Tsingtao and Japan's Suntory in beer venture

PUBLISHED : Thursday, 07 June, 2012, 12:00am
UPDATED : Thursday, 07 June, 2012, 12:00am


Tsingtao Brewery and Japanese beverage company Suntory have agreed to jointly produce and sell beer in eastern China.

With their home market shrinking, Japanese brewers have been looking to expand in China, the world's biggest beer market with an annual consumption of 45 million kilolitres in 2010, twice that of the United States. Suntory's rival Asahi already holds about 19 per cent stake in Tsingtao.

Tsingtao and Suntory will have an equal stake in the joint venture, which will pool their production and distribution networks in Shanghai and Jiangsu province. Suntory will inject 1.35 billion yuan (HK$1.65 million) of cash in for a 50 per cent stake, according to a filing with the Hong Kong stock exchange yesterday.

'By combining their assets, the joint venture will get a 30 per cent market share in eastern China,' said Katherine Song, a beverage analyst at Sinopac Securities. 'It will increase their bargaining power over the fees and charges levied by retail chains on the mainland.'

But the joint venture is unlikely to help Tsingtao's earnings in the near term.

'The combined joint venture will bring limited earnings accretion to Tsingtao this year, yet there would be potential synergy from pricing power given the dominant market share,' a Merrill Lynch report said yesterday.

To consolidate their sales and distribution networks, the two companies will form a joint sales company. All Tsingtao and Suntory beer produced in the region will be distributed through this company, in which the two companies will invest 35 million yuan.

The consolidation of sales and marketing resources could deliver considerable savings. Suntory's sales and marketing company last year saw losses of over 173 million yuan, while Tsingtao's losses jumped 300 per cent year on year to 125.9 million yuan.

With Shanghai's beer market shrinking in recent years, the net profit of Tsingtao's beer operation last year was down to just 22.6 million yuan from 58.48 million yuan the year before. Suntory's beer operation in Shanghai and Kunshan saw 320,000 yuan of losses last year, an improvement over the 5.4 million yuan losses it recorded in 2010.

Total beer sales in Shanghai dropped from 726,000 tonnes in 2008 to 509,000 tonnes last year.

Tsingtao shares rose 2.6 per cent to HK$49.3 yesterday on news of its alliance with Suntory.