SAB Miller JV MD wants 30%+ market share in China

MD of China Resources Snow Breweries (CRSB), Humor Wang Qun said, during comments broadcast at SAB Miller’s Quarterly Divisional Seminar yesterday that the JV now had a 22% market share.

CRSB – the JV held between China Resources Holdings and SAB Miller – achieved $3.736bn sales in fiscal year 2013, ​and $300m, EBITA, half of which SAB Miller accrued.

HSBC analyst Lauren Torres asked Ari Mervis, SAB Miller Asia Pacific MD, how CRSB expected to achieve the 30% figure. Would it do so by taking volume from smaller, less profitable rivals or by pursuing acquisitions?

‘Humor put it out there as an ambition’​

A combination of both, Mervis replied.“Humor [Wang Qun] put it out there as an ambition,”​ he said. “I wouldn’t necessarily say that that’s what we’re directly driving towards, 30%. There’s nothing specifically magical about 30%.”​

If a brewer gained a 70%+ market share in a given geographic region, he added, it won a more direct route to market, via better distributors with access to better customers.

“They tend to want to have your brands more than competitor brands. So that’s an important number at the lowest denominator, if you will. Between 50-70% you can be more profitable but it’s quite competitive, and when you get to below 30% that’s when it becomes more of a challenge,”​ Mervis said.

“So I think what he [Wang Qun] is saying is that from his base markets, he’s wanting at least 30% in all of them.”​

Tempting M&A targets are few…​

However, the Chinese market is already so consolidated that there aren’t many large-scale targets out there, Mervis warned, since the four big brewers present there have a 60%+ share.

Tsingtao (16% share) is owned by the Shandong State – Japanese brewing giant Asahi Breweries holds a 20% shareholding in it – while the world’s No.1 brewer AB InBev has a 12% share; Yanjing holds 11% and is owned by the Beijing government and Snow itself has a 22% share.

“I’d be very surprised if any of those came into play in the short term, or were marketed in the short-term, especially when you look at Asahi and AB InBev’s being strategic investors,”​ Mervis said.

“So there’s not that much opportunity for that sort of consolidation. Kingway Brewery [CRSB expects to close a $864m deal for its local rival in H2 2013] gives us a couple of per cent more, 1.2% more. There are a couple [of brewers] in that ballpark, but not many.”​

“So I think it is going to be the smaller guys either stop brewing – since they become less profitable – or we acquire and consolidate as a continuation of our organic growth strategy,”​ Mervis added.

Slashed SKUs to add value​

CRSB now has 90 breweries in China compared to two in 1994 when the JV began, and in 2012 brewed 110m hectolitres (hl), 91% of which was the Snow brand, where the business has added value by cutting SKUs, improving packaging and consistent beer quality.

Derek Jones, commercial director, SAB Miller Asia, said that the cheapest Mainstream Snow variant ($0.49/500ml bottle) now accounted for 35% of CRSB sales, with Upper Mainstream taking 27%, Medium 33%, Premium 4% and Super Premium 1% ($2.44/500ml bottles for restaurants).

Taking Zheijang province on China’s east coast as an example, Jones said CRSB had cut 300+ SKUs down to five, increased prices by driving brand credibility and premium variants, and was thus able to spread geographically in the territory.

Consequently, CRSB’s volumes in this province of around 53m people had risen from 5-12 m hl from 2005 and 2011, while its market share rose from 12% to 45%, he added.