China & Germany: Filling and packaging group KHS to enter Chinese market

German filling and packaging group KHS will significantly boost its revenue in China, after acquiring a majority stake in local firm Guangdong Light Industrial Machinery Plant 2 (GLM2), AP-Foodtechnology released August 22.

The purchase of a 70 per cent stake in the Guangdong company, which has a strong share of the beer filling market, allows KHS to reach the mainstream Chinese beer and beverage segment, building on its current business for the premium market.

"There is huge potential in the mainstream market. We expect our revenue in China to increase from about 20 million to 50 million with this acquisition," Valentin Reisgen, KHS chief executive, told AP-Foodtechnology.

European filling and packaging companies like Sidel, Krones and KHS dominate supply to China's premium beer and beverages market, largely made up of multinational brands.

But domestic producers of cheaper, mass market products are unable to afford the higher costs of equipment and filling lines imported from Germany. And this cost differential creates a major barrier to expansion for foreign firms.

While the numbers vary, KHS estimates that around 80 per cent of packing machines sold in the Chinese market last year came from local suppliers.

By buying into a local manufacturer, the German group can supply lower cost products to this huge mainstream market.

"The alternative, to build a Greenfield site, would have taken years. Joining up with a local firm saves us time and also lets us combine our strengths," said Reisgen.

Customers of GLM2, headquartered in Shantou, include big names in the brewing trade such as Tsingtao, China Resources Breweries, Yanjing, Kingway, San Miguel and Anheuser-Busch.

KHS has previously only supplied the premium beer brands but with China expected to account for 50 per cent of the global growth in beer sales in the next ten years, a local presence should reap significant new sales for the group.

A manufacturing base in China gives the firm "two low-cost country sources", said Reisgen.

"This gives us a good position to supply the whole of Asia and maybe one day, we'll also be manufacturing for outside of Asia too."

The transaction, announced August 17, is still subject to government approvals. The remaining 30 per cent of GLM2 will stay in the hands of the two managing owners who will continue to be members of the company management.

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