Chinas Economic Slowdown Making Matters Worse for Brewers

Published By : 14 Sep 2015 | Published By : QYRESEARCH

The recent economic slump in China is making things much worse for brewer SABMiller PLC, who has found that even though beer is being consumed in huge amounts in the nation, there is no easy way of turning a sufficient profit.

A quarter of the beer volume in the world is accounted for by China and the country generates one tenth of the revenue generated from the sales of beer. However, according to Deutsche Bank, China accounts for only 3 per cent of the global pool of profit. SABMiller’s co-owned Chinese beer brand Snow is currently the largest selling beer in the world. However, SAB gets only 2 per cent of the operating profit from China. This, despite the fact, that the region accounts for a massive 20 per cent of the global beer revenues. 

Experts claim that there is a tight lid on the margins in China owing to the unusually extreme competition among leading brewers in the country. According to Sanford C Bernstein, in the United States, SAB’s MillerCoors and Anheuser Busch InBev NV joint venture with Coors Brewing Company accounts for over 70 per cent of the market in terms of volume and the companies presented 2014 margins of 18 per cent and 38 per cent respectively on their earnings before taxes and interest. 

In China, the same market share of 70 per cent is divided among five leading competitors – Tsingtao Brewery Co., SAB’s CR Snow joint venture, Beijing Yanjing Brewery Co., AB InBev, and Carlsberg A/S – whose earnings before tax margins and interest are reportedly between 6 per cent and 9 per cent.

Chief financial officer of China Resources Enterprise Ltd Frank Lai said that China is naturally very competitive because everybody wants a piece of the country. China Resources Enterprise is the 51 per cent partner of SAB in CR Snow.

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