Upgrading energy into cans
Carabao Group is seeking to market energy drinks, long a mainstay of the working class, to high-spending younger consumers by packing new flavours in cans rather than in traditional bottles, a concept previously introduced by the company in Britain but unexplored by Thai producers in the domestic market.
Sathien Setthasit, founder and chief executive of Carabao Group, said the company will issue 3 billion baht worth of 2% interest rate debentures next month (out of a possible 5 billion authorised by the board).
Part of the proceeds will be used for business expansion, and the rest will be used to pay down debt, which climbed to 3 billion baht in 2017 from around 1 billion in the previous year.
Carabao has burning through cash at an impressive clip in order to fuel its growth abroad and build capacity at home. The company went from 1.3 billion baht in cash in hand in 2015 to a little under 150 million baht at the beginning of 2018, after putting the capital down for two factories and becoming a major sponsor of two English football teams.
Mr Sathien also invested in an additional factory for alcoholic drinks through a separate private company, Tawandang Co.
CANNING THE COMPETITION
The can, which will contain the green apple flavour launched by the company in Europe, will retail at 25 baht, more than twice as expensive as their traditional drink, but on par with imported Red Bull cans.
Mr Sathien said cans are 20% more expensive for the company than bottles, but the cost will reduce when the company’s can factory comes online in the last quarter of the year.
Energy drink producers have been locked at the 10-baht-per-can price point for a decade.
“Ten is a magic number because consumers perceive it as cheap and you don’t need change,” he said.
The low price is part of the reason why energy drinks have retained their image as the working man’s drink in Thailand.
Then there is history. Energy drinks in Thailand have been on the market for close to 50 years, when Krating Daeng (Red Bull) was introduced to the market in 1975.
“Energy drinks, and similar products that came after, were sold to construction workers and other people doing physical labour, and the perception stuck. When the drinks were introduced into other markets they were intentionally marketed to the young and well-off,” said Mr Sathien.
While the cans carry a larger profit than their bottled counterparts, the move is not primarily driven by profit considerations. The more expensive format will remain a relatively small part of Carabao’s 7.8 billion baht in domestic sales revenue. The company will target 1 million cans for the first three months.
“The potential market is 12 million cans per year, but it may grow once we introduce the product and other players enter the segment,” he said.
At 12 million cans a year, the segment will still be less than 1% of the 3.5-billionbaht bottle energy drink market, said Mr Sathien.
Cans may not provide a huge boost to Carabao’s declining bottom line, but sales abroad, where high-priced drinks form the bulk of the market, may. The company’s stock dropped 50% from October of last year, driven by lower than expected results for 2017 and the first quarter of 2018.
Sales abroad represent 60% of the company’s top line (up from 40% last year), and will represent a larger portion as the Chinese market expands. Chinese consumers buy only one-fifth as many energy drinks as consumers in most developed markets.
Carabao expects revenue of 15 billion baht in 2018, up from 13 billion last year.
“The story is completely different elsewhere,” Mr Sathien said. The energy drink market is growing in double-digits worldwide, and drinks can fetch close to 100 baht per bottle in Western markets. Energy drinks, because of their price as premium products, mainly cater to a younger crowd.
While the rework may not, by itself, work financial wonders at home, he said it will serve to refresh the brand, which also sells branded water and coffee.
Products other than energy drinks (including those produced by third parties) have been growing as a percentage of the company’s revenue, as the Thai energy drink market experienced its first contraction in 2017. Mr Sathien said the company will introduce other branded products this year, but did not provide further details.
CHEERS TO THE FUTURE
Alcoholic drinks may prove the best insurance against the uncertain energy drink market.
Introduced t wo months ago, Mr Sathien’s white spirit already sells close to 3 million 60-baht bottles in the domestic market. White spirits, he clarified, are produced under his Tawandang distillery, a private corporate entity housed alongside Carabao’s headquarters.
The distillery, with capacity of 150,000 litres per day, is the largest in Thailand.
“We are ready to produce vodka, whisky, brandy and other spirits tomorrow if we desire,” he said.
‘‘ Ten is a magic number because consumers perceive it as cheap and you don’t need change. SATHIEN SETTHASIT Founder and chief executive, Carabao Group