Sun, Jun 06, 2004 page12

• Microminis and Mao: China joins the beer war

  • AP
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  The Bud Ice is flowing and Budweiser "beer girl" Zhen Yanting is smiling as she makes her way through Lulu's, an upscale restaurant, encouraging diners to try her brew. It's another day on the frontlines of the war for the world's biggest beer market.

  The combatants are the world's biggest brewers. The footsoldiers are shapely young ladies like Zhen, decked out in knee-high white vinyl boots and microminis.

  In the latest skirmish, Anheuser-Busch fought rival SABMiller for control of Harbin Brewery Group Ltd, a century-old beer maker in the northeastern city of Harbin, and won.

  Anheuser-Busch grabbed a controlling 37.4 percent share in Harbin Brewery on Tuesday, topping London-based SABMiller's offer for the company by nearly 30 percent. The Chinese management approved the US company's bid, and SABMiller bowed out, agreeing to sell its 28 percent stake for US$211 million.

  The scramble for Harbin Brewery reflects the surging foreign interest in China's industry, which surpassed the US in 2002 as the world's biggest.

  Chinese beer sales are growing by more than 5 percent a year -- fast compared to stagnant US and European markets.

  The potential for growth seems huge. The average Chinese drinks just 18 liters a year, compared with 84 liters for Americans, according to industry estimates.

  Sixty foreign beer makers have joint ventures or other investments in China, but few have prospered.

  China's beer industry was set up by German entrepreneurs a century ago, and their breweries are still the most prominent, led by Tsingtao, the country's best-known brand abroad.

  But the market is fragmented among dozens of competitors, and they need foreign technology and management help, says Grace Mak, an analyst for Merrill Lynch in Hong Kong.

  "They need support on the technical side to improve efficiency," Mak said.

  Now global companies are seeing new opportunities to buy into the Chinese market as Beijing eases limits on foreign ownership and breweries sell shares on stock markets abroad.

  "We are seeing deals being done that would have been unthinkable a few years ago," says Stephen Goodman, a lawyer specializing in mergers and acquisitions at Jones Day in Hong Kong.

  Anheuser-Busch's aggressive bid for Harbin Brewery reflects its status as China's leading foreign brand.

  "If you want to be a long-term player in the industry, you should have a strong position in China," said Stephen Burrows, chief executive for Anheuser-Busch International.

  Anheuser-Busch, the world's biggest brewer, has a 27 percent stake in Tsingtao and owns 98 percent of the Budweiser Wuhan International Brewing Co in the central city of Wuhan, where its Budweiser and Bud Ice brands are brewed.

  SABMiller has a stake in China Resources Breweries, the country's second biggest after Tsingtao.

  From way up north in Harbin all the way to the south, Budweiser -- known as "Baiwei," or "100 Powers" in Mandarin -- is by far the more visible presence in China.

  Anheuser-Busch has nurtured good relations with Harbin, most recently announcing plans to donate US$8 million to the city's economic development fund.

  It's launched an advertising push for the thirsty summer season, plastering Shanghai subway cars with posters of red and white, dripping cold Bud bottles.

  Neon Budweiser signs festoon beer gardens downtown, and Bud billboards are planted in obscure local housing compounds.

  The advertising campaigns make the work of the "pijiu xiaojie," or beer girls like Zhen, all that much easier.

  "It's good business," Zhen said, pausing briefly between her rounds of busy tables at Lulu's, where Bud Ice bottles sit on about one-third of the tables.
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