Beijing Yanjing Beer Group Corporation, China’s third-biggest beer brewer by sales, is expanding in its traditional best-selling area of the Inner Mongolia autonomous region, by purchasing a local brand called Jinchuan.
Yanjing’s Shenzhen-listed subsidiary Beijing Yanjing Brewery Co Ltd bought a 96 percent stake in Inner Mongolia Jinchuan Health Care Beer High Tech Co Ltd (Jinchuan) for 150 million yuan ($23 million), the Oriental Morning Post reported on Wednesday, citing Yanjing’s board secretary Liu Xiangyu.
The report also said that Jinchuan’s executives will hold the remaining 4 percent stake, which is not for sale.
Jinchuan has an annual beer production capacity of 100,000 tons and the brand name will continue to be used, Liu said.
The deal was completed in late December and means Yanjing now owns nine breweries in central and western Inner Mongolia, taking a market share of more than 70 percent there.
The second-biggest operator in the district is China Resources Snow Breweries Co Ltd, which owns three breweries in eastern Inner Mongolia and has a market share of about 20 percent.
China National Food Industry Association Beer Sector Commission said Yanjing will also invest 300 million yuan in Bayannur city to build a new factory with an output capacity of 200,000 tons, double Jinchuan’s current total production capacity.
According to previous reports in the Chinese Securities Journal, Li Fucheng, president of the board of directors of Beijing Yanjing, said the company plans to increase output by 3 million tons during the next five years. Two million tons will come from improvements to the production line, and the other 1 million from acquisitions.
In the past year, Yanjing has paid 227 million yuan to purchase two beer companies in Henan province. Henan was thought the last place in Central China that the big three beer giants (Tsingtao Brewery Co Ltd, Snow Breweries and Yanjing) hadn’t yet established a presence.
“We believe Yanjing’s further investment in Inner Mongolia is to build a market in which it can be dominant, because the nearby Hebei province and Beijing have been its traditional best-selling areas,” said Zhou Jigeng, a food and beverage industry analyst at Guolian Securities.
“To become more concentrated is a clear trend for China’s beer industry. Acquisitions are helpful to big companies because they can obtain the local brand’s marketing networks for nearly no cost.”
According to company data, Yanjing currently has an annual production capability of 500 tons.
Yanjing realized sales revenue of 8.96 billion yuan in the first three quarters of 2010, up 8.1 percent year-on-year. Its net profit of 712 million yuan during the same period was a 26.1 percent increase year-on-year.