In this guest article, Jacob de Lichtenberg, head of Aktiefokus China, gives BeverageDaily.com readers the lowdown on Tsingtao Brewery’s plans to build a brewery in Henan province, where beer production is booming.
Centrally located Henan province has in recent years attracted a great deal of attention from the large-scale brewery groups that are expanding brewery activities to inland provinces as disposable income rises across China. Last week Tsingtao Brewery became the latest company to sharpen its focus on the province that is home to about 95m people, and where beer production is booming.
Tsingtao plans to construct a major brewery in the city of Yiyang, close to Luoyang in Henan Province, and this week signed week an agreement with local authorities, People’s Daily reported. Expansions, acquisitions and consolidations are happening at a fast pace these days in inland China and especially in central provinces like Henan, Shanxi, Hubei, Hunan and Guizhou.
Chinese beer market dynamics
As more than 21% of China’s total population resides here, the outcome of the future market share distribution between the major brewery groups is important to follow in order to understand the future dynamics of the Chinese beer market.
Tsingtao’s new brewery is said to be able to produce around 2m hectoliter (hl) annually when the first phase gets up and running, while it will reach a total capacity of 6m hl per year when fully constructed. No details regarding the date of the inauguration of the brewery emerged.
The first investment phase will cost RMB 500m yuan ($80.3m) and will total RMB 1b ($160.5m) for the whole project. The data suggests a price of $27m per million hl, which is in line with industry analysts’ ‘rule of thumb price’, when establishing green field breweries in China.
Beer produced from the new Tsingtao brewery will battle for market share against local, domestic and international competitors, which in recent years have stepped up their efforts in Henan province.
AB InBev and Carlsberg interest in Henan Jinxing?
As a consequence, beer production in the province is up more than 20% in the first 10 months of 2012, while the breweries together have produced almost 43m hl, around 10% of China’s total.
In the spring of 2011, AB Inbev acquired Henan-based Weixue Beer’s three breweries in Zhengzhou, Gushi, and Xinyang (including the two brands Weixue and Jigongshan), and has earlier been linked to the acquisition of local producer Luoyang Asia Brewery Ltd. Co.
SABMiller and China Resources’ joint venture Snow Breweries has also been very active in Henan in recent years and said in its Q2 financial statement the latter said it had added new production capacity in the province.
Finally, privately held Henan Jinxing, which is Henan’s largest beer producer, continues to look for a strategic partner, which is ready to take a stake of up to 30% of the company prior to a stock market floating. Both AB Inbev and Carlsberg are tipped as potential buyers.