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China Beer Sales Seen Washing Away With Floods, Cooler Weather

The worst floods in China since 1998 and cooler-than-usual weather are eroding sales at the nation’s brewers, deepening a slump caused by the economic slowdown.

China Resources Beer Holdings, the country’s largest brewer, said Thursday that sales fell 4.6 percent in the three months ended June from a year ago, partly because of “unfavorable weather.” Revenue rose 1.8 percent in the first three months this year.

Lower-than-average temperatures and torrential rains probably contributed to a more than 10 percent drop in beer industry sales volume in China in the first six months of 2016, Allen Cheng, an analyst at Morningstar Investment Services said in an interview. Foul weather kept customers away from bars, restaurants and karaoke establishments and deepened a slowdown in sales growth caused by slower economic growth and a shift toward other alcoholic beverages, Cheng said.

Heavy rain in June and July across central and southern China have caused the country’s worst flooding in nearly two decades, leaving hundreds dead and farms submerged. Direct economic losses from the floods are estimated to be 147 billion yuan ($22 billion), the government said last week.

The storms will shave as much as 0.2 percentage points from this quarter’s economic expansion, according to almost half of economists in a Bloomberg survey.

Regional brewers will probably see a bigger impact than nationwide rivals like China Resources’ Snow beer, said Cheng.

China Resources Beer sales fell to 8.36 billion yuan in the three months ending in June, compared with 8.77 billion yuan a year ago. Beer sales volume dropped 3.6 percent to 3.47 million kiloliters in the quarter.

Guangzhou Zhujiang Brewery Co. gets 95 percent of its revenue from southern China, according to data compiled by Bloomberg. Chongqing Brewery Co. gets 93 percent of revenue from the southwestern region, while Beijing Yanjing Brewery Co and Tsingtao Brewery Co Ltd earn 33 percent and 14 percent of their revenue respectively in the country’s south. Most of the companies will report second-quarter earnings at the end of August.

China Resources Beer commanded a 22 percent market share in China last year, followed by Tsingtao with 15 percent and Yanjing with 7.2 percent, according to Euromonitor International.

China Resources shares have gained 2.9 percent this year, while Tsingtao has dropped 22 percent and Zhujiang Brewery has slumped 21 percent.

Zhujiang Brewery declined to comment, while Chongqing Brewery, Yanjing and Tsingtao were not immediately available for comment.

25 Jul. 2016

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