China: Tsingtao chairman Li Guirong welcomes competition on the domestic beer market and eyes larger exports

Li Guirong, chairman of China's oldest and most famous brewer, Tsingtao Brewery Co. Ltd., relishes the challenge of going head-to-head with his rivals on the mainland, the world's largest beer market by volume, The Globe and Mail posted August 28.

"Competition can drive us to innovate, to develop and do better. We can also learn from our rivals," said the head of China's leading beer company, which is also widely considered the nation's most valuable global brand.

"Tsingtao beer welcomes competition," Mr. Li said at the company headquarters that overlooks Qingdao's sparkling just-completed sailing venue for the 2008 Olympic Games, of which the company is a sponsor.

Proud that Chinese beer makers have over the past few years fought off a strong challenge from powerful foreign brands like Denmark's Carlsberg A/S, Mr. Li said the country's highly fragmented beer market would see further consolidation.

"It's an inevitable trend," said Mr. Li, 66.

"After the current phase of asset restructuring, the overall number of brands will fall to about 10, with small-scale producers being merged or vanishing altogether."

Mr. Li did not provide a timeline, but since 1998 about one-half of Chinese brewers have been wiped off the map through mergers and acquisitions. About 400 are still standing today.

Tsingtao, which dates back to 1903 when Qingdao was still a German treaty-port, has expanded aggressively over the past 14 years, growing from four plants in its home province of Shandong in the east to 50 subsidiaries around the country.

Although the company exports about 50 per cent of its beer, Tsingtao was in part spurred to action at home over the last decade by the rise of relative upstart Beijing Yanjing Beer Group Corp., established in Beijing in 1980.

"We were behind Yanjing in the late 90s," admitted Mr. Li, who in 1996 was appointed chairman of the Shanghai- and Hong Kong-listed group, which is still partially state-owned.

Tsingtao has since clawed its way back and today holds a slim but leading 13-per-cent market share over Yanjing's 10 per cent.

However, Yanjing, which has little recognition outside of the Chinese capital, scored a major coup when organizers allowed it to be a sponsor for the 2008 Summer Games.

Commenting on global competition, Mr. Li said the recent spree of stake-acquisitions by multinationals in China reflected how international brewers had changed strategies by tapping local brands.

"What they are doing now is tying up with Chinese brands, supporting Chinese brands in order to get market share. That means Chinese beer is competitive," Mr. Li said.

In the mid-1990s, foreign beer companies moved into China believing that their deep pockets and marketing know-how would enable them to take on local brands, but were burnt by stiff competition and poor distribution channels.

Mr. Li pointed to Carlsberg's $20-million (U.S.) loss in its sale of a new brewery in Shanghai to Tsingtao six years ago.

Australian-based Foster's Group Ltd. sold its Shanghai brewing business in June, its last majority stake in China.

Nevertheless, foreign groups such as British-based SABMiller PLC, Belgium's InBev SA and U.S. firm Anheuser-Busch Cos. Inc. now each have market shares in China of around 10 per cent.

Mr. Li described his company's partnership with Anheuser-Busch, which last year increased its stake in Tsingtao from 9.9 per cent to 27 per cent, as having "influenced us greatly" by improving our core competence.

Although Tsingtao last year recorded profit of 303.96 million yuan (US$38-million), up 8.66 per cent from 2004, Mr. Li said much more needed to be done to grow.

"There is still a long way to go to enter the main market," he said, hinting at a greater push to ramp up Tsingtao's overseas presence.

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