Burma's Soft Drink Makers Brace for Big Changes

By May Lay 28 June 2012

The return of Cocoa-Cola to Burma after a six-decade absence has many in the local soft-drink industry  worried about their future, as they face off against one of the world’s most recognizable brand names in a battle for the hearts and minds of Burmese consumers.

The company announced earlier this month that it would remove Burma from the triumvirate of countries where it doesn’t do business, leaving only Cuba and North Korea on the dwindling list of places where Coke isn’t a household name.

The move, which follows the Obama administration’s decision in May to suspend US sanctions on Burma, is just the latest sign that the country is slowly losing its pariah status after decades of isolation.  But for domestic makers of carbonated beverages, it could be more than just the end of an era—it could be the beginning of the end of a local industry.

The fear is that Burmese consumers, whose first consideration is cost rather than brand loyalty, will switch to Coke the moment it becomes more affordable and more widely available, because it is already regarded as a superior product.

“Most Burmese people will start drinking Coke when the company starts doing business here,” said Sai Sam Tun, the chairman of the Loi Hein Company, a leading local soft-drink manufacturer.

Although Coke’s distinctive logo is already a familiar sight in some major cities, thanks to cross-border trade with Thailand, a single can costs at least 1,000 kyat (US $1.15)—a full day’s wages for many Burmese. This compares with prices as low as 100 kyat per bottle for local brands such as Happy Star and Sweety.

This price advantage could soon be erased, however, if Coke begins to produce inside the country.

“When they set up here officially, they will be able to sell for the same price or less than local drinks,” said Nyi Nyi, the marketing manager of the Happy Soft Drink Company, who added that there are rumors that Coco-Cola plans to invest more than $300 million in Burma.

To survive, most companies are now considering their options.

“There are three ways we can go: We can sell out to Coca-Cola, we can cooperate with them, or we can try to compete,” said Sai Sam Tun.

“When they come here, we will have to talk to them, because we don’t know what their plans are. In some countries, they form joint ventures; in others, they go for 100 percent ownership. We’ll have to see which they will do here,” he added.

In the past, Burmese soft-drink companies have benefited from the expertise of foreign manufacturers, albeit under somewhat unusual circumstances. When PepsiCo pulled out of Burma in 1997 in response to a US boycott, it left behind technicians and other skilled workers who later went on to join MGS, the maker of Crusher and Star Cola, which sell for a relatively costly 300 kyat ($0.35).

Generally, though, foreign companies are regarded as a threat, whether they are Western-based multinationals or Chinese makers of cheap, low-quality soft drinks that undercut local brands. What Burmese consumers crave, it seems, are affordable products that they can trust.

“Whenever I buy a soft drink at the supermarket, I choose Coke over local products like Star Cola, because even if a local company has ISO certification, the quality control and technique still aren’t as high as foreign products,” said Nay Linn, a 26-year-old economics graduate student.

But before Coca-Cola can return to Burma, it will have to reassure its customers in other parts of the world that the move won’t come at the cost of other standards that matter to consumers.

In a statement, the Atlanta-based company sought to put everyone’s minds at rest about the ethics of investing in a country known until very recently as a pariah state: “Coca-Cola’s planned entry into Burma, following the suspension of sanctions, will be governed by its well-established global standards for corporate ethics including strict adherence to its global human and workplace rights policy, supplier guiding principles, code of business conduct and anti-bribery policies.”

Lest the rush to cash in on what could prove to be a major new market leaves too bad a taste in the mouths of potential critics, the company has added an additional sweetener: plans to donate $3 million to support projects aimed at empowering women in the workplace.