E-Malt.com News article: China: China’s largest brewer phasing in price rises

China’s biggest brewer is pushing through price rises of 10 per cent – in a sector that has traditionally balked at higher prices – as it seeks to recoup rising business costs, The Financial Times reported on March, 4.

China Resources Snow Brewery, a joint venture between UK-listed SABMiller and China Resources, controls one-fifth of China’s beer market, with estimated sales of $1.3 bln last year. The brewer is phasing in the rises throughout the provinces it operates in, in order to monitor consumer reaction.

“Snow started putting up prices in some places at the end of last year and has not completed the whole process. We hope if we can make the process successful ... we could increase prices [throughout our dominant markets],” said Humor Wang, general manager of China Resources Snow Brewery.

Analysts expect the industry to follow suit; some of which is already in evidence. But they warn that beer drinkers have historically proved quite sensitive to price and any move for an increase could have an impact on volumes.

Yet the price rise – roughly double that of inflation in the country – will simply cover Snow’s inflated running costs, analysts said.

That means that, in contrast to the some of the global price rises put through by manufacturers in the wake of the last commodity spike of 2007-08, none of the increase will drop through to the company’s bottom line.

Paul Knobel, SABMiller’s director of operations for China, added that large businesses in the country already tend to have lean operations, making it harder to absorb input inflation by cutting costs.

“The selling price is going up around 10 per cent and I think we will need most of that in order to protect [profit] margins, so I don’t see a major change in the margin structure,” he said.

Wages in China are rising by double digits, and many provinces are introducing minimum wages.

Mr Knobel adds that government’s efforts to transform the energy sector mean that the “closure of certain plants is driving a supply-led issue in terms of pricing”.

On taxes, he cites the equalisation of taxes for local and foreign companies that came into effect at the end of last year. Following the change, companies like Snow are now obliged to pay additional levies of between 4-11 per cent, depending on where there assets are located.

“All of our costs are rising. We are responding in terms of pricing. We think the market can take some [higher] pricing,” he said, adding that it was too early to judge consumer reaction given advance purchases and the recent Chinese New Year, which boosts sales.


09 March, 2011