Japanese Brewers Playing Catch Up In China (KNBWY)

 |  Includes: AHBIF, KNBWY
by: Steven Towns
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 (NYSE: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 (OTCPK: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 (NYSE:MCD) as it tries to bring drive-throughs to China with Sinopec (NYSE:SNP). Huge potential but it could take some time to develop.

(Picture of beer above courtesy of Wikipedia.org)