There are a lot of Chinese and they like beer. They drink enough of it for China to be the world’s largest beer market by volume. So it has become the main battleground for growth among the world’s four largest brewers: SABMiller, AB InBev, Heineken and Carlsberg.
It is the last-named (and in terms of both financial muscle and global market share last by some distance) member of that quartet that has made the latest foray. The Danish brewer has taken majority control of Chongqing Brewery by spending 2.9 billion yuan ($476 million) to raise its stake to 60% from 29.7%, with most of the money going to municipally-owned Chongqing Beer Group for its 20% stake. This makes the acquisition the biggest western takeover of a brewer in China.
Carlsberg is expected to base its Chinese operations in Chongqing. The city is the gateway to China’s less-developed west, which holds higher growth potential — especially for a product like beer — than the wealthier and more developed markets in the coastal provinces of eastern and southern China, where international beers seem less of a premium product.
Carlsberg has interests in some 40 breweries in China, mostly in western and central provinces, including Yunnan, Gansu, Qinghai, Tibet, Xinjiang, and Ningxia. Consolidating them under Chongqing Brewery would provide a platform to expand actively in the region and steal a march on rivals in China’s western marches.
Part of that consolidation could well include buying the nine breweries also owned by Chongqing Brewery’s exiting shareholder, Chongqing Beer. A pressing marketing reason for doing that is that both Chongqing Brewery and Chongqing Beer produce the Shancheng Beer brand, so it would make sense for Carlsberg to be the sole producer of what is Chongqing Brewery’s main brand — as well as denying rivals a potential foothold in the region that may seem more achievable now that city authorities no longer have “their” beer to protect.
However, if Carlsberg is to close the gap on its rivals’ market shares in China, those acquisitions would have to be prelude to a bigger deal. At present, according to Euromonitor data, CR Snow, a joint venture between SABMiller and China Resources that makes the world’s best-selling beer, Snow, has 21.7% of the market, followed by Tsingtao with 15.7%, Beijing Yanjing with 11.7%, AB InBev with 11.4% and Henan Jinxing with 3.4%. Carlsberg ranks sixth with 2.6%.
Organic growth is not going to close the gap with any dispatch. The key question is whether Carlsberg will make a play for one of the two big independents, Tsingtao or Yanjing. Fueling speculation that it will, Carlsberg’s owner, the Carlsberg Foundation, has recently changed its rules so that it no longer needs to own 25% of the brewer. That means Carlsberg can now use its stock to fund big acquisitions.
It would certainly need that to fund a bid for Tsingtao, which has a market valuation of $10 billion, making it already three-fifths the size of Carlsberg. In addition, there is the complication of Japan’s Asahi already holding a 20% stake. For its part, Yanjing has long rebuffed any acquisition approaches, determinedly preferring to remain independent. The best Carlsberg might be able to hope for is a merger of its consolidated Chongqing assets with Yanjing that would leave it as a substantial but still minority shareholder in the Beijing brewer.