E-Malt.com News article: 2040

SABMiller's plans to become China's biggest brewer are being challenged by a recent scramble for acquisitions by multinational brewers as China starts to surpass the US as the world's largest beer market. According to figures from Japan's Kirin Brewery, beer consumption in the US was 23,8billion litres last year, while China's was 23,5-billion litres. However China could have outstripped the US in beer consumption by the time final figures became available.

Despite the size of the market, consumption in China remains well below international averages. The Chinese consume about 18 litres of beer a head a year against America's 84 litres, indicating considerable potential for growth. The market is currently estimated to be growing at about 6% a year. However, the Chinese beer industry has been a difficult place for local and foreign breweries. More than 400 brewers compete fiercely for share in an oversupplied market and incomes are low, which results in cheap beer and lean margins.

Two foreign breweries Foster's of Australia and Carlsberg of Denmark contracted operations in the mid-1990s, owing to lack of profitability, though Carlsberg has been on the acquisition trail again recently. SABMiller entered China in 1994 through a joint venture with China Resources Enterprises in China Resources Breweries (CRB) and the venture has made several subsequent smaller acquisitions. Last year, it added to its portfolio by buying 29% of Harbin Brewery, described as China's fourth-largest brewery.

An analyst, who asked not to be named, said CRB and Harbin together were expected to overtake China's largest brewer, Tsingtao, in size. Tsingtao's market share is estimated at almost 13% in a market in which statistics are not particularly reliable. Two years ago, SABMiller stated its aim of becoming China's largest brewer within five years. But it faces some determined opposition.

Last year, Anheuser-Busch, the world's No1 brewer of the wellknown Budweiser brand, doubled its stake in Tsingtao to 9,9%. This stake will increase to 27% over the next seven years through the conversion of debt to equity. AnheuserBusch also brews Budweiser at a separate operation in Wuhan.

Last September, Belgian brewer Interbrew which is third in size in the world after Anheuser-Busch and SABMiller bought 50% of Malaysian Lion Group's brewing operations in China, which it said would make it the third-largest brewer in China with a market share of about 9%. It has an option to buy the other 50% within a year.

Last month, UK brewer Scottish & Newcastle bought almost 20% of Chongqing Brewery, a Shanghailisted group described as China's third-biggest brewer.

Earlier this month, Dutch brewer Heineken announced a restructuring of its Asia Pacific operations with its Chinese businesses and said it would start brewing Heineken in China.

As long as profitability remains difficult to achieve, China's market will lag in importance, but the current consolidation trend holds good prospects for the brewers who take a long-term view.


16 January, 2004