SABMiller announces China greenfield site
African-based SABMiller and a subsidiary of China Resources
Enterprise, is set to invest $82.2 million (€68m) in the
construction of a new brewery in the city of Dongguan, in the
south-east Chinese province of Guangdong. The investment will
increase SABMiller's share of what is currently one of the most
dynamic beer markets in China.
SABMiller says that the brewery, which will have an ultimate capacity of approximately 3 million hectolitres, will be built to international specifications enabling it to produce premium and draught beer. The brewery is expected to be operational in early 2006, construction is expected to commence in November, and on completion will provide employment for some 450 people.
"Perhaps the most significant point about this facility is that it will enable us to produce premium beers," said SABMiller spokesperson Ciaran Baker. "This is one of the reasons why we chose to develop a greenfield site in this region. Had we chosen to buy up an existing facility we would inevitably have had to invest a significant sum to upgrade the facility for premium beer production. The other reason why we chose a greenfield site in this particular case is because buying up an existing facility would probably have proved less economically viable than building a brand new facility, in the long run."
Chosing to build the new facility in this particular part of China has also been a strategic choice for the venture. Guangdong province, which incorporates the Pearl River Delta, is said to be the most prosperous and economically developed in China with a population of over 79 million and the highest regional GDP. The province accounts for approximately 8 per cent of China's total beer volume and, according to current market information, volumes in the province have risen from 6.6 million hectolitres in 1992 to an estimated 19.5 million hectolitres in 2003. Dongguan, together with Guangzhou and Shenzhen, is the largest beer consuming area in the province.
"We are now hoping that this market will prove to be a good place to start producing and marketing our popular Snow brand beer, one of the leading beers in the north-east region," said Baker. "SABMiller has managed to get a firm foothold in China's major areas of economic development, including the north-eastern seabord, so now this new investment in Guandong province adds to our growing presence in key areas throughout the country. Guandong includes areas of high economic and industrial development and is continuing to grow, partly as a result of its proximity to Hong Kong.
"The production facility itself will naturally use state of the art equipment, but rather than sourcing it from western manufacturers, it is most likely to be bought from local equipment providers who will use German models to provide a benchmark." added Baker.
André Parker, SABMiller's Africa & Asia managing director, said: "This is CRB's first greenfield investment in China and will be achieved at a competitive entry cost of $27 per hectolitre, comparing favourably with recent acquisition multiples. The cities of Dongguan, Shenzhen and Guangzhou will be important future markets for CRB's Snow brand as well as, potentially, our international premium brands such as Miller Genuine Draft. Additionally, CRE's extensive supermarket chain will also provide good regional distribution synergies. This investment is a continuation of CRB's successful 10 year strategy of increasing its national coverage."
China Resources Breweries is the second largest brewer in China, with a market share of 11 per cent and production capacity of 53 million hectolitres across 33 breweries. In the year to March 2004, CRB reported sales volumes of 25.3 million hectolitres, including 7 million hectolitres of Snow. SABMiller entered the China market in 1994 and is one of few profitable foreign brewers operating in the country.
News of the Guandong venture will be seen as a positive step towards expanding SABMillers presence in China, especially after the disappointment the company suffered when it lost out to Anheuser-Busch in the battle to score a strategic stake in the Harbin Brewery in May this year. Huge pressure is on amongst the leading international brewers to increase their stakes in the market as the country's appetite for beer continues to increase.
But taking a look at the statistics it is easy to see why. China produces more than 24 million tonnes of beer a year, and has now surpassed the US as the world's largest and fastest growing beer market. According to beverage research company, Canadean, beer sales in China rose by 6.3 per cent in 2002, compared to 1.3 per cent in the US and 2.6 per cent in Europe. Canadean anticipates that China's beer market will expand by as much as 5 per cent per annum until 2008, compared with growth of 0.7 per cent for the US and 2.5 per cent for Europe through 2005.
Merger and acquisition activity amongst the international brewers began to pick up towards the end of 2002 when Anheuser-Busch raised its stake in Tsingtao from single figures to 27 per cent. But despite the rash of activity, the China beer market remains localized and fragmented, with small- to medium-sized brewers still accounting for around 75 per cent of the market. This figure suggests that, although the competition is fierce, further consolidation and investment in the market is inevitable.