Interbrew stepping up the Chinese ladder

China is becoming an increasingly important market for many western brewers after years of struggling to find the right strategy there. After recent moves by Anheuser-Busch and SABMiller, Interbrew is the latest major group to step up its operations there, announcing last week that it is to partner with Malaysian group Lion in the Chinese market.

Lion Diversified Holdings Berhad (LDHB) is a major player in the Chinese brewing industry with 11 million hectolitres sold in 2002, and joining forces with Interbrew will make it the third largest brewer in the country in terms of production volumes. The new company will produce around 21 million hl of beer, giving it around a 9 per cent share of the market.

Under the terms of the transaction, LDHB will sell to Interbrew a 50 per cent share in its China brewing activities for $131.5 million (€118.8m), and transfer management control of the strategic partnership to Interbrew.

Interbrew​ will also have an option to acquire the remaining 50 per cent in Lion's Chinese operations any time during the 12 months after the transaction has been completed for a further $131.5 million.

Interbrew has said that it is always keen to find partnerships or acquisitions which will offer it significant potential to grow outside both local and regional markets through strong brands, volumes, economies of scale and critical mass, and the Lion deal does just that, expanding Interbrew's Chinese operations into new areas.

Interbrew is already the leading brewer in Guangdong province via its participation in Zhujiang Brewery, holds the number one position in Zhejiang province (through K.K. Brewery and Lion Breweries) and a top three position in Jiangsu province (through Nanjing Brewery and Jiangsu Debier Brewery).

The Lion deal also gives Interbrew a foothold in three new provinces - Hubei, Hunan and Shandong - and contributes to an already strong portfolio in China. The company distributes a range of local brands (Zhujiang, Jinlongquan, Double Deer, KK, Santai and Jinling), premium local brands (Zhujiang Fresh, Jinlongquan Fresh, Double Deer Fresh and KK Fresh) and international premium brands and speciality brands (Stella Artois, Beck's, Leffe and Hoegaarden).

Interbrew's strategy in China has been to focus on the coastal areas, and since 1984 the Belgian group has steadily increased its presence in the country - first through the transfer of technical and brewing know-how to various Chinese brewing companies, such as Zhujiang and Five Star, and then via the acquisition of the Nanjing and Jingling Breweries in 1997 and stakes in the Zhujiang and K.K. Group last year.

This approach has been profitable for Interbrew, allowing it to get to know how the Chinese market works before investing substantially there, and giving it a range of local brands to sell alongside its own European products.

Other breweries have not been so successful, initially seeing China as the land of great opportunity but failing to make much of an impact with their western brands. A recent report from market analysts Canadean suggests that Chinese consumers have a very strong affinity with domestic brands, which account for an estimated 96 per cent of all beer consumed, and while premium brands are growing in popularity, many of these are still local produced rather than imported, making a local partner a vital necessity for doing business in China.

This has been the route adopted by most international groups, with Anheuser-Busch partnering with market leader Tsingtao and SABMiller acquiring stakes in companies such as Harbin and Snow. Carlsberg also has a significant presence in China through recent acquisitions Dali and Kunming.

But there is still huge potential in China, with most of the major groups at best present in a handful of provinces and few having anything resembling a nationwide presence.