and the military in particular are suffering from the downturn. By closing down the internet and mobile networks the Junta have hit at the heart of the modernising transactional banking part of the economy. This, combined with the CDM strike has virtually closed down the Myanmar and Mandalay brewing companies, jointly owned by Kirin and the Military.  Bars are refusing to serve these brands and people have ceased asking for them.

For decades Myanmar’s beer market has been a cash cow for the military, with its stakes in three different breweries giving it a market share of around 80 percent.

The undisputed jewel in its crown is Myanmar Beer, which until recently was thought to account for more than half of all beer sales in the country and reliably delivers huge profits to its parent company, Myanmar Brewery Limited.

In the space of just two months, that market dominance has been shattered – a remarkable and rapid fall, all brought about by consumer power.

Activists have responded to the February 1 coup by launching a highly successful boycott of military-owned products designed to cut off the Tatmadaw’s sources of funding.

Myanmar Beer has been hit the hardest, with industry sources telling Frontier that sales have fallen by 80 to 90 percent. Some other military-linked brands have also seen demand plummet.

“The boycott campaign is everywhere online and sales of Myanmar Beer have plunged at almost every shop,” a Myanmar Beer senior sales officer told Frontier. When you go to a pub, you can hear beer drinkers censuring anyone who keeps drinking Myanmar Beer. They say, ‘Hey, are you still supporting military products?’ So beer consumers have changed to other brands.” 

The fallout from the military takeover could end up costing the Tatmadaw and its partner in the brewery, Japanese beverage giant Kirin, hundreds of millions of dollars in profits, and may also wipe more than US$1 billion off the company’s value, analysts say.

The sales slump and recent imposition of sanctions on the military conglomerate Myanma Economic Holdings Public Company Limited (better known as MEHL) could also complicate Kirin’s plans, announced shortly after the coup, to terminate the joint venture in Myanmar Brewery, as well as its partnership with the military firm in Mandalay Brewery Limited.  

Figures from research firm Euromonitor show that in 2018 Myanmar Brewery had 62pc of the market, while Dagon Beverages Company, a subsidiary of military-owned Myanmar Economic Corporation, had almost 16pc. The Myanmar Beer brand accounted for 56pc of all beer sales.

But Myanmar Beer’s longstanding popularity has now become a liability, making it a high-profile target for those advocating a boycott of all military-owned businesses and products, from banks to cigarettes.

The brand was widely targeted on social media and within a week of the military takeover, the country’s largest retailer, City Mart, had stripped its shelves of all Tatmadaw-linked beers. Many other outlets, both retailers and bars, have followed suit, with some putting up signs announcing their support for the boycott.

On March 6, protesters in the Sagaing Region capital Monywa staged an unusual protest against Myanmar Beer, by pouring beer on their feet and those of passers-by to show their contempt for anything linked to the military.

Industry sources put the decline in demand for Myanmar Beer at 80-90pc. Wholesalers said they had been left with a significant stockpile of Myanmar Beer that they were now unable to move.

Three sources, including two from Myanmar Brewery, told Frontier that the company had cut back production at its Yangon factory as a result of the sales slump.

“We worked normally until the end of February, but now we are working one week on, one week off,” said a staff member on the production side of the business. “We’ve also cut back on the amount that we’re producing.”

Analysis commissioned by Frontier shows that prior to the military takeover Myanmar Brewery Limited had an estimated equity value of $1.65 billion to $2 billion. 

Although total sales were around $300 million in 2019, which is relatively low, Myanmar Brewery’s value is buoyed by the fact it’s in a rapidly growing market.

This is reflected in the company’s high sales growth rate of 10-15pc a year, which combined with its strong operating profit margin – that is, the profit it makes on a dollar of sales – of around 40pc pointed to a company value 5.5 to 6.5 times higher than its sales.  

The picture now looks far less rosy. The analysis mapped three potential scenarios for Myanmar Brewery, all based on an assumption of an 80pc decline in sales in the aftermath of the coup.

In the most optimistic scenario, MEHL would exit the partnership, enabling sales to recover to 2019 levels within two years, and annual growth would average 10pc thereafter. The company’s value would be around $1.16 billion – meaning the coup would have wiped off at least $500 million, but possibly more than $800 million. 

If sales recover in five years, the value would be $830 million, but if they never recover then the company would be worth just $300million – a drop in equity value of as much as $1.65 billion.

Even these numbers may be overoptimistic. The analysis was commissioned before the impact of the coup on Myanmar’s economy had become clear, and the World Bank has since forecast a decline in GDP growth of 10.0 percent, while Fitch Solutions has warned of a 20.0pc contraction and possible “economic collapse”. Either scenario is likely to have a significant impact on the beer market, as growth tends to follow overall changes in GDP.  

Whether Myanmar Brewery’s revenue can recover will also depend on a range of other factors, including whether the boycott is sustained and if MEHL exits the partnership. 

Source Frontier 17^th April 2021.

This is all very interesting, but the implications go deeper. Japan has been the main driver behind Myanmar’s economic progress in recent years and helped it by cancelling debt and giving soft loans to help fund the restructuring of the banking system to reach international standards. They are also the biggest investor in Myanmar with most of the FDIs coming from Japan. Japan, (both the government and the businesses) will not take kindly to losses of this nature. Kirin will find a lot of support from the Japanese government.

Please share this article so that others can discover The BFD