By Wing-Gar Cheng March 21 (Bloomberg) — SABMiller Plc and its Chinese partner, which make the country’s best-selling beer, will pursue acquisitions and increase production capacity to boost growth in the world’s most populous nation. Building capacity in China, which had 593 breweries in 2009, remains “relatively cheap”, Ari Mervis , managing director of SABMiller’s Asia operations, said in Beijing. The venture will also continue to open new breweries, he said. SABMiller , which owns 49 percent of China Resources Snow, competes with Budweiser maker Anheuser-Busch InBev NV and Tsingtao Brewery Co. in a market where per capita beer consumption of 30 liters (8 gallons) last year exceeded the global average of 27 liters, according to Seema International Ltd . China Resources Snow Breweries is also boosting sales of premium brews to tap rising incomes in the world’s fastest- growing major economy. “What you find locally in China is underperforming assets,” Mervis told reporters. “You tend to be able to acquire the licenses and the stock at a relatively affordable price and rebuild at very competitive rates.” SABMiller rose 1 percent to 1,944 pence in London trading on March 19, increasing its gain this year to 6.5 percent. Partner China Resources Enterprise Ltd. fell 1.8 percent in Hong Kong trading, trimming its climb over the past 12 months to 145 percent. Higher Margins The venture is increasing output of higher-margin premium beers, which sell for about 20 yuan ($3) a bottle, Mervis said. The new products include an alcohol-free variety and draft made from imported malt, he said, declining to provide a sales forecast before partner, Hong Kong-listed China Resources Enterprise announces its 2009 earnings on March 25. “The price of spawning capacity here is still relatively cheap,” Mervis said. SABMiller and China Resources Enterprises last year announced acquiring brewery assets in China worth more than $140 million, according to data compiled by Bloomberg. Snow has a 17 percent share in the market that grew 6.7 percent to 305.4 billion yuan in 2009, according to Euromonitor International . Rival Tsingtao has an 8.1 percent market share. The volume of premium lager sold in China has doubled over the past six years compared with an overall 56 percent for beer, Euromonitor data showed. Average income of urban residents in China has risen 64 percent over the last five years and those in the rural regions by 58 percent, government data showed. Trading Up “There is a lot of focus on the brewer’s side on trading up and we need to focus on making available premium offerings,” Mervis said. “The expectation of an A-type restaurant would be a more premium restaurant in total, more expensive decor and the expectation is more expensive beer.” China will stay the fastest growing market in Asia for per capita beer consumption, said Mervis, who is also chairman at China Resources Snow. Per capita beer consumption in the U.S. is 84 liters and 73 liters in western Europe, according to data from industry researcher Plato Logic Ltd. Annual consumption per capita is about 85 liters in the U.K., 115 liters in Germany and 160 liters in the Czech Republic. Chinese consumers seek more guidance from retailers when evaluating a brand or product, Ivo Naumann , Shanghai-based managing director at consultants AlixPartners’ said in Beijing. Budweiser “Snow needs more intensive marketing before my customers will see it as an expensive beer and ask for it,” said Liu Zhenwu, who owns a night outlet in Tianjin and sells 800 cases of Budweiser monthly compared with 300 cases for Snow. “Most customers still see Budweiser as being the more expensive brand.” Premium beers account for 5.8 percent of production capacity in China, and the share will increase this year, Humor Wang, general manager at China Resources Snow Breweries, said in Beijing. He declined to give a forecast before China Resources Enterprise’s earnings report. Beer brands sold for about 2 yuan a bottle accounted for 69 percent of capacity, while products priced between 6 yuan and 8 yuan a bottle take 10 percent, Wang said. The remaining capacity is for 1 yuan lager. While rival Tsingtao sells beer overseas, China Resources Snow has no immediate plans to follow suit, Mervis said. To contact the reporter on this story: Wing-Gar Cheng in Hong Kong at wgcheng@bloomberg.net
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SABMiller’s China Venture Will Pursue Acquisitions, Boost Brewery Capacity
