China beer war

- Last updated on GMT

Related tags: Brewery, China

SABMiller, the second largest brewer in the world, said it intends
to increase its 29 per cent stake in Harbin, China's leading
brewer. The announcement comes in direct response to rival brewer
Anheuser-Busch's move to secure a 29 per cent stake in Harbin
earlier this week.

If the proposal is given the go ahead, SABMiller will take a clear step ahead of its rivals in the sector, but it is a move which industry observers believe could hurt Harbin's position given that the China beer market is so fiercely competitive.

It is reported that SABMiller is looking to up its stake in Harbin to 50 per cent, in an effort to make it the dominant partner in the venture.

National newspaper reports say that SABMiller was taken by surprise when the American brewery announced its plans to acquire a 29 per stake in Harbin, given that SABMiller also has a similar stake in the company. A-B declined to comment on its motives for the acquisition, leaving the industry puzzled as to how it would operate alongside its arch rival.

It is a widely held belief that the battle to gain control of Harbin, one of China's oldest breweries, could damage opportunities for both groups. SABMiller, like A-B, declined to comment on the relationship between the two leading brewers. Instead it chose to focus on the opportunities that Harbin could gain from its proposal.

"We believe this offer represents excellent value to Harbin's shareholders and a powerful strategic fit with our existing joint venture operations in North East China",​ said Graham Mackay, the company's chief executive.

In the past many Western brewers have had their fingers burnt in China especially in the early 1990s when groups made the mistake of trying to push global brands forward in the region instead of focusing on local established products.

Industry observers claim that the Chinese distribution structure is currently limited but believe brewers willing to adapt to the structure can make further gains in the region. As Harbin is a major player on the China beer market the potential pickings are rich, giving rise to a possible power struggle between the two Western beer groups in the future.

"Harbin provides SABMiller with the opportunity to enhance its local brand portfolios to the benefit of consumers, and further develop our regional leadership. Moving to a majority ownership position is a natural progression in our commitment to China and its strongly growing beer sector. Majority ownership and commitment will ensure a successful future for Harbin,​" Mackay added.

Harbin is one of the oldest brewers in China and has a strong portfolio of matured brands. It has a range of successful beers that are sold under the umbrella of its Habi brand. Habi has been moving into the premium end of the market and produces in the region of 10.4 million hecolitres of beer a year.

In 1993 A-B became a minority investor in Chinese company Tsingtao Brewery and in 2002 the two companies moved into a strategic alliance programme. Now A-B owns 9.9 per cent of the Chinese company and over the forthcoming years has an agreement to increase ownership to 27 per cent.

SABMiller acquired a 29 per cent stake in Harbin back in 2003 which made the group the largest foreign company in the sector, a position A-B is seeking to undermine.. However if the offer to increase its stake in Harbin is accepted it will give the group a crucial majority stake, giving it the upper hand over A-B.

The Chinese sector recently overtook the US market as the largest beer market in the world. This has been the driving factor behind moves by all the big western brewers to captilise on this growth.

Related topics: Markets, Beer, Wine, Spirits, Cider

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