Australian wine and beer group Foster's has sold its last Chinese brewery to Japan's Suntory, it revealed today, allowing it to exit the tough market after 13 years without profits.
The company entered the Chinese market in 1993, acquiring majority stakes in the Shanghai, Guangdong and Tianjin breweries. However it sold the Guangdong and Tianjin breweries in 1999.
The Shanghai brewery produced 400 million litres of beer last year, but only 3 per cent of this - 12 million litres - were its Foster Lager brand. The rest of the beer sold by the plant was local brands, particularly the Guangming brand.
Although China's beer market is the largest in the world, it is a tough environment to operate in due to low prices and weak branding. The three largest brewers, which have a 35 per cent market share, made only US$100 million in profits last year, according to research by UBS bank.
Foster's did not reveal how much Suntory paid for the Shanghai brewery and local brands included in the sale. However the Japanese firm already holds 54 per cent of the Shanghai beer market and will be able to extend its share in this region.
It will continue distributing Foster's Lager for the Australian company although a spokesman at Foster's told AP-Foodtechnology.com that the company is looking for the 'best partners to grow its brand in the region in the long-term'.
"There is definitely a commitment to growing the Foster's Lager brand in the Asia region," he said.
The company will retain ownership and distribution rights for Foster's Lager and its other international beer brands in China.
There have been rumours that Foster's, which has been focusing on its domestic wine and beer business, would sell off its Asia breweries, which include one in India and two others in Vietnam.
However the spokesman said that its other Asian breweries have performed significantly better than its Chinese operations.
"We have much better distribution and sales networks in these markets," he said. "They [the three breweries] are either breaking even or making a profit."
Foster's has also sold off its European brewing operations in recent months, appearing to focus on its domestic beer sales and opportunities in the fast-growing Asian region.
It is also busy creating a global wine business, acquiring Australia's largest wine group Southcorp for £1.34 billion last year, to make it the world's number two producer.
The domestic brewing and global wine units account for 95 per cent of Foster's sales, and selling the unprofitable Shanghai brewery will help pay down debt gained after the Southcorp purchase.
It is thought that other brewers were interested in the Shanghai brewery, although Foster's did not reveal details of its negotiations. A source close to SABMiller told BeverageDaily.com in March that the group was interested in buying Foster's Asian breweries and that negotiations had taken place between the two firms.
Suntory was the first foreign company to become a joint venture brewer in China in 1984, when it set up China Jiangsu Suntory Foods in Lianyungang, Jiangsu Province. It gained the number one position in Shanghai in 1999, and since acquiring the Shanghai Donghai Brewery in 2005 holds a 54 per cent market share in the area.
The sale is unconditional and is expected to be completed by 20 June.