Heineken Taps China With Stake in Nation’s Best-Selling Beer

* Heineken NV also is selling 5.2 million shares to China Resources Enterprises Ltd. for 464 million euros.

* China Resources Beer (Holdings) Co. Ltd. said it aims to leverage Heineken’s global presence and marketing capabilities to help pave the way for Snow beer’s international expansion

(Beijing) — Heineken NV is spending HK$24.3 billion ($3.1 billion) to acquire a 40% stake in the owner of China’s biggest beer-maker, ramping up its efforts to tap the world’s largest beer market.

The Dutch brewer is purchasing an interest in China Resources Enterprise Ltd., the majority shareholder of China Resources Beer (Holdings) Co. Ltd. (CR Beer), which owns Snow beer. Heineken is also selling 5.2 million shares, or a nearly 1% stake, to China Resources Enterprises for 464 million euros ($539.2 million), according to a Heineken statement on Friday.

Under the deal, Heineken will sell its existing China operations to CR Beer, including three breweries, and will license its Heineken brand in China to CR Beer on a long-term basis, it said.

The world’s second-largest brewer said the partnership will “help significantly expand” availability of its Heineken brand in China to fully leverage its potential, while CR Enterprises will be able to advance “its premiumization strategy.”

“CR Beer has a best-in-class route to market network, a wide brewery footprint and a deep understanding of the Chinese market,” the statement said. “Heineken has proven premium brand building capabilities and a world-class international brand portfolio, led by the iconic Heineken brand for which it has built strong equity over the years in China.”

CR Beer’s Snow is the world’s best-selling beer even though it is sold almost exclusively in China. The company said it aims to leverage Heineken’s global presence and marketing capabilities to help pave the way for Snow’s international expansion.

China’s brewery market shows signs of moving into the premium segment, as total beer sales jumped 6.6% in 2017 to 572.7 billion yuan ($83.80 billion), while consumption volume inched down by 0.6% to 45.5 billion liters, according to data-tracker Euromonitor International.

“Profitability of the Chinese beer market is expected to improve significantly, driven by premiumization, demand for international beer brands and cost optimization,” Heineken said.

The Dutch company has some catching up to do in China. Despite coming into the country in 1983, Heineken commanded only a 0.5% share of the market last year, lagging far behind other foreign brands such as Carlsberg, which had a 5.2% share, according to Euromonitor.

The competitive landscape has pushed out some players. Japan’s Asahi Group Holdings Ltd. announced in December it will to sell its stake in Tsingtao Brewery Co. Ltd. to conglomerate Fosun International Ltd. for HK$6.6 billion, citing a market slowdown.

Contact reporter Jason Tan (jasontan@caixin.com)