‘The Only Way Is Forward’
By Samantha Michaels 25 November 2014
As Coca-Cola and PepsiCo roll into Myanmar, one of the country’s most powerful beverage companies is busy strategizing its own next move. Loi Hein, a Yangon-based company that dominates the local purified water market with its popular Alpine brand and which is also behind Blue Mountain soft drinks, expects its annual revenue to grow more than five times over the next decade, in part thanks to partnerships with multinational firms.
Its chairman, the physician turned entrepreneur Dr. Sai Sam Htun, tells The Irrawaddy reporter Samantha Michaels how he’s dealing with foreign competition and why he’s supporting a football club that’s losing US$1 million a year, while also sharing his thoughts on politics and refuting any suggestion that his success is linked with cronyism.
Question: Let’s start with some numbers. What sort of profits does Loi Hein bring in?
Answer: Our business is growing dramatically—it’s moving quite fast in 2014, we’ll reach $100 million in revenue this year. For profit margins, we usually have about a 10-15 percent net margin from revenues.
Q: What’s your market share in the beverage industry?
A: Gradually, in 10 years’ time, our market share in the water business has increased to 60-65 percent. But during the past two years, a lot of people have come to play in the water market—not big [companies], but some small and medium ones—so we had to give up about 5 percent of market share in water. Still, my business overall is growing. Water is growing about 25 percent [annually], soft drinks about 40 percent, energy drinks about 50 percent, and we are optimistic because we expect [greater] spending power from Myanmar’s middle class, which is currently only 2 million people, compared with Thailand’s middle class of about 25 million people.
Q: With the lifting and suspension of economic sanctions, Coca-Cola and PepsiCo have come to Myanmar. How are you dealing with the competition?
A: They’re still building up their own infrastructure, building up their own brands, so it hasn’t had much impact on our soft drinks. In the future if Pepsi and Coca-Cola fight each other, maybe that will have an impact on us, but we don’t know. If they really come, they may stay in the premium sector, like A and B [upper and middle class consumers], so we will go into the rural areas, staying in the C and D sector [working class consumers]. That’s what we’re planning for the future, if they really come, because they are so powerful that they can paint the whole country in blue and red, so we have to prepare for that.
Q: Would you ever consider partnering with one of these beverage giants?
A: We were discussing this, but their requirements and our requirements are not the same. Coca-Cola came and wanted everything of us, which is impossible because my water business has already partnered with Nestlé. They wanted us as one unit, but by that time it was too late.
Q: You already sell drinking water, energy drinks, soft drinks and juices. What’s next?
A: Since we partnered with Asahi [a Japanese brewery and soft drink company], we will automatically go into beer, either manufactured in Thailand and brought here, or manufactured here. We are also going into dairy: fresh milk and maybe yogurt.
Q: Is there anything missing in the local beverage market?
A: Nobody is manufacturing natural juices in Myanmar. A lot of drinks come from Thailand, some from China, but we can do import substitution. That’s why we are building a new factory at the moment, which may produce natural juices in 2014 as a substitution for Thai imports. If we finish according to schedule, I think it will be the first [factory] for natural juices in Myanmar.
Q: What are your company’s growth targets?
A: Since our middle class is growing and the country is opening up, we expect our market size to grow 10 times over the next 5-10 years for our water, soft drinks, energy drinks and other beverages. For revenue, in five years’ time we must go to about $350 million. In 10 years, we can expect about $600-700 million.
Q: I heard that once you hit a certain target, you might hold an initial public offering?
A: I’m still not sure whether an IPO is good for growing our family business—I’m undecided.
Q: Are you planning to expand into banking, insurance or property development?
A: Maybe microfinance—a purely financial company, but not a bank, so we can finance other companies. We are trying to get a license.
Q: You’re also involved with Myanmar’s national football league, as the owner of the Yadanarbon club. The games are televised, but are you making any money?
A: We lose about $1 million a year. It [the league] has been going since 2009, and we keep losing money. We charge $1 for tickets but people don’t come to watch. In foreign countries you pay $30 to go to the football stadium. One day if our people can afford it, we will charge $3, and if foreign brands come it won’t be difficult to get $1 million sponsorships to do their branding. Right now is the beginning of multinational [firms] flowing into Myanmar, but we expect one day we will get a sponsorship, TV rights and spectators, and we will break even or make a profit.
Q: But if you’re losing so much now, why stick with it? Is it a personal interest? Are you a football fan?
A: I should say yes, it’s a personal passion. It’s spending money, it’s just a passion, it’s not about making money.
Q: Let’s talk politics. What election results in 2015 would be most beneficial for businesses?
A: I honestly think a coalition [government] would be best at the moment. For the stability of the country, we need this compromise and a coalition for the next five years. If you take the example of a neighboring country for democracy, when parties fight each other there is no positive result: In Thailand, ultimately the same thing happened [there was another military coup this year]. We don’t want our country to go back the same way.
Q: Loi Hein was very successful under the former government, which may lead people to assume you had a connection with officials to start your business. Has this been a problem?
A: Not at all, my conscience is very clean … I don’t make money from the government. I don’t sell products or machines to the government, I don’t sell arms to them. I develop a product, create the market and make money out of the market, and that’s why my conscience is very clear. Also, [my company’s] growth under the military was quite small, but growth during the past three years [under the current government] has been very fast, especially in 2013 and 2014 because of the entry of multinational [companies].
Q: What are your views of the current economic outlook?
A: The Myanmar economy is quite exciting. Everyone says there is big potential. Whether it is real or not, we have to judge. A lot of investors are quite positive because of the developments in oil and gas, the special economic zones, foreign banks coming in. Many people may have a negative view, and they can have that view. But because of all these things, we are positive. Our country has only one way to go, and that is to grow business. So, we are optimistic, we are excited. There will be some challenges, but we will go forward, there is no choice.
This article first appeared in the November 2014 print edition of The Irrawaddy magazine.