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Foster's exits Asian beer markets

By Dominique Patton , 08-Aug-2006

Australian wine and beer group Foster's will exit the Asian brewing business with the US$225 million sale of its operations in Vietnam and India, it announced on Friday.

The firm's Vietnam breweries and local brands will go to Asia Pacific Breweries for US$105 million, and its Indian business including the Foster's brand will be taken on by SABMiller for US$120 million.

 

 

 

Foster's, now the world's second biggest wine producer after recent acquisitions, has also recently sold its lossmaking Chinese brewery as well as the Foster's brand in Europe, as it seeks to concentrate on wine and its domestic beer business.

 

 

 

An exit from the Asian market had been widely rumoured although the company denied the rumours at the time of its China sale earlier this year.

 

 

 

Foster's chief executive Trevor O'Hoy said that although Foster's has become the seventh most popular international premium beer, "until recently, we've struggled to generate adequate value from this great brand".

 

 

 

"However, over the last four months, we've unlocked more than A$1 billion through the sale of the Foster's brand in Europe to Scottish & Newcastle, the sale of our brewing business in China to Suntory and now the divestment of our remaining Asian brewing businesses."

 

 

 

The new owners of its Asian businesses, APB, a division of Singapore's Fraser & Neave, and SABMiller, are both expanding in Asia and will use the Foster's brand to tap demand for premium.

 

 

 

APB operates 27 breweries in 10 countries in the Asia-Pacific. The Indochina market, which includes Vietnam, Laos and Cambodia, has accounted for more than 40 per cent of its earnings in the past three years, the company said. Profit before interest and tax from this region increased by 20 per cent last year.

 

 

 

"It remains vital for us to safeguard and fortify our stronghold position in our key growth markets," Koh Poh Tiong, chief executive of Asia Pacific Breweries, said in a statement. "With this opportunity to own Foster's established operations in Vietnam, it meets APB's objective of staying ahead by reinforcing our overall presence in the high-growth Vietnam beer market."

 

 

 

Under the new deal, APB will pay royalties to Foster's to produce and distribute its brand in Vietnam and for export across Asia.

 

 

 

Koh Poh Tiong said a growing base of increasingly affluent Vietnamese consumers are trading up to more premium beer choices, making the Foster's brand "a complementary addition" to the firm's premium beer brands like Heineken and Tiger.

 

 

 

In India, SABMiller will take over the Foster's brand, adding both a premium brand and new capacity for the group's existing business there.

 

 

 

"While the Foster's brand has enjoyed great success in India, the opportunity for us to continue to grow the brand profitably from a small production and distribution base, in a challenging market structure, was limited," said O'Hoy.

 

 

 

"The value we have achieved through the outright sale of the Foster's brand, together with the brewery and local brands, far outweighs the potential future value of retaining Foster's and continuing to own and operate the business, or pursuing a licence agreement."

 

 

 

On a combined basis, the sales of Foster's Group's businesses in China, India, and Vietnam will generate net proceeds of over A$300 million, and eliminate loss-making operations.

 

 

 

The transactions are expected to be completed during September 2006. Both transactions are subject to Foreign Investment Review Board approval.

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