Tsingtao faces pressure from mounting costs

PUBLISHED : Monday, 10 September, 2007, 12:00am
UPDATED : Monday, 10 September, 2007, 12:00am

Tsingtao Brewery, the mainland's second-largest beer producer, expects rising material and energy costs would cloud its performance in the second half, company vice-chairman and president Jin Zhiguo said.

The company posted a 63.4 per cent rise in earnings to 348 million yuan during the first half due to strong sales, selling 8.71 million hectolitres, up 16.2 per cent from a year earlier.

'In the first half we had a strong performance. Looking ahead, the second half is facing pressure from rising material and energy costs. Many agricultural products and oil prices increased substantially in the first half,' Mr Jin said in an interview with the South China Morning Post during his visit to the city.

'We are restructuring our production process to increase productivity to offset the rising costs.'

Mr Jin said sales of beer in the second half and next year should benefit because of the impact of the Beijing Olympics. As the game's official sponsor beer, Mr Jin said Tsingtao had stepped up efforts to promote the beer to the younger consumer in the mainland and to explore new international markets such as former Eastern European countries and Latin America. The beer is now exported to 50 countries.

'The Beijing Olympics is an important event to build our brand internationally. Tsingtao Brewery has been established in China for 104 years and it has a good reputation for quality beer,' he said. 'The Olympics will put China and Beijing in the spotlight and would help raise our brand further as a quality beer worldwide.'

Mr Jin said the Olympic effect would boost sales and help it reclaim top position in the mainland after it lost the title last year to Snow Beer, jointly run by China Resources Enterprises and South Africa-based SABMiller.

At the end of last year, Tsingtao Brewery held a 13 per cent share of the domestic market, while Snow Beer accounted for 15 per cent.

Mr Jin, who started as a beer bottle cleaner in Tsingtao Brewery in 1975, worked through the ranks to the current post in 2001. He won the nickname of 'King of beer in the northwest' for turning around Tsingtao Brewery in Xian within a year after he was sent from his home town in Qingdao to manage the loss-making plant in 1996.

He said the strategy he used in Xian was to change the taste of the beer and to enhance service to meet customer need. He believes the same strategy could be used to compete with Snow Beer, which expanded mainly through acquisitions in recent years.

'Tsingtao would also expand by acquisition,' Mr Jin said. 'However, what we will do is to improve the high quality of the taste and services, while expanding our production capacity. Only good taste and quality service can win customers in the long run,' he said.