Rising costs force big breweries to raise prices

PUBLISHED : Monday, 07 January, 2008, 12:00am
UPDATED : Monday, 07 January, 2008, 12:00am

The rising cost of raw materials, transport, and wages are putting pressure on some big mainland breweries to increase the price of beer.

Joining the cycle of price rises rippling through the economy - which has pushed the inflation rate to an 11-year high of 6.9 per cent - Tsingtao Brewery lifted the price of some products to its major distributors by an average of 6 per cent to 8 per cent on the first day of the new year.

The move coincided with a spike in oil prices to more than US$100 a barrel, which raised the spectre of accelerating cost pressures, particularly for transport-dependent sectors.

'Tsingtao has been trying to ease the pressure of surging costs by product structure adjustment, technological innovation and effective supply-chain management. But costs have been rising too fast and will keep going up,' the company said.

It did not identify individual price rises or the products affected, but warned that final retail prices paid by consumers could be higher than its 6 to 5 per cent adjustment to wholesale distribution costs.

The price of Tsingtao beer in Hong Kong has not yet changed, but a company spokesman for the local operation said it was unclear at this stage whether prices would follow rises in the mainland.

Tsingtao is the mainland's second-largest brewer and is 27 per cent-owned by Anheuser-Busch, the second-largest brewer in the world. In its latest profit statement the group announced that third-quarter earnings rose 52 per cent to 328.6 million yuan on turnover that was up 15 per cent at 4.2 billion yuan.

Beijing Yanjing Brewery, a subsidiary of Beijing Enterprises Holdings, raised prices of six low-end products of 70-odd product categories to distributors in Beijing and Shenyang last month and Chengdu this month.

Ding Guangxue, deputy manager at Yanjing Beer, said the move was cost-driven without specific market strategic targets. The price of the core raw material in beer almost doubled last year, he said.

Mr Ding did not disclose an average price increase. But a case of two dozen bottles of the brewer's most popular Qingshuang brand now costs 34 yuan for distributors in Beijing, up 6.25 per cent from the previous month.

Yanjing Beer's sales manager for North and Central China, who identified himself only with the surname Xiao, said the price rise was expected to spread to other provinces by the end of this month.

Half the barley mainland brewers use to make beer is imported, mainly from Australia and Canada. But the drought in Australia has resulted in a poor barley harvest.

Statistics show that over 10 months last year, the price of barley from Australia surged 33 per cent to US$400 per tonne and is expected to reach US$500 this year.

Yang Lei, an analyst at ABN Amro in Shanghai, said that if big breweries raised their selling prices sharply, small-sized beer producers could benefit since their products were comparatively cheaper. But if the price increases were modest, competition would keep a lid on prices charged by smaller brewers as well.

However, He Yong, a director at the China Alcoholic Drinks Industry Association, said the price increases were a market-driven action carried out by individual breweries and not all of the 500 breweries on the mainland were raising selling prices.

The National Reform and Development Committee said last week that it was not aware of a large-scale beer price increase.

A source at Kingway Brewery said the company would focus on controlling costs and would not increase selling prices.

Market leader Snow Beer, run by China Resources Enterprises and South Africa-based SABMiller could not be reached for comment.

Hard to swallow

Tsingtao Brewery has increased the price of some products by up to: 8%