Tsingtao, Suntory brew JVs to expand

A production line at Tsingtao Brewery Co Ltd's plant, in Qingdao, Shandong province. The company has teamed up with Japan's Suntory Holdings Ltd to explore business in China. [Photo/Agencies]

Tsingtao Brewery Co Ltd, the second-largest brewery measured by production volume in China, has teamed up with the Japan-based beverage company Suntory Holdings Ltd to explore business opportunities in Shanghai and neighboring Jiangsu province.

According to a statement issued by Tsingtao to the Shanghai Stock Exchange, the company signed agreements with Suntory China on Tuesday to form two joint ventures to manufacture and distribute beer in Shanghai and Jiangsu.

Tsingtao and Suntory will have 50-50 percent interests in the joint ventures.

Tsingtao said the manufacturing unit will take care of matters including production, research and development and advertising. Tsingtao Songjiang, a wholly-owned subsidiary of Tsingtao, will be a platform company through which both companies will consolidate their assets into the joint venture.

Each company will invest 10 million yuan ($1.57 million) in the distribution unit, which will be responsible for shipping and storage, promotion and marketing. Tsingtao said the move will allow both companies to achieve synergies in the use of resources and become stronger competitors in Shanghai and Jiangsu.

Wu Jianhua, secretary-general of the Shanghai Drinks Association, said the deal is mutually beneficial to the companies.

"Suntory has a strong market presence in Shanghai and Jiangsu province. The move will allow Suntory to enjoy the benefit of Tsingtao's professional market operations," said Wu. "Tsingtao will take advantage of Suntory's wide distribution channel."

Tsingtao and Suntory each hold about a third of the market for their products in the Shanghai-Jiangsu area.

"The production capacity of the joint venture will account for more than 30 percent of the total production volume in East China, and it will allow the companies to have better control of the market," said Tong Xun in a report by Shenyin & Wanguo Securities.

"The marketing and promotion costs incurred by intense competition will also decrease significantly after the move," Tong wrote.

Despite the benefits of the joint ventures, Tong said, it will take time to discover whether the two companies can cooperate effectively. "Companies from different backgrounds might have different ideas about operations and sales, so it will take time to see the results."

According to the China Alcoholic Drinks Industry Association, beer production in the country rose by 10.7 percent last year to 48 billion liters. China's average consumption per capita has been about 30 liters in recent years.

tangzhihao@chinadaily.com.cn