Carlsberg sees plenty of potential in China

Carlsberg sees plenty of potential in China

The battle over China's beer market is hotting up.

Carlsberg this week signalled its intent to up its stake in Chongqing Brewery in China to around 60%, thereby taking majority control of the company. The Danish brewer plans to launch a “partial takeover offer” for Chongquing for an extra 30% of its shares, valued at CNY2.9bn (US$462.1m).

The move is of little surprise, as global brewers increasingly focus on opportunities in emerging markets. “Asia has become the main battle ground for the world's biggest brewers,” as Reuters noted in its coverage of the news.

Indeed, Carlsberg's announcement came just weeks after SABMiller revealed it has agreed to buy Kingway Brewery for US$864m, through its JV with China Resources Enterprise, China Resources Snow Breweries. 

Carlsberg's top brass struck a confident tone. Jørgen Buhl Rasmussen, the group's president & CEO, hailed the Chongqing move as an “important step forward in China”, explaining that Asia is “very important” for the brewer's long-term growth strategy. 

The region accounted for 18% of Carlsberg's total sales volume in 2011 and 12% of its operating profits, Reuters noted

The deal also had analysts purring. Bloomberg quoted Trevor Stirling of Bernstein, who said: “Strategically, we believe the deal makes a lot of sense ... China is key to Carlsberg’s footprint in Asia, especially western China, including Chongqing.” 

Meanwhile, Nomura's Ian Shackleton said: “Although Carlsberg will need further deals to become truly national like market leader China Snow, majority control of Chongqing is a useful building block towards this goal.”

However, China may not be the complete panacea to global brewers' ills. The country is the world's biggest beer market, with 25% of global consumption but, as the FT noted, it offers “meagre profitability compared with other beer markets – largely a reflection of the low retail prices”.

And, as Bernstein figures showed last month, China only accounts for an estimated 3% of the global beer profit pool and ranks eighth in profit terms, ahead of Colombia but behind Russia.

China, then, would appear to be host to a volumes game, when it comes to beer.