China’s drinkers become more quality conscious
October 17, 2017 Category China News Round-up, Weekly
Asahi Group, Japan’s largest beer producer, is considering bailing out of its share in Tsingtao, one of China’s largest beer makers, in another clear sign that Chinese drinkers are moving upmarket. Experts say the domestic beer market has dropped significantly by volume, as buyers opted to cut back on cheaper products. But higher-quality beer brands and sales of traditional Chinese clear liquor, or baijiu, are doing fine.
Total national beer production has seen three straight years of declines, before slightly rebounding 0.8% in the first seven months of this year, according to the National Bureau of Statistics (NBS). As overall sales fall, however, demand for quality lager (imported and local), and traditional liquor such as Moutai, have continued strongly. Kweichow Moutai, the country’s biggest premium baijiu producer, reported first-half gross profit margins of 90% giving it a market value of nearly CNY700 billion.
Asahi, Tsingtao’s second largest shareholder with a 19.99% share, is considering the transfer of all or part of its 270 million H shares, the Chinese brewer said in an exchange filing. Asahi’s holding was worth about USD1.2 billion. In 2009, the company spent USD667 million acquiring the stock. In a Bloomberg interview earlier this year, Asahi President Akiyoshi Koji noted Tsingtao’s “worsened” earnings result and said “ownership without control doesn’t make much sense”. Tsingtao’s share price has fallen 4% in the past six months and has halved compared with the beginning of 2014. Shares in Kweichow Moutai, meanwhile, gained 70% so far this year, making it one of the world’s most valuable liquor brands. The stock has increased more than fourfold in value compared to the beginning of 2014.
“Beer demand is sluggish as China’s population continues ageing. Cheap lagers, which account for more than 70% of total sales, are becoming less popular,” said Iris Zhang, Analyst for Guotai Junan Securities. Tsingtao reported 30% and 14% declines in net profits, respectively in 2016 and 2015. For the first half of this year, however, net income grew 7% as the company shifted to selling more premium products, inside and outside the country. “Growth potential is limited for the beer market in future,” Zhang said. “Companies can no longer expand by offering just low prices,” the South China Morning Post reports.
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