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AB-InBev deal may reshuffle Chinese market

By Yu Tianyu (China Daily)
Updated: 2008-07-31 16:45

Integrations and mergers are usual in the beer industry as the concentration ratio of the sector has been intensified. Emerging powerful enterprises are impetus for Tsingtao Brewery, a source from Tsingtao Brewery Co said in an earlier media report.

"Impacts of the combination are unclear for Tsingtao," another source with Tsingtao Brewery told China Daily, refusing to leak more details.

For Tsingtao, which claims 35 percent of the premium market, a deal would not likely change its shareholding structure, analysts said.

"Tsingtao does not care who the shareholder is, AB or InBev - it makes no difference to them," said Lei Yang, an analyst for ABN AMRO based in Shanghai, adding that Tsingtao's foreign partner doesn't play a big role in its decision-making and strategy.

An Analyst from Datong Securities added that Tsingtao still possess advantages as it has been constantly working on improving its product structure, ensuring its growth of profits.

In addition, Yanjing is planning to issue 110 million shares in a bid to reform its brewing technologies and its production capacity will be greatly improved if it is completed.

Unlike many of its competitors that are adopting foreign capitals, it is not necessary for Yanjing to follow suit, said an officer from Yanjing Brewery.

Yet, in the last two years, Yanjing's profit margin and market share has not improved, said Li Zhiqi, CEO of China Brand Consultation Team, adding that considering capital and technology, it was better for Yanjing to accept support from foreign enterprises.

"The combination will take time and it will not have much of an influence on the Chinese market in a short time. We are paying close attention on it, " said a source with CR Snow.

InBev and AB did not comment on plans in integrating into the Chinese market.

InBev could face many problems, including how to build up a brand system in China and how to gap the difference of enterprise culture among the two combined companies.

An alcohol salesman surnamed Li, at VICS Club, one of the popular night clubs in Beijing, said that Tsingtao beer was one of the most popular brands, even more welcomed than Carlsberg and Corona Extra.

Owner of Erge Kebab at Dongsi in Beijing said, according to his experience of running small restaurants in different cities in China, people eating at chophouses preferred local beer than beer imported from other provinces. For example, Beijingers would like to drink Yanjing beer more than Qingdao or others.

Apart from the three major brands in China, some regions have developed their own brands such as Zhujiang beer in Guangdong province and Yanjing beer in Beijing, said Hu Xueyan, analyst of Central China Securities.

"Chinese breweries should take a positive attitude to strengthen its core competitiveness in order to weaken the impact of foreign enterprises," said Xu Biao, analyst of CITIC Securities.

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