Japanese Brewers Playing Catch Up In China (KNBWY)

BusinessWeek online published a good article on the Chinese beer market on Tuesday. In case you didn't know, China is now the largest beer consuming country in the world. But as BW points out: "if the average Chinese were to drink as much as the average Japanese or Korean, the market would more than double in size overnight." Clearly there is a ton of potential, but as always it will take time to tap.

The beer markets in the U.S. and Japan are beyond saturated. Anheuser-Busch (BUD) is now looking at expanding into hard stuff in search of growth.

According to BW, 30 million kiloliters of beer was made in China last year, a 5% y-o-y increase. Of this the market share ranking features just one Japanese brewer -- Suntory.

1. Tsingtao (Anheuser-Busch has 27% stake)
2. CR Snow Breweries (SABMiller has 49% stake)
3. n/a
4. n/a
5. Harbin Brewery (100% owned by Anheuser-Busch)
6. Guangzhou Zhujiang Brewery (InBev has stake)
7. Fujian Sedrin Brewery (100% owned by InBev)
8. Suntory (privately held -- 1.8% market share according to ABN Amro; 60% of Shanghai beer market)
9. n/a
10. Hubei Jinlongquan Brewery (InBev has stake)

* The 3rd, 4th, and 9th ranking brewers were not mentioned in the article.

Kirin Brewery (KNBWY) -- in a constant battle with rival Asahi Brewery for the top spot in Japan -- is the least aggressive in China among its domestic counterparts.

[It] has bought out its Chinese subsidiary and is building a new 200,000 kiloliter factory in Zhuhai, a southern coastal city in Guangdong Province, in 2007. In February, Kirin's incoming chief Kazuyasu Kato made it clear international investment is one means of improving the company's long-term growth prospects. "I'm taking the baton at a time when the company has laid solid foundations for internationalization and diversification," Kato told reporters.

BW closed its article with bitter but true facts for foreign brewers:

Chinese drinkers still prefer cheap, local brews to the more profitable, higher-priced foreign-branded beers.

Small wonder, then, that analysts say brewers looking for short-term gains should go elsewhere. "If you want to make money [quickly], it's not smart to move into China at this stage," says Shinsei's Matsumoto. But with sales slumping at home, Japanese brewers have little choice but to expand their horizons somehow.

Thus, it's no surprise Merrill Lynch (MER) is maintaining a sell rating on BUD's partner #1 Tsingtao because 30% of its 50 breweries are loss-making.

Be sure to warn McDonald's (MCD) as it tries to bring drive-throughs to China with Sinopec (SNP). Huge potential but it could take some time to develop.

(Picture of beer above courtesy of Wikipedia.org)

Comments

[John Christy:]

I'm not sure I agree with BW on this point:

"Chinese drinkers still prefer cheap, local brews to the more profitable, higher-priced foreign-branded beers."

This may be true for the Chinese equivalent of Joe Six Pack, but the upwardly mobile, emerging consumer class is going to gravitate toward more expensive foreign suds.

2006 Jun 24 07:58 PM

[Steven Towns:]

John,

Can't argue with that. Although I would add that having spent 6-months in China in '02, spirits were preferred over beer every time out and even during meals. The only time beer was served was when I asked for it. And oddly enough, a number of times I was served "Western" beer it was warm -- granted during part of my stay it was winter and I was in some rural areas and in more of northern China. I was also surprised to be served warm Cola and Orange soda as well. It wasn't bad at all especially considering how cold it was outside.

2006 Jun 26 11:22 PM