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China: Foreign brewers are aggressively tapping the China market, the largest-volume beer market in the world, with a population of of 1.3 billion and annual consumption of only 18.5 liters per person, Asia Times posted on March 2. The possibilities of profit make the mouth water, even more than a cold, frosty beer on a hot day.

Foreign brewers are using multi-pronged strategies to gain entre to the market, and a new round of consolidations, mergers and acquisitions is likely to expand and reshape one of China's most fragmented industries.

China has 500-1,000 breweries - no one really knows how many. The two biggest names, the largest beer makers, are Tsingtao and Guangdong Kingway, but no beer has a strong national presence. There are Great Wall, Green Bamboo, Golden Lion, Golden Lotus, Brigade Light and hundreds more. They tend to be strongly regional brands, a consequence of the market being fragmented by too many brewers, poor distribution and lack of a strong, established advertising culture.

The latest entry into the acquisition fray is Edinburgh-headquartered Scottish & Newcastle, which is to acquire a 19.5 percent stake in Chongqing Brewery Co (CBC) to bolster its presence in China. S&N will initially pay 525 million yuan (US$63.4 million) for 50 million state shares at 10.5 yuan ($1.27) per share. For that S&N gets board representation and becomes the second-largest shareholder of the Shanghai-listed brewer, Chongqing, behind only the Chongqing Beer Group with the largest stake of 34.55 percent.

S&N, which entered a partnership with CBC in the early 1990s, is convinced that this is the way forward for the company and its shareholders, its role in the Chinese market and for Chongqing.

"This investment is a natural evolution of a 10-year year relationship with Chongqing Breweries," John Nicolson, chairman of S&N's international beer division, said in a statement. "Building on this relationship is an excellent way for S&N to become part of one of the biggest and fastest-growing beer markets in the world. We have long admired the strength of the business and its managers and look forward to contributing to its further success."

Market leader Anheuser-Busch, which makes Budweiser and Bud Ice, was candid about these twin themes - why foreign brewers are expanding aggressively into the Chinese market.

In a statement to Asia Times Online, Stephen J Burrows, president and chief executive officer of Anheuser-Busch International Inc, said the company has "a two-pronged strategy for our international business that includes promoting Budweiser as the leading premium beer around the world and investing in leading local brewers in markets with a good volume and profit growth potential".

This is borne out, he said, by the leading position of Budweiser with sales of more than 2 million barrels or 2.38 billion liters (2.38 million hectoliters) in China, and its minority investment of 9.9 percent in Tsingtao Brewery Co Ltd, China's largest brewer.

China, Busch noted, is now the largest-volume beer market in the world, but low per capita consumption, 18.5 liters, in a population of 1.3 billion, creates formidable opportunities for growth.

The same - huge Chinese market potential - can be said of virtually any sector in the nation, and those eyeing the market should be cautious and carefully consider the actual wisdom of acquisition.


02 March, 2004