Brewers race for shrinking share
THE battle for the mainland's beer drinkers is about to become more ferocious, as intense competition forces the foreign brewers to sell off their factories or enter cost-cutting partnerships with their rivals.
This year has seen several international brewers sell off large chunks of their production plants. Foster's has announced it is to sell two of its three factories (one deal is already believed to be tied up) to stem the A$42.2 million (about HK$202.16 million) losses the company has incurred on the mainland in the last year. In March, CP Group sold its stake in a joint-venture brewery in Shanghai to partner Heineken.
Sales have been poor for some years, but the losses are mounting.
'There's been a huge over-estimation of the market,' general manager of the mainland division at Heineken Hong Kong Rob Marijnen said.
Consumption is still low on the mainland, at about 15 litres per person a year, compared to 70-90 litres in Europe and the United States.
But despite yearly growth rates of more than 20 per cent from 1985 to the mid-1990s, profits have still been elusive.
Even in leading cities, where consumption levels have risen to about 30-40 litres per person, the spending power is not necessarily there.
'The beer consumption is greater as you go north but the purchasing power is weaker,' Danish brewer Carlsberg said.
Mercer Management Consulting vice-president Paul Clifford, who until recently worked in the beer industry, said price wars among the foreign brewers had cut profits further.
'The foreign breweries are tied up in slugging it out for market share,' he said. 'It's been at the expense of profitability.' Imported beers are unable to compete on price with the 650-odd local brews and premium beer sales are still accounting for only about 10 per cent of the 180 million hectolitre mainland market. The slowdown in economic growth, the devastation of the floods and poor summer weather have combined to dampen sales further.
In recent months, a number of new microbreweries in Shanghai and Beijing have cut further into the sales of premium beers.
Those that are not selling off production capacity are now looking for other ways to economise.
'Everyone is trying to restructure and cut costs,' said Norman Sze, partner at Arthur Andersen in Shanghai. He said many breweries were looking at ways to improve distribution.
'[Some] joint-venture brewers are having all kinds of internal discussions with each other to economise [on] production capacity, which is a strange phenomena - you've never seen it before,' Heineken's Mr Marijnen said.
Among the proposals is a production-swapping arrangement, which might see a northern brewery produce some of a rival's brand at its plant for distribution in the north, in return for the southern brewery producing its beer and distributing it in the south. That way, both could cut distribution costs.
San Miguel has confirmed it is looking for new partners in its mainland investments and said last month talks were in 'exploratory stages'. New Zealand's Lion Nathan is hoping to sell spare brewing capacity at its Suzhou brewery.
Mr Clifford believes the best opportunities are inland.
'In the more remote, interior cities there is less competition, but per capita consumption of beers is going up compared with consumption of white spirits,' he said.
Others plan to ride it out. Carlsberg has just begun production at a new plant in Shanghai, and has no plans to sell capacity. Instead, it expects growth to increase to meet its capacity.
'At some point in time it will become profitable,' Jesper Madsen, managing director of Carlsberg Breweries HK, said.