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On Monday, 31 August, shares of Budweiser Brewing Co APAC (SEHK: 1876) (also known as Budweiser Asia), started trading on the Hong Kong stock exchange with the offer price set at HK$27.40. Shares increased by 4% that day, closing the session at HK$28.20.
The share price since then has been on quite a run. As of Tuesday (8 October), the stock price was HK$31.20. The company plans to expand into China, India, and Southeast Asia.
However, the impressive initial performance disguised problems with the beer firm’s process of coming to market. The launch of the stock had been delayed three months and still took place amid turbulent market conditions sparked by the ongoing anti-government protests in Hong Kong.
That said, the stock’s initial and continued climb, despite external factors, is a testament to Asia’s thirst for alcohol stocks. But does Budweiser Asia stand a chance when it comes to infiltrating the world’s biggest beer market: China? Here are a few things to keep in mind before adding Budweiser Asia to your portfolio.
China’s beer market dominated by local brands
China is the world’s biggest beer market by sales, and if Budweiser Asia can tap that it could mean major money for investors. That said, there are challenges.
For starters, China’s beer market is dominated by local names and brands. China Resources Beer Holdings (SEHK: 291), also known as CR Beer, holds 25% of the market, followed by Tsingtao Brewery Co Ltd (SEHK: 168) and Chongqing Brewery. Anheuser-Busch InBev (AB Inbev), Budweiser Asia’s parent company, only holds 16% of the total market share.
AB Inbev needs to be creative approaching these markets. It could try to buy a segment of an established beer company like its rival Heineken N.V. did when it purchased a 40% stake in CR Beer. As of this moment, no acquisition plans have been announced though. Then there is the problem of Baijiu.
Baijiu’s stranglehold on China’s market
Baiju, a popular traditional alcohol made from fermented grain that is unique to China, has steadily gained even more popularity with Chinese consumers. Since 2017, sales of the spirit have risen by 38.5%.
There are both cheap and luxury brands of Baijiu which makes the drink appealing to both the low-end and luxury alcohol markets. Budweiser Asia may face challenges overcoming Baijiu’s increasing dominance in the Chinese market.
Beyond that, the overall demand for beer in China is dropping. Chinese alcohol drinkers are shifting away from beer, and the country’s total beer consumption is expected to slump by one billion litres by 2023.
Complications with the Chinese market considered, it’s likely Budweiser Asia will have more success in Southeast Asian countries. But even this will take a lot of strategy. Just like China, the Southeast Asian beer market is dominated by smaller companies.
Larger alcohol companies have had market success by acquiring these companies. These smaller companies have a knowledge of the market they are catering to – a knowledge that will become necessary if a company wants to have long-term success.
While Budweiser Asia’s parent company AB Inbev has years of experience in marketing and producing beer, it will likely face challenges trying to grow Budweiser Asia and enter the Chinese market. Acquisition plans may be critical to tackling such a saturated and fragmented landscape.
When it comes to Southeast Asia, there are more opportunities for growth, but Anheuser-Busch InBev will likely still need to acquire companies already inside of the market who are familiar with it. Beyond all this, there is a legitimate concern that alcohol demand in China is shifting away from beer to fine spirits as income levels in the country continue to rise.
While this stock has potential, investors should be wary of the challenges presented by the Chinese market and overall alcohol trends in that market.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Alex Perry doesn’t own shares in any companies mentioned.