Hard landing on soft drinks: ThaiBev’s non-alcoholic beverage sales slip 11% in Q2

Can ThaiBev outwit its aggressive competitors?

ThaiBev’s net profit in the second quarter took a hit from non-alcoholic beverage sales, as the company reported 2Q profits of THB5.48bn, lower than 1Q’s THB5.92bn,

According to CIMB, this was led by a decline in carbonated soft drinks, though management guides that the market is contracting for the industry as well, and the slowdown is mostly in on-premise consumption.

“With an aggressive adspend focused on the modern trade, Pepsi is doing well in those channels but Serm Suk is content to rely on its logistics infrastructure advantage in the open trade. Overall, competition in the form of A&P remains intense, and the non-al segment is still in an EBITDA loss position. On a brighter note though, 2Q14’s EBITDA losses have narrowed 25% yoy,” noted CIMB.

Here’s more from CIMB:

Impressively, Oishi’s drinks volumes grew 15% yoy, on the back of expansion. This compares with industry growth of -3% to -4% in the same period. Oishi regained some market share to reach 45%, ahead of key competitor, Ichitan, at 37%.

As for Serm Suk, 2Q’s volumes grew 2.4% yoy, its first quarter of positive volume growth after the big fight back by Pepsi in the prior three quarters. Serm Suk has made market share gains of 1-2%-pt and est cola’s market share is now 14%. Serm Suk is driving sales through its returnable trade packaging formats, riding on Thai Beverage’s logistics network in the north and northeast Thailand to grow sales.

That is the key reason for the market share gains. In the modern trade, Pepsi remains very aggressive in the PET packaging formats. Pepsi has appointed new distributors and it has focused on the modern trade.

Quarterly profits seem to be very much cost-driven. mostly due to the return of A&P spend ahead of the World Cup. Aside from the effects of A&P swings, underlying trends appear to be gradually improving. The overall magnitude of decline for industry sales of beer, non-alcoholic beverages, and brown spirits is tapering, as the effects of a subdued tourism sector get baked into numbers.