AB-InBev deal may reorganize its market in China
US brewer Anheuser-Busch Cos Inc (AB) accepted a sweetened $52 billion takeover bid from Belgium-based InBev in July, creating the world’s largest beer maker, which will occupy a quarter of the world’s beer market, with Budweiser as its flagship brand.
The deal indicates the willingness of international beer giants in the sector to cooperate on a higher level.
Based on a statement published on InBev’s website, InBev’s China business in southeastern China will be enhanced by AB’s strength in northeastern China. In China, the two companies’ footprints in China are complementary.
Since its entrance into Chinese market in 1984, InBev has owned 33 private and joint-venture factories with an annual capacity of four million kiloliters. The company, having partnerships with smaller Chinese players including Zhejiang Shiliang Brewery, ranks No 3 in the sector in China currently and owns 100 percent of Fujian Sedrin Brewery.
After the deal, it will obtain AB’s ownership of the Harbin Brewery Group’s 13 breweries, as well as 27 percent stake in China’s Tsingtao, the leading Chinese premium brewer.
Plus, InBev will own AB’s Budweiser, which is a strong and growing brand in China and Corona Extra, which is No 5 brand globally.
“The new company will take up 25 percent of China’s total beer production.” said Xiao Derun, director of the Beer Branch of China Alcoholic Drinks Industry Association.
China’s No 1 brewery, CR Snow, produces 6.9 million kiloliters annually in the region. The new combined company is to become the largest beer maker in China with a capacity of 10 million kiloliters annually.
It is predicted that there will be a competition between InBev and CR Snow in coming years.
SAB Miller, one of the world’s largest breweries based at South Africa, purchased 49 percent of CR Snow, which making it become China’s top beer maker within two years.
However, China’s beer industry is expected to be recognized as the market used to be dominated by CR Snow, Yanjing and Tsingtao, after InBev’s deal with AB.
On the deal, which would threaten or pressurize China’s three major breweries, there are various opinions between analysts and industry insiders.
Guo Yanhong, director of Corporate Affairs of InBev China said: “So far, the merger hasn’t had an Impact on Chinese market.”
An analyst from Datong Securities echoed that the speed of InBev’s deployment in China would not be rapid, so there might not be large change in the industry structure this year.
As the concentration ratio of the sector has been intensified, it’s usual to see integrations and mergers in the beer industry. A source from Tsingtao Brewery Co said in an earlier media report that emerging powerful enterprises are impetus for Tsingtao Brewery.
Another source with Tsingtao Brewery told China Daily: “Influence of the combination is still unknown for Tsingtao.” But he refused to say any details.
A deal would not likely change its shareholding structure for Tsingtao, which claims 35 percent of the premium market, analysts said.
Lei Yang, an analyst for ABN AMRO based in Shanghai, said that whether AB or InBev is the shareholder made no difference for Tsingtao, adding that Tsingtao’s foreign partner doesn’t play a big role in its decision-making and strategy.
As Tsingtao has been continuously working to improve its product structure to ensure its growth of profits, it still posses advantages, said an analyst from Datong Securities.
Additionally, Yanjing intends to issue 110 million shares in a bid to reform its brewing technologies and its production capacity will be improved if the plan is finished.
An official from Yanjing Brewery said that unlike many of its competitors which are adopting foreign capitals, it is not necessary for Yanjing to follow suit.
Li Zhiqi, CEO of China Brand Consultation Team, pointed out that in the last two years, Yanjing’s profit margin and market share has not enhances and in regards to capital and technology, it was better for Yanjing to accept support from foreign enterprises.
It is said that the combination will neither cost time nor have much impact on the Chinese market in a short period. We are paying close attention on this.
On the plan in integrating into the Chinese market, InBev and AB did not give any comment.
There are many problems for InBev, including how to build up a brand system in China and how to gap the difference of enterprise culture among the two combined companies.
At VICS Club, one of the popular night clubs in Beijing, an alcohol salesman surnamed Li, said that Tsingtao beer was one of the most popular brands, even more popular than Carlsberg and Corona Extra.
“According to my experience of running small restaurants in different cities in the country, people like local beer rather than beer imported from other places.” said the owner of Erge Kebab at Dongsi in Beijing.
Except the three major brands in China, some regions also have developed their own brands like Zhujiang beer in Guangdong and Yanjing beer in Beijing, said Hu Xueyan, analyst of Central China Securities.
Xu Biao, analyst of CITIC Securities, said: “Chinese breweries should have a positive attitude to enhance its competitiveness to weaken the influence of foreign companies.”
Are you interested in the business opportunities in China?
China is one of the world’s great growth markets and is likely to be for many years to come. Foreign companies often face difficulties in assessing Chinese market demand and enacting effective strategies because of the language barriers, culture differences, and high expense.
BPOVIA is the leading virtual assistant and Knowledge process outsourcing (KPO) service provider in China. BPOVIA is the only virtual assistant company ever been nominated for the prestigious “Red Herring 100 Asia” Awards 2008. Combines international perspective with local know-how, BPOVIA can provide our clients China business development service and help our clients doing successful business in China.
Please visit http://www.BPOVIA.com/ for details about our service.
Popularity: 9%