Carlsberg taps into Gansu market

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Last updated at: (Beijing Time) Monday, March 29, 2004

Carlsberg taps into Gansu market

Denmark's Carlsberg Breweries plans a US$60 million venture to make beer in China, becoming the latest foreign brewer to expand in a market that has burned many in the past.

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Denmark's Carlsberg Breweries plans a US$60 million venture to make beer in China, becoming the latest foreign brewer to expand in a market that has burned many in the past.

Lanzhou Huanghe Enterprise Co. said Friday it had signed a letter of intent with the world's sixth-largest brewer to brew 500,000 tons of beer a year through the 50-50 joint venture in the world's top beer-producing nation.

Carlsberg said in a statement that there was no final agreement about the form or conditions of the cooperation, but that negotiations were developing positively.

The move highlights a shift in strategy by foreign beer firms, which had hoped in the mid-1990s they could use their marketing savvy and deep pockets to roll out their international brands across China, but were overwhelmed by cheaper, abundant competition and poor transport networks.

Analysts expressed reservations about the narrow focus of Carlsberg's partner, but said the Danish brewer should be able to expand its presence in a market growing 6 percent annually.

"I have some doubts because the Chinese partner is too small and local," said Nomura analyst Phoebe Wong. "China remains an attractive market, but it won't be easy for foreigners to gain new penetration, unless they ally with a leading local player."

Carlsberg's cooperation with Huanghe would be based in the impoverished province of Gansu, which borders Mongolia, Huanghe said in a statement.

The Chinese firm's Shenzhen-listed yuan-denominated A shares rose by almost their 10-percent daily limit to 5.97 yuan Friday.

Carlsberg joins Anheuser-Busch, SAB Miller and Inter brew in angling for a bigger foothold in the annual 250 million hectoliter market.

Carlsberg, which said last year it could spend up to 2.5 billion euros on acquisitions, has bought a handful of breweries over the past year in China and runs several medium-sized breweries across the country.

It has had a patchy record of investing in the fragmented Chinese beer market, which is dominated by local players including the country's largest, Tsingtao Brewery, with a market share of 11 to 12 percent.

In 2000, Carlsberg sold three quarters of a new brewery in Shanghai to Tsingtao at a loss of almost US$20 million, fearing it would struggle to sell premium beers due to strong competition.

China's poor road and rail networks make it difficult to distribute nationally from large breweries, so a patchwork of locally brewed beers dominate.

In August, Carlsberg fell out with a Thai brewer, Chang Beverages, with whom it had invested in breweries in the southern provinces of Yunnan and Guangdong. The future ownership of the Kunming and Huizhou breweries -- owned 51 percent by Carlsberg and 49 percent by Chang -- is unclear.

Carlsberg bought 50 percent of Tibet's Lhasa Brewery earlier this year and the Dali brewery in Yunnan last year.

Danish holding company Carlsberg A/S fully owns Carlsberg Breweries after this month buying Norwegian conglomerate Orkla's 40-percent stake.

Despite the past problems, some analysts were cautiously optimistic about the latest venture.

"This will definitely give them another source of growth," said Merrill Lynch's Grace Mak. "But alliances are a much more difficult prospect for foreigners because they don't have the knowledge base of local players, making the probability of success a lot more uncertain."

Source: Shenzhen Daily

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