SAB Miller’s Footprint in China

110804180331_jingjiu00What’s SAB Miller’s footprint in China like? First, let me speak from personal experience in China and then delve into information found in the company financial statements.

I have spent a combined time of almost 6 months in China, and the only American beer I have ever consumed was Budweiser. I’ve never seen Bud Light, Miller, Miller Light, Coors, or Coors Light outside of up market Beijing and Shanghai bars., and even those establishments may not carry them. This isn’t to say that they aren’t elsewhere (they’re probably at Wal Mart too) but they seem to be nowhere near as popular in China. The most popular beers are Tsingtao, Harbin, and Snow, and most restaurants only offer one of these brands in bottle form. Budweiser as a beer does have a footprint, however European and other Asian beers, such as Tiger, Kingfisher, and Chang are also much more common than American beers. But as we know, SAB Miller and AB InBev own numerous brands around the world, and as it so happens, CR Snow, the largest brewer by volume in China, is SAB Miller’s main Chinese brand. However, in my experience, Snow is the least common and worst tasting.

CR Snow has been affiliated with Miller for over twenty years, and as stated, is the largest brewer in China, controlling 30% of premium brewing and 21% of total market share. However this is a recent development, seeing as in 2010 Snow’s sales volume grew 16%. Stemming from this, growing CR Snow’s market leadership was laid out as one of Miller’s primary international goals, and as such Snow only continues to grow, given that in 2014, it had healthy growth in Zhejiang, Sichuan, and Anhui provinces. The latter is one of the poorest provinces in China, therefore to see marked improvements is very positive. CR Snow also acquired Kingway Brewery Holdings Limited in 2013 for around $850 million. This obviously boosted market share and brand recognition as well. In 2011, Miller also purchased 49 percent of Jangsu Dafuhao Breweries and 100 percent of Shanghai Asia Pacific Brewery from Heineken Asia Pacific Brewery Co Ltd. Genrally speaking, Inbev ‘wins’ in America, while Miller ‘wins’ in China.

Beer continues to grow in China, and while American brands don’t have recognition, American brewing companies are alive and well through their subsidiary breweries.

Sources:

http://www.sabmiller.com/docs/default-source/investor-documents/reports/2014/financial-reports/annual-report-2014.pdf?sfvrsn=8

http://www.reuters.com/article/2011/07/13/chinaresources-idUSL3E7ID2ZI20110713#xYtVWMeOf4oZz7QK.97

http://www.bloomberg.com/news/articles/2013-02-05/sabmiller-china-venture-to-pay-851-million-for-brewery

8 thoughts on “SAB Miller’s Footprint in China

  1. What are the necessary requirements for a beer to fall into the premium market category in China? Are there any differences internationally, or is that a globally recognized term for beer? I find it interesting that Snow has such a big market share of premium brewing in China if in your opinion it was the worst tasting one. What exactly did you not like about it?

  2. Here’s a link on microbreweries in China. Note too an interesting political economy, in that owning a brewery provided a source of tax revenue to local governments when they didn’t have direct taxing ability but could protect local markets from the brews of neighboring cities. So there were 850+ small-scale breweries in China by the end of the 1980s, despite what would appear to be readily obtainable economies of scale. To rephrase into our terminology, we would expect potential but unrealized EOS to be low levels of capacity utilization. Indeed, installed capacity was 2x actual production in 1990. That began to change after 1994, when the central government tried to limit local protectionism and hence create a national common market. (In this and many other ways China looks more like the EU, a weak union of sovereign states, than the US with its strong interstate commerce clause.) Anyway, while these made/make local brands, they weren’t microbreweries in our use of the term.

    So one business model was for a profitable firm to buy up weak firms in other locations as opportunities arose, because they couldn’t sell directly. That required a lot of market knowledge and the ability to work with local governments, neither of which firms such as SABMiller had or were willing to acquire. SABMiller howerever allied with one such domestic firm. By 2004 this gave Huaran a network of 34 local breweries and dominance in 7 provinces. Qingdao, the most aggressive, ended up with 48 breweries in 18 provinces. While there was some exit (still 500+ firms in 2001) China’s “big four” had over 1/3rd of the market.

    But this didn’t mean operational efficiency!! Furthermore, large excess capacity of relatively undifferentiated products led to an outcome we should anticipate: price wars. For those familiar with China, a standard 500cc bottle went for as little as 元1.5.

    For details see the following working paper:
    Wedeman, Andrew Hall. “Crossing the River by Feeling for Stones or Carried Across by the Current? The Dynamics of Reform in Post-Mao China.” Bloomington, Indiana: Conference on Capitalism with Chinese Characteristics: China’s Political Economy in Comparative and Theoretical Perspective, May 2006.

  3. “Generally speaking, Inbev ‘wins’ in America, while Miller ‘wins’ in China.”

    After the merger, Inbev gains access to China (among many other global markets). China is their key driver of growth in Asian markets, as it has the largest beer market in the world. Local low cost beers have been the bulk of sales, however the growing disposable income and new market entry may lead to a shift in consumer preferences towards higher quality, premium beers.

    Check out this article for more information: http://www.forbes.com/sites/greatspeculations/2015/01/16/china-is-key-to-ab-inbevs-asia-growth-prospects/

  4. Companies have a clever way of acquiring foreign brands as subsidiaries. Wanting to expand your international footprint? Why invest in the upfront sunk cost of developing your brand image and market presence when you can purchase stakes in the most popular brands and draw cash flows from a well established product? You will find this strategy leading to high acquisition premiums, as a significant amount of “goodwill” is priced in to the transactions.

    • In efficient markets, the cost of building from scratch and the cost of buying an existing business should be equal. The latter has lower risk, and so there’s a premium added for that, in effect you’re buying the asset and an insurance policy. Goodwill is partly that: you could invest in building a brand, but it’s risky. Goodwill is also because a brand has value that is not otherwise reflected in the assets of a company.

  5. It seems to me that this shows what this merger is going to be about and what it won’t be about. As we’ve discussed in class the merger probably will not be able to occur in the US because of antitrust laws. However, if the same threats do not exist in China, and other countries, that will likely remain the major part of their goals in the merger. Additionally, the diverse tastes of beer throughout the world are evident in this blog and show that the change in product is likely not a major part of their companies’ goals. If Budweiser is never going to become popular in China then InBev does not have to try to force it on them when they can just buy the popular brands already existent in the country and focus on the infrastructure.

  6. I’m curious about what you called the growth of beer in China. Are more people drinking mainstream beers? Are substitutions, like rice wine, different in Asia?

    Sometimes, especially with beer, it’s difficult to gain new market because it’s difficult to make beer drinkers out of non-beer drinkers. Will ownership of or partnership with the big Chinese firms add consumers to the market because of SAB Miller/AB InBev’s management and advertising money? Or will the big producers just trade market shares between one another?

    • I know that in China’s case, arguably the most popular alcoholic-drink is Baijiu. which is similar to vodka but is very strong. According to McKinsey & Co. and UBS, Baijiu carries a $23 billion market, which is the best selling spirit market in the world.

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