E-Malt.com News article: 1329

China will see the entry of more foreign brewery companies in the coming years, while local players will merge into larger brewery groups to meet growing competition, analysts said, according to AFX News Limited. Wang Feng, a brewery analyst with Guotain Junan Securities Co Ltd, said there is still a huge potential in the country for overseas brewers despite the entry of many global players in recent years, as domestic brewers still command about 70% share of the Chinese market.

Tsingtao Brewery Co Ltd accounted for 19.17 % share of the domestic beer market in 2002, with Anheuser-Busch's Budweiser holding 10.85 %, and Beijing Yanjing Brewery Co Ltd claiming an 8.01 % share. Wang said Tsingtao Brewery recorded 6.8 bln yuan in sales last year, followed by Yanjing Brewery with 4.8 bln, Zhujiang Brewery with 2.8 bln, and Budweiser ranking sixth with 1.54 bln. (1 usd = 8.3 yuan)Tsingtao Brewery also took the lead in beer output last year with 2.98 mln tons, followed by Yanjing Brewery with 2.09 mln, Harbin Brewery with 990,000, Zhujiang Brewery with 680,000, Chongqing Brewery with 750,000 and Budweiser with 207,000 tons, ranking a distant eighteenth.

Driven by stagnant beer demand in their home countries and huge growth potential in the Chinese market, many foreign brewers have ventured into the mainland recently mostly through joint ventures, Wang said.

Last month, SABMiller acquired a nearly 30 % stake in Harbin Brewery Group for 87 mln usd to consolidate its position in China -- a market it first entered in 1994 through joint venture China Resources Breweries. Also in June, Anheuser-Busch more than doubled its stake in Tsingtao Brewery from 4.5 % to 9.9 % by exercising a convertible bond option. The beer giant plans to ultimately increase its stake in the mainland's top brewery to 27 % over the next several years.

Carlsberg AS unit Carlsberg Asia Pte Ltd, meanwhile, purchased the entire share capital of Dali Beer (Group), the largest brewery in the southwestern Yunnan province in June, after its acquisition of another local brand, Kunming Huashi Brewery, in January.

In April, Belgium's Interbrew Group purchased a 70 % stake in the brewing operations of China's KK Group for 35 mln usd. Interbrew entered China in 1984 and provides brewing technology to several Chinese brewers, including Zhujiang Brewery in the southern Guangdong province and Five Star Brewery in Beijing.

Other foreign beer companies invested or planning to invest in China include Australia's Fosters, South Korea's Hite Brewery, and San Miguel Brewery Hong Kong Ltd.

According to Wang, China's beer market is currently fragmented, with nearly 1,000 regional brewers, with only a few leading national players like Tsingtao and Yanjing. "To survive the competition, smaller brewers will likely merge with foreign or stronger local peers, with about 200-300 domestic brewery groups to emerge in the coming two to three years," he said.

While acknowledging that mergers and acquisitions are the likely trend in the sector, Jiang Jian, a brewery analyst with Haitong Securities Co Ltd, sees a slightly different picture -- the emergence of 10-15 brewery groups over the next five years.

Both are in agreement that the current domestic brewery heavyweights, including Tsingtao, Yanjing, Zhujiang and Harbin, will continue to dominate the market in the near future, although their marketshare is likely to shrink due to continued foreign expansion in the country.

Following Tsingtao Brewery's successful overseas ventures, the country's No. 2 Brewer, Yanjing Brewery, also tested waters in overseas markets.

Earlier this year, it signed a 1 mln usd sponsorship agreement with Chinese basketball star Yao Ming in the US, with the company's logo to appear in various formats and media in Texas, where Yao Ming is based.

However, analysts are of the view that local breweries should focus more on maintaining their domestic marketshares rather than venturing overseas.

At 6 bln usd in annual sales, China's beer market is the world's second largest after the US. And with volume growth running about 6 pct annually, its growth vastly surpasses that of the US market, which is growing barely 1 %.

Analysts said China is poised to overtake the US in becoming the world's largest beer market in the next few years.


18 July, 2003