Buddy System Helps in China’s Brewery Industry
Anheuser-Busch Cos. and SABMiller, the two largest brewers in the world, are buying into two century-old breweries in China, intensifying a battle to become top foreign brewer in the world’s biggest beer market.
SABMiller, maker of Lowenbrau, Miller and other brands, paid $86.6 million last week for 29.6% of Harbin Brewery Co., founded by Russians in 1898. The deal gives the world’s No. 2 brewer stakes in 31 China brewing firms.
Anheuser-Busch, meanwhile, is converting $36 million of Tsingtao Brewery Co. bonds into an ownership stake as part of an agreement to give the St. Louis-based brewer 27% of China’s biggest beer maker in seven years. Tsingtao, founded by Germans 100 years ago, owns 47 breweries.
Anheuser-Busch, SABMiller and other foreign brewers are turning to Chinese partners after those who raced into China on their own in the early 1990s found consumers hostile to higher-cost beer. Philippine-based Asia Brewery Inc. sold a Shanghai brewery that lost money for six years. Lion Nathan Ltd., based in Australia, has yet to make a profit after eight years in China.
So what’s the attraction to China now? Its brewing industry is so fragmented and many of its breweries so unprofitable that overseas brewers can pick up stakes for low prices.
“They have learned the lessons of the past,” said Joe Zhang, head of research at UBS in Hong Kong, of the new approach taken by foreign breweries. “They are dipping their toes back into China, but ... new strategy is to acquire struggling existing breweries.”
Earlier this month, Carlsberg, the world’s fifth-biggest brewer, bought closely held Dali Beer Group Ltd., its second acquisition in five months in China’s Yunnan province, for an undisclosed price. In November, Belgian firm Interbrew agreed to buy 24% of Zhujiang Brewery Co., China’s fifth-largest, for $19.5 million.
“It’s cheaper and faster for overseas beer makers to add production capacity and expand their market share,” said Wendy Huang, an analyst with Core Pacific-Yamaichi Hong Kong Ltd.
Foreign investors have less than a 10th of a market that produced almost 24 million tons of beer last year. Market growth has averaged 11% a year in the last decade, while the number of independent brewers has declined in four years to 200 from 500, Zhang said.
“But even 200 is a very large number,” he said. “For the sector to achieve a decent profit, we believe much more has to be done by way of consolidation.”
SABMiller, which was created by South African Breweries’ $5.6-billion acquisition of Miller Brewing Co. last year, didn’t say whether any of its big-name brand beers would be made in China. The company makes Snowflake and Blue Sword brands in China, in partnership with China Resources Enterprises Ltd.
SABMiller holds a 49% stake in a brewing venture with Hong Kong-listed China Resources, controlled by China’s foreign trade ministry. The venture owns 30 breweries. SABMiller has been quoted by Chinese media saying the venture plans to overtake Tsingtao as the nation’s biggest brewer.
Tsingtao, celebrating the centenary of its founding in the eastern seaport of Qingdao when it was a German concession, increased its market leadership to 12.5% from about 5% in recent years by acquiring small, unprofitable breweries in the country.
Partner Anheuser-Busch also produces beer at a factory in the central city of Wuhan that it acquired for $52 million in 1995 and upgraded for $150 million. The factory has an annual production capacity of 250,000 tons of beer.
