China Resources Beer (CRB) has acknowledged reports to be in negotiations with Heineken for the acquisition of its Chinese operations. Rumors already came up in March but sources said, that negotiations were still in a very early stage at that time (inside.beer, 9.3.2018)
Both companies experience problems in the market, which has undergone major changes in recent years. Overall beer sales in China peaked in 2013 but since then consumers turned away from cheap mass beers. The Chinese beer market has matured and consumers ask increasingly for premium products.
CRB’s CEO Hou Xiaohai confirmed that he had been in contact with multiple, well-known foreign beer companies in Hong Kong in March to upscale the product line of China’s leading brewer. CRB’s portfolio of beers is comprised of mainly low-cost beers. The company is lacking a well-established premium brand, like Heineken, which sells at higher margins. CRB’s main product Snow, which is the best selling beer brand in the world with 105.6 million hectoliters in 2016 (inside.beer, 17.8.2017) is a main-stream product, which is sold at discounted prices. It seems hard to impossible to increase price and image significantly without losing too much volume. In a first attempt the company redesigned Snow’s packaging last November, bringing in new colorful designs.
In order to cope with declining sales and eroding margins CRB also raised beer prices at the beginning of this year in tandem with number two brewer Tsingtao, which suffers the same problem as CRB. (inside.beer, 5.1.2018) Both companies also rolled out new products designed for the premium beer market.
Earlier this year Tsingtao introduced an ale and a wheat beer to expand its high-end lineup.
CRB started promoting its high-quality range, including the Brave the World – Super X beer through popular music stars and online programs that appeal to China’s younger consumers. “Young people are pursuing products that have a high quality and unique character. As long as the product is in line with their style, no matter if it is an international brand or a domestic one, they will pay for it,” Hou said. Super X is priced at 8 yuan ($1.26) for a 500ml container, about four times the price of its mainstream products.
Heineken on the other side is facing a different problem. The Dutch brewers operates three breweries in China but is not big enough to profit from economies of scale in a huge market like China. Heineken's share of China's overall beer sales was only 0.5% in 2016, putting it in 10th place. Market leader was CRB (25.6%), followed by Tsingtao Brewery (17.2%), AB InBev (16.2%), Beijing Yanjing Brewery (9.3%), Carlsberg Breweries (5.0) and all others (26.7%). (inside.beer, 9.3.2018)
A sale of Heineken’s China business to CRB would help both companies. CRB gets a high class premium brand and Heineken receives in turn not only up to $1 billion but is also given a platform to increase distribution and sales of its brands in the largest beer market of the world.
Still the problem remains that CRB certainly wants to own a brand to invest in and to develop but Heineken for sure will not sell its iconic Heineken brand, not even in a difficult market like China.