Beer battles come to a head on mainland

Tempers are fraying in the increasingly competitive mainland beer market - even the pretty girls paid to promote rival beverages in bars are feeling the heat. Industry insiders say physical fights between beer sales girls are becoming increasingly common in bars and pubs around the country as a growing number of foreign and homegrown brands vie for customers in the world's biggest beer market. One analyst said Tsingtao Brewery and Yanjing Brewery distributors had fought a protracted battle over the control of one pub in Beijing. In some cases, people have been hospitalised following particularly nasty beer battles. There are high hopes that this summer - the traditional peak season for sales - will mark a turnaround for the fortunes of an industry that is facing slowing growth. But analysts warn competition will be even hotter following a recent ownership shake-up among top players. Anheuser-Busch InBev, the world's largest beer maker, sold its stake in Tsingtao last month, while Danish brewer Carlsberg increased its stake in a major Xinjiang-based beer producer. The shifting alliances are set to intensify competition in certain regions of the mainland's fragmented beer market. Consolidation is not new in the mainland market, where multinational brewers have taken equity stakes in local firms to gain market share. But now with ownership changing, former friends are becoming enemies. The mainland is the world's largest market in terms of both production and sales volume, but nearly 400 local brewers compete with an increasing number of foreign companies. Analysts say the crowded market explains why fist fights for the control of pubs among distributors of different brands are not uncommon. Despite selling its stake in Tsingtao, AB InBev is still a formidable presence in the market. The owner of Budweiser and Stella Artois has 35 local brewers on the mainland, including wholly owned Harbin Brewery Group, which has deep roots in the three northeastern provinces. It also controls Sedrin Brewery, which has a strong presence in coastal Fujian and Zhejiang provinces. 'After the ownership change, Tsingtao may face direct competition with Harbin Brewery in the northeast,' said Yang Lei, an analyst at ABN Amro. Citi analyst Cici Lam said that Tsingtao might face even tougher competition in the south. AB InBev's exit from Tsingtao was a surprise to market watchers who had thought that the Qingdao brewery was its most valuable asset in China. But the Belgian company announced last month that it was selling its remaining 7.01 per cent stake in Tsingtao to Chen Fashu, the richest man in Fujian, for US$235 million. In January, it offloaded a 19.99 per cent stake to Japan's Asahi Breweries for US$667 million to help pay off the loans that funded the US$52 billion takeover of Anheuser-Busch last year. Mr Chen, who controls a 75.87 per cent stake in Shenzhen-listed Fujian New Hua Du Supercenter, is the second-largest shareholder of dual-listed Zijin Mining Group. He had no prior history of investments in the beer sector, and some analysts are sceptical about what kind of strategic value he can bring to Tsingtao and why he was willing to pay such a high price for the company. His lieutenant, Tang Jun, told the media that Mr Chen intended to become China's Warren Buffett, investing in companies that have the potential to grow into giants like Coca-Cola and Procter & Gamble. Joy Huang, a research analyst at Euromonitor International, said AB InBev might take advantage of Budweiser's well-developed distribution channel to help Stella Artois grab more market share in the premium segment. That will pose a serious threat to Tsingtao, which is keen to boost premium sales to offset lacklustre sales volume. Euromonitor data shows that standard and premium lager, whose selling price exceeds 7 yuan (HK$7.94) per litre, accounts for only 10 per cent of total sales volume on the mainland but generated about 50 per cent of total profits last year. Standard and premium beer is viewed as the growth driver, and new product launches and promotion activities have been largely focused on them. The segment is still largely dominated by foreign brands such as Budweiser, Heineken, Carlsberg and Bud Ice. The only domestic brand in this segment is a high-end line sold by the 106-year-old Tsingtao. Market leader Snow (a joint venture between China Resources Enterprise and SABMiller), Yanjing, Harbin and Tsingtao sell popular economy lagers, typically in bottles and costing no more than 7 yuan a litre. Market watchers said fierce competition across the board this summer would spark more heavy promotion and bigger discounts to distributors, squeezing profitability further. Citi said Tsingtao's sales volume grew 10 per cent in the first two months of the year, but the situation reversed in March, and the downtrend continued into April. In the first quarter, Tsingtao's revenue rose 6.4 per cent on the back of a 5.2 per cent growth in volume and a 1.2 per cent rise in average selling price. By comparison, the mainland beer market grew 5.3 per cent in volume during the period, lagging the double-digit growth seen in the past few years. Tsingtao chairman Jin Zhiguo expects the beer market to experience slower growth this year as consumers cut spending on dining out. He wants to slash capital expenditure by more than half this year to preserve resources for promotional purposes. Foreign brands are also gearing up their promotional efforts for the upcoming peak season and taking a bigger role in the management of their locally controlled brewers. In April, Carlsberg announced it was increasing its shareholding in Xinjiang Lanjian Jianiang Investment to 89.3 per cent from 48.3 per cent. The firm indirectly controls Wusu Brewery Group, the market leader in Xinjiang in the northwest. Market watchers said the company was focused on developing less competitive and less developed markets such as Xinjiang. Foreign beer companies have two options as they seek mainland expansion - import their beer or brew it domestically. By merging with local breweries, foreign companies can bring technological know-how and experience to local firms. In return, the mainland firms can help them gain government approvals, expand distribution channels and reduce costs. The fact that there are few national brands has provided global brewers with opportunities but also challenges. 'There are not many national brands mainly because of regional protectionism. It is also the reason behind the high valuation of mainland acquisition deals,' said Ms Yang.