Focus - Carlsberg making waves in Asia
Carlsberg will spend more money in Asia
Carlsberg is backing its bark with bite in Asia after seeing off rivals to take a greater stake in China's Chongqing Brewery.
Carlsberg's deal to buy an extra 12.25% in Chongqing Brewery Co for for RMB2.4bn (US$351m) represents a statement of intent for the group in Asia-Pacific.
We can expect more deals from Carlsberg in China, as well as markets such as Vietnam, Indonesia and India, over the next few years.
While much has been made of Heineken, A-B InBev and SABMiller's scrap for ground in Latin America, Carlsberg wants to build on a solid base in Western and Eastern Europe by expanding in Asia-Pacific.
Asia is a small part of Carlsbserg's business, accounting for 13% of volume sales in 2009. Operating profits from the region were just DKK0.7bn (US$114m) on sales of DKK4.2n. That compares to operating profits of DKK5.3bn in Eastern Europe, predominantly from Russia, and DKK4.2bn in Western Europe.
"The Asian beer markets are characterised by large populations, growing economies, rising per capita incomes and improving infrastructure," said Carlsberg in its recent annual report.
Instead of headline buys, the brewer's growth strategy in Asia-Pacific has been a drip-drip policy, slicing off stakes in leading brewers here and there - partly out of necessity due to Government wariness on foreign ownership.
A good example of this is the firm's Memorandum of Understanding with Habeco last September, in which it raised its stake in the Vietnamese brewer from 16% to 30%.
In China, Carlsberg has differed in its approach from other multinationals by striving to dominate the country's Western provinces. Less beer is consumed in these areas than in the more prosperous Eastern provinces, particularly those on the coastline, but Carlsberg argues that the policy is helping it to build a powerful position in areas that, nevertheless, hold potential for beer.
If you think that sounds risky, remember how masterfully Carlsberg, albeit with former partner Scottish & Newcastle, built an unassailable beer empire with Baltika Breweries in Russia.
Carlsberg claims to have a 59% volume share of Western China's beer market, where the group has 19 breweries. It already employs more people in the country - around 4,000 - than in any other market aside from Russia, where it employs 11,000.
China's per capita beer consumption is around 33 litres, which is low compared to a figure of more than 80 litres in many developed Western markets. Yet, it is already the largest beer market in the world and the macro economic trends continue to look promising. China's GDP grew by more than 8% in 2009.
We can expect to hear a lot more from Carlsberg in the region.
M&A activity within the beer sector this year has been limited to just the one big transaction, in Mexico. Larry Nelson believes, however, that 2010 could have served as the calm before the storm, wit...
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