Virgin’s promise

More than a year after set up, InterBev couldn’t be happier with the sales of Virgin-branded soft drinks.

"We’re doing well quite in the markets we are in," said vice-president for sales and marketing Hubert Tan. "We’ve expanded our product line from the initial three to the current four. In terms of packaging, our products now come in two glass bottle sizes, in cans, and in family size PET or plastic bottles."

Virgin is available only in Metro Manila and Southern Luzon, a deliberate strategy to maximize their proximity to the P1-billion InterBev plant inside the 300-hectare Asia Brewery, Inc. complex in Cabuyao, Laguna.

"Because the first level of distribution, the big wholesalers, almost exclusively handle the products of the major industry player, we focused on the second level made up of dealers. We initially collaborated with the local Pepsi-Cola franchise, which we used to supply with bottles and crates. With more product variants, we now go it alone," said Tan.

Synergy

Asia Brewery, the mother company of InterBev, has been eyeing a soft drink line since the early 1980s because of the perceived synergies between soft drinks and beer. The local soft drinks industry, which annually generates sales equivalent to 600 million cases and valued at P50 billion, is also more lucrative than either the beer or the fast-growing water business.

"The internal debate initially centered on whether there was value in coming up with our own brand. We concluded the payout cost of a local brand was too high because of the learning curve," said Tan.

The decision to get an international brand wasn’t easy. Feelers to license an existing brand already doing business in the country were rebuffed. After much looking around, Asia Brewery narrowed down the international brands it wanted to deal with to two, Virgin and National Beverage, which makes private labels.

Virgin won out in part because it is one of the world’s ten most recognizable umbrella brands cutting across industries ranging from airlines to credit cards to wedding gowns and in part because the brand’s young and fun image might appeal to the Filipino youth, which account for 50% of total soft drinks sales.

"In a way, it helped that the founders of both companies, Richard Branson and Lucio Tan, have so many things in common. Both are self-made men who follow their instincts and make decisions very quickly. Both are mavericks fighting established brands," said Tan.

It took Asia Brewery five months of negotiations before Virgin Drinks Group Ltd. signed a licensing agreement. in the first quarter of 2004. Although Virgin Drinks produces everything from carbonated drinks to teas and vodka, Asia Brewery, through InterBev, decided to focus on colas. (At P35 billion a year, the Philippine market for colas is among the world’s top ten largest). The agreement covered technical and marketing support from Virgin Drinks.

Expansion

"The soft drinks market is a mature one, growing by 3% to 4% a year. It, however, has segments such as the low-price niche, that is growing much faster," said Tan.

Using Virgin’s price undercutting strategy, InterBev has priced its eight-ounce bottle at P5.50 compared to the market leader’s P8. Bottles, which has an average reuse factor of 20, cater to the C-D-E market because of their affordability.

"Unlike the market leader, our costs are less in terms of royalties and advertising," said Tan. "We do not have any TV ads. We have basically sold our products through word-of-word. Many buy our product out of curiosity the first time around and they have come back because they like the taste and the price."

This year, InterBev intends to be more aggressive in pushing sales, having been identified as one of two companies within the Asia Brewery group as having the most growth potential this year. Last year, Asia Brewery grew by 20% to gross P6 billion.

Within the next three years, InterBev intends to increase production of existing product variants. It also intends to launch new products from Virgin’s extensive line, which currently includes four colas and 12 fruit-flavored drinks.

"If we meet scale and margin requirements, we might expand our distribution network. Right now, we want to further increase our market share where we are," said Tan.