E-Malt.com News article: China: AB InBev-SABMiller merger may force Tsingtao to fight harder for survival

The potential megamerger between Anheuser-Busch InBev and SABMiller lifted shares of beer makers globally, but one brewer’s rally seems misguided, The Wall Street Journal reported on September 18.

Shares of Tsingtao Brewery, China’s second-biggest beer maker, rose sharply on September 17 on hopes that the creation of a global beer giant would reduce competition in the industry, and hence put a halt to its sliding business. But that seems unlikely.

A combined AB InBev-SABMiller would control over 40% of China’s beer market, boosting a portfolio of brands including Snow, the world’s largest-selling beer, in addition to top sellers Harbin Beer and Budweiser.

To face off against such a giant, Tsingtao would either have to spend more on marketing to retain market share or go on a buying spree to achieve growth.

And though Tsingtao appears to have gained market share in the past few years, the brewer has been losing out where it truly matters—in the premium segment. There, Tsingtao’s market share fell to 10.7% last year from 15.3% in 2009, according to Euromonitor, while AB InBev’s rose to nearly 50% from 45%.

The market-share loss has intensified this year as sales volume of Tsingtao’s principal brand—considered premium—fell 6.6% in the first half, while AB InBev’s Budweiser brand—also in the premium category—showed double-digit growth.

Though there has been a crackdown on luxury consumption, beer seems to be somewhat immune. In volume terms, Chinese drinkers’ consumption of premium brews was up 19% last year, even as the overall beer market stalled. But sales grew even faster, at a 31% clip, a sign brewers have pricing power in the category.

Tsingtao cut marketing costs when more spending was needed for brand awareness and image building. Its sales, general and administrative expenses accounted for 23.6% of sales in the first half, compared with nearly 40% for AB InBev’s Asia Pacific operations. To catch up in premium-segment market share, Tsingtao will have to outspend peers, putting a serious strain on its earnings.

As for growth through acquisition, Tsingtao’s track record isn’t particularly impressive. Both AB InBev and China Resources Snow, the joint venture between SABMiller and China Resources Enterprise, have been far more aggressive in buying up rivals in China in the past few years, including taking over Kingway Brewery in 2013.

It’s always possible that the bump in Tsingtao’s stock price reflects speculation that it will become an acquisition target itself. But history suggests a foreign takeover of such an iconic national brand would be tough to push through.

Instead of benefiting from a more concentrated market, Tsingtao likely has to fight even harder for survival.


18 September, 2015