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Business

Asahi pulling out of beverage JV with Indofood

Departure highlights challenges in Indonesia's consumer sector

Asahi has produced bottled tea in a joint venture with Indofood. (Photo by Wataru Suzuki)

JAKARTA -- Japan's Asahi Group Holdings said on Monday that it plans to divest its interest in a beverage joint venture with Indonesia's Indofood CBP Sukses Makmur, a unit of Salim Group, to refocus on its core alcohol business.

Asahi said it agreed in a non-binding letter of intent with Indofood to sell its stakes in a manufacturing and a distribution company, in which it holds 51% and 49% respectively. The terms remain to be negotiated. The combined worth of the two companies is 2.5 trillion rupiah ($185 million).

Launched in 2012, the joint venture has produced bottled tea and coffee, and absorbed a bottled water business and the local Pepsi bottler. It has struggled for profitability amid intense local competition. In 2016, Indofood CBP's beverage division reported an operating loss of 336 billion rupiah.

Asahi has been focusing back on its alcohol business after acquiring a group of Central and Eastern European beer brands from Anheuser-Busch InBev in late 2016. In June, it announced the sale of its stake in a beverage joint venture in China, but still has a milk drink business in Indonesia.

The divestment highlights challenges in Indonesia's consumer market. Despite a rapidly growing middle class, tight competition, a spending slowdown, and a culture of shopping at family owned micro retail shops have all raised obstacles. The local operator of 7-Eleven convenience stores shut down operations in June.

In a stock exchange filing, Indofood said it "believes that business prospects of non-alcoholic beverages in Indonesia will remain promising in the future, in line with the growth of the middle class and the rising income per capita."

Asahi's decision to pull out nevertheless casts uncertainty on Indofood's bid to diversify from its core instant noodle business. The company dominates the domestic noodle market, which is maturing as consumers move on to more protein-based foods. The company is also facing growing competition in its dairy and snack businesses.

Erwida Maulia in Jakarta contributed to this story

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