Japan & China: Kirin Brewery in Hangzhou Qiandaohu Brewery Deal

Kirin Brewery Co, Japan's second-biggest beer producer, just inked an agreement to acquire a 25 percent stake in China's Hangzhou Qiandaohu Brewery Co, according to SinoCast China Financial Watch, December 20.

Spending USD 38 million, or about CNY 300 million, for the deal, Kirin Brewery also has pre-emptive right for another 49 percent stake in the Chinese peer. Officials at Qiandaohu Brewery confirmed the reports, saying the two are preparing for the news conference. But Kirin Brewery declined to elaborate. They will apply for the Chinese regulatory approval for the deal within this week.

Qiandaohu Brewery, the producer of Cheerday-branded beer, is based in Hangzhou, capital of East China's Zhejiang Province. Its output for 2006 is about 140,000 tons. The beer is mainly sold in China's eastern and central regions, like Zhejiang, Jiangxi, Anhui, Fujian, Jiangsu, Shanghai and Henan. Presently, Kirin Brewery focuses on the Yangtze River Delta, Pearl River Delta, two major powerhouses of the nation's economy, and the Northeastern region.

It in 2004 acquired 25 percent of a Northeastern beer producer and in 1996 bought into another in the Pearl River Delta. The co-investor in the latter was Uni-President Enterprises Corp., Taiwan's largest food conglomerate.

Kirin Brewery this January acquired the 100 percent of the Pearl River Delta company. Famous for launch of various brands to cater for different customers, Kirin Brewery has hit the three regions through three brands respectively. But it so far has not set up production base in Shanghai. The status quo will be broken by the latest acquisition as the Japan beer maker plans to promote its own brand in Hangzhou next year.

Hangzhou is very near to Shanghai. The expansion of Kirin Brewery in China lags behind Asahi, the Japan's No. 1 beer maker, for the moment. But Kirin contended that it is the biggest food company in Japan and expects to outpace Asahi in the beer sector this year on the sizzling performance in the first nine months of the year.

Asahi early this year announced building a beer factory with USD 36 million in Huzhou, a midsize city in Zhejiang. Another Japanese beer maker Suntory has entered Shanghai and several other Chinese cities. Apart from the Japanese players, beer brewers from other nations are expanding rapidly in China.

China Resources Snow Breweries Co., a joint venture between SABMiller and China Resources Enterprise Ltd., unveiled the investment of CNY 176 million for two breweries in northern China.

The Chinese beer industry posts an over 30 percent growth rate annually. China in 2003 replaced the United States as the world's biggest beer consumer. Still, the rising production costs and slowly growing results of local bellwethers make the industry more competitive. In the first nine months, the domestic operating revenues in the industry rose 27.1 percent from a year ago and profits jumped 25.2 percent. But the figures for first-tier breweries were even less than the average levels. The heavy advertisement costs and increasing food and oil prices are accountable for the underperformance.

(USD 1= CNY 7.8)

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