Saturday, 13 September 2008

SABMiller's China Snow Job

An article in The Wall Street Journal sent in by Howard sheds some light on how Snow has displaced Budweiser as the world's biggest beer brand:

Snow's production was less than one-tenth of its current level six years ago, when the regional brewer started developing a now-extensive national distribution network and began buying competing brewers in the fragmented Chinese market. That helped it tap China's growing ranks of beer drinkers. "Success has largely been driven by the supply side," says Ari Mervis, managing director for SABMiller's Asian and African operations.

Though the Chinese drink less beer per person than Americans or Europeans, China's beer market has been the world's largest for the past six years and is growing 10% a year, according to Euromonitor. Snow's rapid growth illustrates the promise of China's vast consumer base.

But China's price-sensitive mass market produces thin profit margins compared with many other countries. Chinese beer makers have profit margins of roughly $2 per hectoliter, compared with $50 to $80 in Europe and the U.S., according to Mr. Mervis, who says beer prices have barely moved over the past five years. SABMiller says that while Snow accounts for 30% of the brewing giant's global sales volume, it contributes less than 5% to overall profits.

So SABMiller has essentially "bought" Snow's market share, and now needs to make it more profitable, potentially by moving it up-market. Hopefully, working on the recipe will be part of the strategy...

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