China's beer industry is consolidating as China Resources Snow Breweries’ acquire of Hupo Brewery

July 28, 2009 - PRLog -- China's fragmented beer industry is consolidating following China Resources Snow Breweries' acquisition of Hupo Brewery. With recently released figures showing that in Q109 the Chinese economy grew at its slowest pace since quarterly records began in 1992, many food and drink producers continue to worry about the impact of this slowdown of their sales. Nevertheless, despite the slowing economic growth, China remains an unmissable opportunity for expansion-orientated companies, as discussed here in BMI's China Food & Drink Report for Q309. Tellingly, this quarter witnessed a number of major merger and acquisition stories in the country's high growth drinks industry.

In March the country's leading brewer by volume, China Resources Snow Breweries (Snow), acquired Hupo Brewery located in Shandong province, China for US$42mn. The brewer said that it plans to spend US$8mn on technology upgrades at the existing brewing facilities, which will enable it to increase beer production by 3mn hectoliters. This was followed by Snow's April acquisition of Shandong-based Amber Breweries in a deal worth CNY285mn (US$41.7mn). Clearly, Snow is ramping up investment in a bid to become a truly national player in China's still-fragmented beer industry and to beat fierce rival Tsingtao. These acquisitions will allow the company to build its footprint in what is a high consumption province, and indicates that while brewers have traditionally stuck to their home provinces, this trend is changing along with growing levels of competition.

In another deal that was closely watched by those in the industry, following months of speculation, in March the Chinese Ministry of Commerce finally rejected US soft drink giant The Coca-Cola Company's (TCCC) US$2.4bn bid for local juice major Huiyuan Juice Group. Many industry insiders expected the deal to go through, despite the slow progress, as the government could have used this acquisition to send a strong signal about China's new anti-monopoly law. However, the merger was rejected on the grounds that it was anticompetitive, and would hurt small-scale local juice producers, potentially pushing up juice prices and limiting choices for consumers. Although the food and drink industry is not thought to be of national strategic importance, Huiyuan Juice is an iconic household name in China and there was thought to be quite strong consumer sentiment about it potentially falling into foreign hands.

As the largest ever international takeover of a Chinese firm, the deal was seen as a test of China's recently revised competition law. However, as demands for protectionism have been rising globally on the back of the financial crisis, it began to look increasingly unlikely that the deal would go through. The entire process was followed very closely by those companies keen to exploit the immense opportunity presented by the vast and high growth Chinese market, especially those keen to enter inorganically via acquisitions and those preferring to take full ownership of Chinese enterprises rather than smaller stakes.

The veto is an untimely signal that while China is keen to attract more foreign investment and improve its reputation, it is not yet ready to offer a more liberal business environment, despite what Beijing rhetoric might have suggested.

http://www.companiesandmarkets.com/r.ashx?id=B5K9A601H144638

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