Soft drink industry in ASEAN facing double whammy

The soft drink industry in ASEAN is currently undergoing a major challenge, as its respective governments are introducing or have just introduced various restrictions from excise taxes on sugar to other forms of restrictions in marketing, advertising and distribution. 

Malaysia, with effect from April 2019, will be introducing a new excise tax for sugary drinks, whereas its immediate neighbor Singapore is contemplating of introducing a blanket ban on high-sugar drinks. In countries like Thailand and Philippines, there are already existing excise tax on sugar, to reduce consumption of these drinks while at the same time, to protect their own domestic sugar industries. Thailand, specifically, has introduced tax on sugar-sweetened soft drinks which will be increased in stages over the next 5-6 years. These not only affect domestic soft drink manufacturers but have also impacted exporters to Thailand. 

According to latest report by Euro monitor Plc, Thailand and the Philippines have the highest sugar intake for carbonated drinks in Asia Pacific in 2017.

Having said that, consumption of high sugar soft drinks like carbonates, juices and energy drinks will definitely be affected by the new laws as well as the growing health movement, unless manufacturers start to adapt its products to meet the needs of existing consumers, at the same time, satisfying the requirements set by their respective governments. 

Already, large players like Coca-Cola, Pepsi and F&N have made the swift move by reducing the amount of sugar in the drinks or by substituting high-sugar products with low or no-sugar products. Smaller domestic drink manufacturers, however, are still yet to follow. Although this does not mean totally eliminating its existing product lines, these companies have to find that delicate balance between making a healthy profit while at the same time, fulfilling the needs of the consumers/respective governments. 

ASEAN Countries from Singapore to Malaysia to Philippines have reported high incidence of diabetes and obesity of which their Health Ministries have placed most of the blame onto high consumption of soft drinks (see Chart 2.0). Beverage manufacturers, however, felt that they are not the only ones that should be accused entirely as consumers can make their own choices in terms of what to eat or drink, at the same time, ‘packaged drinks’ are not the only beverages that are found in the market. Consumers can opt to buy drinks freshly prepared at food stalls of which the decision on the amount of sugar rests entirely on the stall owners or on the consumers. 

Nevertheless, the verdict is clear. Beverage manufacturers in ASEAN especially those distributing in the developed cities of Singapore, Jakarta, Kuala Lumpur, Bangkok and Manila have to make that swift change in their products to meet the growing consumer need for products with less calories (less sugar) and get rid of the use of preservatives or additives which often connote as ‘unhealthy’. If these are not addressed sufficiently, they will suffer a ‘double whammy’ - both a drop in sales as consumers start to turn away from such ‘unhealthy’ products, and the fullest extent of the law – i.e. having to incur high sugar tax, which ultimately will increase their production cost and competitiveness in the market. 

Presently, the soft drink industry in most ASEAN countries are in the ‘maturity’ state (refer Chart 3.0). It is highly likely that within 5 to 10 years, sugar-sweetened beverages, which will be by then, a smaller industry than it is now, will undergo a period of decline. Nevertheless, the death of an industry also leads to the birth of another ‘low-sugar drinks’.