China: China Resources Snow Breweries to build a new plant in Harbin
China Resources Snow Breweries (CR Snow) will invest 283 million yuan (US$35 million) to build a new plant in Harbin, capital of Northeast China's Heilongjiang Province, China Daily communicated on April 7. The factory will be set up in phases in Harbin Limin Economic Development Area.
The first phase of construction, with a designed production capacity of 230,000 kilolitres of beer a year, was started on April 6.
The brewer expects the first-phase project, which will mainly produce its Snow-branded beer, to bring 300 million yuan (US$37.4 million) in annual revenue. "It is a key strategic move for CR Snow's expansion in Northeast China and in the whole Chinese market," said Wang Qun, general manager of the brewer.
He said that Snow beer has achieved a good performance in Heilongjiang Province, while the new plant will further improve the company's local production facilities in the province to better satisfy local demand.
The new plant, after completion, will be able to produce 430,000 kilolitres of beer a year. The Harbin plant is CR Snow's second purpose-built brewery after it invested 680 million yuan (US$84.8 million) in building a new plant in Dongguan, Guangdong Province, in 2004.
CR Snow, a joint venture between Hong Kong-listed China Resources Enterprises Ltd and the international brewing giant SABMiller, has been known for its acquisition strategy since its establishment in 1994.
The company has bought over 40 breweries around the country and more than 30 regional beer brands. "The new project shows that investing in your own plant is more suitable than buying an established local brewery," said Dong Junfeng, an industry analyst from Galaxy Securities.
China's beer market is the largest in the world and is the fastest-growing market, with an annual growth rate of 7 to 10 per cent.
The huge market has been, and is still, attracting a flood of investment from global players such as InBev, SABMiller, Anheuser-Busch and Carlsberg. They have been competing to buy relatively big beer producers in local markets, driving the purchasing prices higher and higher. The Belgian brewing giant InBev paid US$750 million for a 100 per cent stake in Sedrin, the largest beer maker in East China's Fujian Province, in earlier this year.
The transaction is the most expensive in China's beer history, with the price being 75 times Sedrin's 2005 earnings. "The cost of mergers and acquisitions is too much," said Dong.
SABMiller, which owns 49 per cent of CR Snow, said that the joint venture will slow its acquisition moves, while it focuses on internal growth, the Hong Kong media outlet Wen Wei Po reported recently.
The move is also part of SABMiller's efforts to compete with its rival Anheuser-Busch (AB) in the Northeast China market, analysts said.
Snow beer, and Harbin Beer that is owned by AB, are the top two sellers in the local market. The two brands account for a combined 60 to 65 per cent of the market. In 2004, the two beer giants competed in a bid for Harbin Beer, with SABMiller coming out as the loser. The new plant will help improve its competitiveness in the local market, analysts said.
CR Snow claims it sold nearly 4 million kilolitres of beer last year, accounting for 13 per cent of the total domestic market, only slightly less that its biggest rival Tsingtao beer.
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