China Resources Beer Holdings Co Ltd (CR Beer) is now negotiating to take over Heineken’s China business in a deal which could be worth more than US$1 billion.
China Resources is the mainland’s largest brewer and is now actively seeking new growth opportunities through premium brands. China Resources’ beer brand, Snow is now the world’s top selling beer, however it is almost exclusively sold in China. China is also the world’s largest beer market by volume.
The negotiation is taking place amidst fierce competition faced by global beer giants like Heineken, Carlsberg and AB InBev from domestic players in the country.
A reliable source quoted that the deal between CR Beer and Heineken will also include 3 breweries in Guangdong, Hainan and Zhejiang, as well as Heineken’s distribution operations and its brands in China. The 2 brewers have also discussed a share-swap as part of the transaction. The acquisition is however not finalised yet.
Heineken entered China in 1983, however it has has struggled to set up a strong distribution network and to make a mark with its flagship Heineken lager, which lags far behind AB InBev's Budweiser in the premium market, industry analysts said. Heineken only had 0.5% share of the China beer market by volume in 2016 while CR Beer had more than a quarter (25%) of the market. Heineken sells its premium lagers Heineken, Tiger and Sol in China, along with cheaper local brands Anchor and Hainan Beer.
Despite China being the largest beer market, beer sales volume in the mainland has been declining since 2013 and is projected to see continuous decline. However, sales of premium beer has enjoyed double-digit growth during the same period. “CR Beer doesn’t have super-premium lagers, while Heineken has premium brands but lacks scale in China,” said an industry expert. Heineken is a good acquisition target for CR Beer.
Heineken's brands sell for 3 times the price of Snow in China. Chinese beer drinkers are overwhelmingly consumers of low-margin inexpensive beer, which makes up 80% of the market by volume, compared with an average of 18% in big developed markets, according to a Nomura analyst.
China’s beer industry had witnessed several major acquisitions in recent years. In 2017, Japan's Asahi Group Holdings sold its 19.9% stake in Tsingtao Brewery Co, which is CR Beer's biggest domestic rival, for US$937 million as it decided to focus on Europe and elsewhere in Asia. In 2016, CR Beer purchased SABMiller’s 49% stake in CR Snow joint venture for US$1.6 billion. The acquisition helped CR Beer to turnaround its business which had suffered losses for 3 years.