Jakarta. Listed brewer Multi Bintang Indonesia, which is part of the Netherlands-based Heineken International, is in Indonesia for the long-term, despite challenges with slower economic growth, higher excise tax and the fluctuation of the rupiah.
Michael Chin, president director of Multi Bintang, who has been at the local company’s helm since May 1 last year, says prospects look good for the brewer.
“Our view of Indonesia is very positive. When we look at the future, we remain very positive,” Chin told Globe Asia.
Before moving to Multi Bintang, Chin was the general manager of Asia Pacific Breweries, the Singapore-based brewery owned by Heineken International, which also controls more than 76 percent of Multi Bintang.
“Some might say it is an election year, let’s hold investment. Multi Bintang never does that. Even if it is a presidential election, investment continues,” Chin said.
In January Multi Bintang commenced construction of a Rp 210.7 billion ($18 million) plant that will produce carbonated soft drinks in Sampang Agung, in Mojokerto, East Java.
Cosmas Batubara, chairman of the board of commissioners at Multi Bintang, said the plant would produce up to 500,000 hectoliters of soft drinks.
Work would proceed quickly, he said, with the company having set a target for the plant to be fully operational by August.
Multi Bintang was established as the Nederlandsch-Indische Bierbrouwerijen in Medan, North Sumatra, in 1929.
“It was the first Heineken brewery outside the Netherlands,” Chin said.
The company opened a brewery in Surabaya, East Java, before it built another more modern plant in Tangerang, Banten, in 1972. In 1997, another brewery was built in Sampang Agung to replace the Surabaya plant. The company was renamed Multi Bintang Indonesia when it went public in 1981.
With a history of more than 80 years in this country, Multi Bintang, through its subsidiary Multi Bintang Indonesia Niaga, has established an extensive sales and marketing network across all major cities, extending from Medan to Jayapura in Papua.
The brewer is best known for Bintang beer, which has become the iconic beer brand of Indonesia. The company boasts a wider portfolio of beer brands and soft drinks including Heineken, Bintang Zero and Green Sands. The latter two are non-alcoholic malt drinks.
“Like all consumer goods companies, we are very bullish about Indonesia; we are bullish about the population of 240 million; we are bullish about middle-income growth. We’re also very bullish on tourism,” Chin said.
Multi Bintang enjoyed sound financial performance in the fiscal year 2013.
Net income recorded robust growth with a 21 percent increase to Rp 1.17 trillion, thanks to higher sales volume of both beer and soft drink products, improved revenue management and better distribution of its portfolio of brands.
The year represented a record high, with revenue exceeding Rp 3.5 trillion, which translates into growth of 17 percent.
The fiscal year saw the implementation of a new financial reporting period to align it with its majority shareholder, Heineken. The 2013 fiscal year reflects performance from October 2012 to December 2013. The year also marked the completion of a three-year, Rp 580 billion technical upgrade of the Tangerang brewery.
In a presentation on May 12, the company’s management said they expected Multi Bintang to “deliver continued top-line growth in 2014, albeit at a slower pace than last year due to softer economic growth.”
The presentation specifically stated that Multi Bintang’s performance this year will be influenced by external factors, including an excise tax increase as of 1 January 2014, which led to higher prices; a reduction in fuel subsidies contributing to higher transportation costs; and unfavorable movements in the rupiah exchange rate, which result in higher input costs as well as other net financing costs.
“Multi Bintang is committed to mitigating any impact from the above factors to profitability through capturing cost savings and other efficiency improvements through the year,” the presentation said.
Another specific challenge is a new trade ministry regulation in mid-April that aims to control the procurement as well as the distribution of alcoholic beverages in Indonesia.
Under the new regulation, alcoholic beverages with the “class A” classification, which contains ethyl-alcohol with levels up to 5 percent, such as beer, are now under the government’s supervision and control.
This means the government monitors the distribution of the goods in the country as well as the imports. Previously class A alcoholic beverages were not under the government’s supervision and control.
Local governments (governors, district heads and mayors) now also now have greater authority to control the distribution of class A alcoholic beverages in their areas, although such beverages can still be sold by modern retailers such as supermarkets, hypermarkets and minimarts.
The new regulation requires retailers to place alcoholic beverages in a separate fridge. Previously, there was no such provisions.
Although not explicitly stated as such, the regulation also calls on sellers to check the identity documents of buyers to ensure that they are over 21 years of age.
There are no changes regarding areas where alcoholic beverage distributors are banned from selling their products.
They are currently not allowed to sell alcoholic drinks anywhere near places of worship, hospitals and schools.
However, all types of alcohol, including beer can also be distributed to hotels, bars, duty-free shops, and restaurants that have permits.
“We will comply with the government and the regulation,” Chin said, adding that the company has in fact been advocating responsible drinking, striving to raise awareness of retailers and consumers and the public in general to the legal drinking age of 21 years.
“We sell our products through retailers and whatever initiatives we take can only be done in collaboration with retailers. We have started this campaign on the legal drinking age two to three years ago. We encourage retailers to separate beer products in a different fridge. At whatever events we sponsor, we always ask for ID checks,” he said.
Chin said he also recognizes that caution is required when selling beer in a country that is home to the world’s largest Muslim population, with hard-line groups such as the Islamic Defenders Front (FPI) calling for a total ban on alcohol in the country.
“We are not new to this country. We have been here for 80 years. We obviously respect the people, the community we operate in. Indonesia is the largest Muslim nation in the world, but is also home to many non-Muslims. We give people the choice, and most importantly we are very focused on tourism areas,” he said.
Despite its large Muslim population, Indonesia has not adopted Islamic laws, although some regions such as Aceh have always been much tougher than others.
The article was first published in Globe Asia’s June 2014 edition.
Multi Bintang Remains Bullish About Indonesia