Unilever Indonesia Plans to Buy Makers of Vanilla Tea, Snacks

The company, which started business in the Southeast Asian nation in 1933, is looking to buy companies that make flavored teas and snack-food brands as part of a plan to double sales to $2 billion in the next four years, said Chief Financial Officer Des Dempsey, 59. He declined to name possible acquisitions.

Indonesian tastes are changing as an acceleration in Southeast Asia's largest economy puts more money in people's pockets. In 2003, consumers spent the biggest part of their food budget on grains such as rice, the Central Statistics Bureau said. Now the top item on the grocery list is prepared foods and beverages such as instant noodles, tea and bread.

''The higher the gross domestic product, the more consumers are buying and therefore the higher the sales,'' Dempsey said in an interview in Jakarta on May 3. ''There is a large percentage of the market that is interested in vanilla tea.''

Indonesian President Susilo Bambang Yudhoyono's government forecast growth in the $276 billion economy will accelerate to as much as 6.4 percent next year as inflation slows to about 5 percent from 15.4 percent. Unilever Indonesia, a unit of Rotterdam and London-based Unilever, may need to buy rivals soon to avoid paying a higher price as the economy picks up pace, said Laksono Widodo, head of Indonesian research at Macquarie Securities in Jakarta.

Economic Growth

''We expect the economy to improve in 2007, perhaps most of the (target) companies will try to enjoy it first,'' Widodo said. ''If the economy starts to improve, the valuation of these companies will also rise.''

The 2 Tang Group sells jasmine tea bags and other fruit- flavored tea, while PT Gunung Slamat, a unit of PT Sinar Sosro, Indonesia's biggest ready-to-drink tea maker, sells the Teh Poci Vanilla in tea bags.

Unilever Indonesia may sell bonds if it needs funds to pay for the acquisitions, Dempsey said, without elaborating. Unilever had $87.8 million of cash, and assets valued at $454 million on its balance sheet as of March 31.

Unilever Indonesia's Sariwangi tea bags and Lipton tea brands accounted for 300 billion rupiah ($32 million), or 3 percent, of the company's sales last year. Snack-food sales in the same period contributed 180 billion rupiah. Unilever Indonesia, the Anglo-Dutch parent's biggest franchise in Asia after India, is a market leader in tea bags in Indonesia and controls 28 percent of the market for loose tea in the country.

Vanilla Tea

The company failed after trying to introduce vanilla tea in its Sariwangi brand because ''it's still got the Sariwangi image,'' said Dempsey. ''Any brand we would look at, we would want to make it a market leader, number one or two, nationally and if it has regional potential that would be even better.''

Sales in Indonesia's beverage market have started rebounding after declining two years ago, said Catherine Eddy, executive director at the local unit of market researcher ACNielsen.

''The rising star is the ready-to-drink tea market,'' Eddy said in a response to an e-mail. ''The market is big enough and has plenty of room to grow. As long as the offering is relevant and affordable, I think there is a huge opportunity.''

PT Sinar Sosro controls about 80 percent of the ready-to- drink tea market, said Thomas Darmawan, chairman of the Indonesian Food and Beverages Association. Sosro's brands include Teh Botol and Fruit Tea.

Shares

Shares of Unilever Indonesia have fallen 1.8 percent this year, lagging the 13 percent gain in the benchmark index. They fell 0.6 percent to 4,200 rupiah yesterday. Unilever Indonesia has split its stock twice in the past six years.

Unilever, which sells brands such as Pepsodent toothpaste and Dove soaps through 600,000 outlets, also expects to sell through more shops as economic growth boosts incomes. Indonesia has 1.6 million retail outlets, Dempsey said.

A poor Indonesian family on average uses 5.7 percent of its monthly spending to buy Unilever Indonesia's products, Oxfam, a London-based non-governmental organization, and Unilever said in a report released last year.

The company needs to increase sales as rivals, including Procter & Gamble Co., the largest U.S. consumer-products company, and Colgate-Palmolive Co., the world's largest toothpaste maker, expand in the world's fourth-most populated nation, Widodo said.

Bambang Sumaryanto, spokesman for P&G, didn't reply to e- mails or return phone calls to his office and cell phone. P&G imports the Head & Shoulders and Pantene brand of shampoos from Thailand. Colgate toothpaste is also imported from Thailand.

Allison Klimerman, spokeswoman for Colgate, didn't respond to e-mails and phone calls.

Unilever also faces competition from local rival Wings Group, a closely held company established in 1948 that sells detergents and personal-care products. Bambang Sukrasno, a spokesman for the group, didn't returns calls made to his office.

''There is increasingly more competition,'' said Nicholas Yeo, who helps manage $15 billion at Aberdeen Asset Management in Singapore. He said Unilever Indonesia's long history in the country gives the company ''the advantage of commanding the distribution network.''