Home' Brewers Guardian Digital Magazine : November 2012 Contents CR Snow, the market leader by volume, has yet to report its
Q3 results as of the end of October but it was up 6.2% through
June, including inorganic growth.
ABI, third in China, was up 4.2% in 9M '12 and its focus
brands, Bud, Harbin and Sedrin, grew strongly at 11.1%.
Yanjing grew only 0.8%, including a small amount of inorganic
volume, while Carlsberg, the market leader in Western China,
reported a national share gain in its H1 12 results.
In the premium beer segment, Tsingtao and ABI have distinct
leads. CR Snow is aggressively playing catch up and Carlsberg
Chill is the second-ranked brand in the international premium
category behind the strong market leader, Budweiser.
Yanjing has less of a presence in above-popular segments
and there is scarcely another brewer in China with a meaningful
premium segment presence, excluding Heineken APB, which is
third in international premiums.
In the aggregate, the Top Four grew their combined share
to 71% in 9M '12. Their shares of both profitability and the
premium segments are significantly higher. The implication is
that the viability of being a smaller brewer in China is decreas-
As the Top Four dominate growth, turf battles rage among them
in local markets throughout the country. A handful of remaining
regional players with significant shares in their home markets
exacerbate the competitive landscape. These battles, along with
the escalation of costs cited above, are taking a toll on profitability.
Based on Seema analysis, a Chinese brewer targeting the
mass market typically needs at least 60% share in a local area
to earn truly attractive profit margins, whereas shares below
30% often translate to loss-making operations. It is impossible,
according to these calculations, for four brewers to profitably
co-exist in the same local market.
Moreover, cross-encroachment by each Top Four brewer into
as many territories as possible poses stepped-up threats in mar-
kets where one of these four controls greater than 60% share
and has historically reaped the benefits of local dominance.
Ground previously regarded as sacred to the entrenched lead-
ers has been encroached upon across a number of markets.
Only a few, such as Shandong (Tsingtao), Liaoning (CR Snow)
and Fujian (ABI) seem secure for now.
The Top Four are now notably relying much more on organic
activities than acquisitions to grow as the industry evolves.
There simply are not many targets left and the independents
remain so for a reason -- they are less and less attractive.
Kingway's inability to date to confirm a buyer after announcing
its plan to sell early in 2012 is a case in point. The substantial
gap between its price target and the amount potential suitors
are willing to pay is the biggest obstacle.
Yet Kingway's performance woes and poor growth prospects
have tamed appetites, too. Its H1 '12 volume fell 16.2%, result-
ing in a net loss after earning a small profit in H1 '11. Kingway will
likely be acquired before too long but the industry has entered a
new stage whereby many smaller brewers may be consolidated
out because of their own extinction, not because they are sold.
Meanwhile, greenfield breweries and capacity expansions are
now often more desirable than acquisitions. As a result, they
have become integral components of the strategies of each
Top Four brewer.
For all of China's market complexities, the key required
solutions may be difficult to achieve yet they are surprisingly
straightforward: (i) much more consolidation; (ii) higher prices;
and (iii) further premiumisation.
The industry is moving in each of these directions, although
the amount of time that will be required to get there remains
highly uncertain and, frankly, unpredictable. The goal for each
brewer between now and then remains to be among the win-
ners left standing in a much healthier and more attractive mar-
ket, whenever that day comes.
Glen Steinman is the Hong Kong-based president and senior
partner in Seema International, a consultancy specialis-
ing in business development in Asia and North America
"A Chinese brewer targeting
the mass market typically needs
at least 60% share in a local
area to earn truly attractive
profit margins, whereas shares
below 30% often translate to
Credit: The Carlsberg Group
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