Reporting on the company’s Q3 2015 financial results recently, he said the beverage industry will continue to see a tremendous pack mix shift in China in beer, from returnable glass to cans.
Several opportunities in Southeast Asia
“We’re not in any way worried about lower Chinese growth. It’s still tremendous growth on a bigger base, and we do still see several opportunities in Southeast Asia,” said Donahue.
“We’ve doubled the Bangkok plant and we’re opening a third plant in Cambodia, and we’ll continue to look for opportunities.
“We’ve got four very good low-cost factories in Vietnam that we continue to grow into, and that market is growing, so we remain very excited about the opportunities in Southeast Asia.”
According to Donahue; ‘We all have a challenge in China right now,’ and Crown will continue to drive down costs and offer quality and service to its customers to differentiate itself and take advantage of the opportunities there.
China’s economy is growing at its slowest rate in six years since the global financial crisis.
The world's second largest economy expanded by 6.9% in the July-September quarter, slowing from a 7% increase in the previous quarter.
The government has set its annual economic growth target at ‘around 7%’ for 2015, but Chinese Premier Li Keqiang admitted hitting such a target was "not easy."
“Pricing continues to be soft in China and we’ll see where that takes us as we go into next year,” added Donahue.
7% is still tremendous growth
“The only comment I would make on China’s growth slipping is that they’re projecting 6.9%, and that’s 6.9% off a much larger base than they were five years ago or 10 years ago when the growth rates were 10 or 12.
“I think I’d take 7% on a huge basis like they have, but 7% growth on a base that’s expanded that much is still tremendous growth and offers tremendous opportunity for companies that sell products.
“Our challenge is not volume; our challenge right now is the pricing environment, and that’s something that will have to get worked out over time.”
Referring to Southeast Asia, Donahue said it had not seen any impact near the China phenomenon it is experiencing in terms of pricing.
“Generally, our customers are aware of opportunities, just like we’re aware of opportunities. They want to have healthy, strong suppliers, and that’s what they have with Crown in Southeast Asia; but having said that, they are obviously aware of the pricing disconnect between China and other regions of the world,” he said.
“We characterize that to them as an anomaly, one which is not sustainable for China and would not be sustainable at all for the balance of the world if customers are looking for high quality service and innovation.
“That’s just not something that can be sustainable for very much longer in a place like China, or anywhere else in the world. Pricing is competitive, and we look to keep our costs down to remain as competitive as possible and keep our position.”
He added, the company continues to add capacity to take advantage of future growth opportunities but it is ‘very highly utilized’.
“We’ll be in the low 90s in Southeast Asia, and then in China the market is probably in the high 70s, 80% utilization range, and we’re at least five or eight points higher than that. We’d like to be more than that, but it’s a challenging market right now,” he said.