Taiwan Tobacco & Liquor Corporation

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Taiwan Tobacco & Liquor Corporation

No. 4, Nanchang Road, Section 1
Taipei
Taiwan
Telephone: +886 2 2321-4567
Fax: +886 2 2397-2086
Web site: http://www.ttw.gov.tw

State-Owned Company
Incorporated: 1901 as Monopoly Bureau of Taiwan Governor's Office
Employees: 7,000
Sales: TWD 64.23 billion (2004)
NAIC: 312221 Cigarette Manufacturing; 312210 Tobacco Stemming and Redrying; 312229 Other Tobacco Product Manufacturing; 312120 Breweries; 424810 Beer and Ale Merchant Wholesalers; 424820 Wine and Distilled Alcoholic Beverage Merchant Wholesalers

Taiwan Tobacco & Liquor Corporation (TTL) is Taiwan's leading manufacturer and distributor of beer, wine, and tobacco products. The company, the operational arm of the former Taiwan Tobacco and Liquor Board monopoly, has retained control of more than 80 percent of the island's beer market, 53 percent of the liquor and wine market, and 45 percent of the tobacco market since the total abolition of the government's monopoly on these markets in 2002. TTL's leadership is based on popular and dominant brands such as Taiwan Beer, Long Life cigarettes, YuSan Kaoliang, and other traditional alcoholic beverages. The company operates nine wineries and distilleries and three breweries, as well as cigarette production facilities. TTL also operates its own 135-branch retail chain, and distributes its product through more than 50,000 sales outlets, including other retailers, vending machines, street sellers, and the like. Formed in 2002, TTL is slated to be privatized as part of the Taiwan government's commitment to meeting conditions imposed by its acceptance into the World Trade Organization (WTO). The company public offering is expected to be completed by 2006, but has been slowed by labor union disputes. Although most of TTL's sales remain focused on the Taiwan market, the company also ships a number of its brands, including flagship Taiwan Beer, worldwide, with major markets including Japan and the United States. TTL has begun an attempt to enter the mainland Chinese market, but has met resistance from the Chinese government.

From Colonial Monopoly to State-Owned Treasure Chest in the 1940s

The Taiwan Tobacco & Liquor Corporation stemmed from the Japanese occupation of the island at the end of the 19th century. The colonial governor quickly set up a monopoly controlling the island's lucrative opium production through the establishment of the Taiwan Pharmaceutical Factory. By the beginning of the 20th century, the colonial government had extended its monopoly to include salt and camphor as well. Initially, these products were placed under separate bodies, including the Taiwan Salt Bureau and the Taiwan Camphor Bureau. In 1901, however, these, together with the opium factory, were placed under a single body, the Monopoly Bureau of the Taiwan Governor's Office.

Taiwan developed its own tobacco industry in the early years of the 20th century, as a large number of Taiwanese farmers converted their lands to growing tobacco. The rise of tobacco use on the island created a lucrative and, in large part, captive revenue stream, and the Monopoly Bureau quickly extended its range, taking control of Taiwan's tobacco monopoly in 1905.

Taiwan's alcoholic beverage market, at least among the native Chinese population, remained dominated by traditional Chinese wine and liquor varieties, such as the rice-based Shaohsing, and Kaoliang, distilled from sorghum. The Japanese taste for beer, imported from Japan, soon began to spread among the Taiwanese, however. By the end of World War I, demand for beer had grown sufficiently to necessitate the construction of a brewery in Taiwan itself. By 1919, the island's first brewery, in Chienguo, had launched production.

Initially, the Chienguo brewery's production was rather limited, at just 1.5 million bottles per year. Yet Chienguo Beer, as it was originally known, became an instant hit among the island's beer drinkers, and especially among the Japanese, who brought the beer brand home with them. Before long, the Chienguo factory had begun to export its beer to Japan, where the brand rivaled even that market's dominant beer brand, Sapporo. Soon, beer exports had exceeded beer imports.

The popularity of the Chienguo brewery's beer provided the colonial government with a new and fast-growing revenue stream. In 1922, therefore, the Monopoly Bureau extended its reach again, to include production and sale of alcoholic beverages. Throughout the remaining two decades of Japanese occupation, the Monopoly Bureau continued to add new monopolies, including matches and even the standardization of weights and measures used on the island. In 1943, the Monopoly Bureau added petroleum products to complete the scope of its monopoly holdings.

The end of Japanese occupation following World War II spelled the end of the Monopoly Bureau. Yet control of the various sectors under that bureau offered a strong source of revenue for the newly installed Taiwan Government Executive Administration Office. In 1945, the Chiang Kai-shek-led government created a new body, the Taiwan Provincial Monopoly Bureau, which took over the monopolies on tobacco, liquor, camphor, matches, and weights and measures. That body was reformulated as the Taiwan Tobacco and Wine Board in 1947. At this time the board's oversight was reduced to just three monopolies: camphor, wine, and tobacco. In 1951, the board, previously a self-standing entity, was placed under the control of the Finance Department. In 1968, the board's role was further streamlined to its two major revenue streams, alcoholic beverages and tobacco.

Throughout the decades of military dictatorship in Taiwan, the Tobacco and Wine Board played an important role as a financial motor for the country's rapidly evolving economy. The strong revenue stream and consistent profits enabled the government to invest in developing new industries, particularly Taiwan's thrust into the electronics sector in the late 1970s and 1980s. The Tobacco and Wine Board also developed an extensive sales network around Taiwan, setting up its own retail stores (more than 135 by the mid-2000s) and developing a network of more than 50,000 sales outlets throughout Taiwan.

As the sole producer and distributor of alcoholic beverages and tobacco products for Taiwan, the board was responsible for ensuring that production levels met consumer demand. As such, and as Taiwan's population grew, the board added new factories, breweries, and other production sites around the island. The board also built up a portfolio of brand names, not least of which was its Taiwan Beer brand, based at the original Chienguo brewery. Over time the Taiwan Beer brand became the board's international spearhead, following the Taiwanese expatriate community to the United States in particular, but also rebuilding a following among Japanese consumers as well. Another brand created by the board at this time was the incongruously named, but highly popular, Long Life brand of cigarettes. Other brands included Prosperity Island, Triumph, and President. At the same time, the board oversaw production of the group's other alcoholic beverages. This segment, however, remained limited, in large part, to the traditional Chinese spirits, Shaohsing and Kaoliang.

Free Market Competitor in the 2000s

The end of military dictatorship in Taiwan in the mid-1980s brought about the first steps toward a liberalization of the state's alcoholic beverages and tobacco minority. The creation of a democratic structure led to the creation of a liberalized, market-driven economic policy, and to Taiwan's aspirations for joining the World Trade Organization (WTO). As part of that effort, the government began lowering trade barriers, including abolishing its monopoly over tobacco and alcoholic beverages. In 1987, the government took the first step toward full liberalization of both of these markets by allowing the first imports of wine into Taiwan. Under pressure from the U.S. government, Taiwan also accepted the first imports of U.S. cigarette brands that year. These were followed by imports of European tobacco products soon after.

Consumer acceptance of grape-based and other fruit-based wines was slow; as such the board's control over the Taiwanese alcoholic beverage market remained solid. Nonetheless, as wine drinking grew in popularity in Taiwan, entering a boom phase in the mid-1990s, the board diversified its production as well, adding its own wine varieties.

The Taiwanese consumer responded more quickly to the arrival of the first foreign whiskey imports, authorized in 1991. By 1992, the country had widened its spirits imports to include brandy, gin, and other spirits. Into the 1990s, the board saw its market share shrink rapidly, and by 1998, imports represented nearly 25 percent of the alcoholic beverage market. Helping to offset the board's dwindling market share was a steady increase in Taiwanese alcoholic beverage consumption. At the same time, the board remained relatively protected by a system of tariffs on imports. Although some imports, particularly those from Japan, were less heavily taxed than others, the system nonetheless helped buffer the board from full-scale competition into the late 1990s.

Taiwan's commitment to meeting the requirements of WTO membership by 2002 brought a new effort by the government to liberalize its markets. In 1999, the government implemented a new Tobacco & Alcohol Administrative Law (or TAAL). The new legislation provided the blueprint for the conversion of the board into a private enterprise and the introduction of full-fledged competition in both the tobacco and alcoholic beverage markets. As part of that process, the board was split into two parts. The board's administrative function was regrouped into a new bureau, placed under the Ministry of Finance. Meanwhile, the board's production and distribution units were regrouped into a new state-owned corporation. At the same time, the government leveled import taxes and duties.

Company Perspectives:

Business Mission: To create a dignified working environment for employees; To protect the health of the consumption of tobacco and liquor; To insist on innovation, assertiveness, responsibility, honesty and faith.

The restructuring of the board lasted into the early 2000s. Finally, in 2002, the breakup was completed, and a new corpo-ration, Taiwan Tobacco & Liquor Corporation, was formed. The creation of TTL also marked the launch of full-scale competition, including the admittance of the production of alcoholic beverages by private companies. That process had been started in 1999, with the production of wine and other fermented beverages. Production of distilled spirits was permitted in 2001. The brewing of beer followed in 2002, and signaled the start of TTL's own move toward private control.

TTL began preparing for a future public offering, targeting 2005 as the date of its transformation into a private enterprise. That process was hampered, however, by the need to reach agreement with the company's labor union, particularly involving projected cuts of more than 1,000 workers from the company's payroll. TTL also was burdened by its obligation to purchase tobacco from Taiwan's tobacco farmers, despite the fact that the company's warehouses were already overstocked.

In the meantime, the appearance of new domestic producers had begun to take a toll on TTL's sales. By 2005, the group's grip on the local liquor and wine market had slipped to 53 percent. The company's share of the tobacco market also had suffered, dropping to 45 percent. Only the group's Taiwan Beer subsidiary appeared to withstand the tide of competition, but the group's control of the Taiwan beer market had slipped back to 80 percent by 2005.

To shore up its sagging sales at home, TTL began instituting its own international expansion strategy. While continuing to target the U.S., Japanese, and European markets, TTL's main target became the Chinese market. The company chose its Long Life brand as the spearhead for its entry into the Chinese market, sending over a first shipment in late 2004. At the same time, TTL prepared to launch its Taiwan Beer brand onto the mainland. This effort was held up, however, by the Chinese government, apparently in retaliation for the re-election of independence-minded President Chen Shui-bian. Nonetheless, China, which also sought entry into the WTO, was expected to play by the rules. With the world's largest consumer population just a short boat ride away, TTL appeared certain to remain a major name in the tobacco and alcohol markets in the region.

Principal Divisions

Marketing & Sales; Liquor; Beer; Tobacco.

Principal Competitors

Shanghai Cigarette Factory; Sumatra Tobacco Trading Company, N.V.; Chuxiong Cigarette Factory; Ben Thanh Tobacco Co.; Japan Tobacco Inc.; Central Group of Cos.; Itochu-Shokuhin Company Ltd.; Yamae Hisano Company Ltd.; Nanlien International Corporation.

Key Dates:

1901:: The Monopoly Bureau of Taiwan Governor's Office is established to control opium trade, as well as the salt and camphor monopolies.
1905:: Monopoly is extended to include tobacco.
1919:: Chienguo Brewery, the first to brew beer in Taiwan, is founded (it later adopts the Taiwan Beer brand).
1922:: Alcoholic beverages are placed under government monopoly.
1947:: The Taiwan Tobacco and Wine Board, which oversees the tobacco, alcohol, and camphor monopolies, is created.
1968:: The board's control over the camphor monopoly ends.
1987:: Taiwan accepts imports of wine and cigarettes for the first time.
1991:: Imports of whiskey are allowed.
1992:: Imports of brandy, gin, and other spirits are allowed.
1999:: The government passes a new Tobacco & Alcohol Administrative Law; private domestic production of fermented beverages is allowed.
2001:: Private domestic production of spirits is allowed.
2002:: TTL is created as a state-owned corporation, including the production and distribution operations of the former board; private domestic production of beer is allowed.
2004:: TTL launches the Long Life cigarette brand in mainland China.
2005:: TTL prepares for a public offering and privatization.