• by Nina Lentini  @Nina_Lentini, November 29, 2006

Anheuser-Busch expects to capitalize on a Chinese market that is growing more sophisticated in its tastes and stronger in its purchasing power as the brewer continues to expand distribution in Asia with a focus on its Budweiser brand.

CFO Randy Baker told investors yesterday the company will invest over the next two years to expand its "geographic footprint" in China as part of a long-term expansion strategy, but entirely within its operating budget.

Global brewers such as A-B, Carlsberg and SABMiller are eager to grow market share in the world's biggest market as demand slows in the U.S. and Europe. Carlsberg forecasts about 80 percent of global market growth in beer sales by 2010 will come from Asia, with China being the biggest driver. It plans to invest as much as $880 million in Asia in the next three years and is seeking acquisitions in eastern China to help it narrow the gap with A-B and SABMiller.

Baker said A-B will go up against other brewers in image, quality of product, and packaging. A-B will focus on the super premium category with its Budweiser brand. In China, where 87 percent of beer is sold at a very low profit, A-B is still optimistic. "If local beer is selling at a quarter," Baker said, "a domestic premium beer would be selling at, say, 50 cents. There you start having reasonably good profit margins."

Anheuser-Busch is also expanding its Harbin premium brands outside their traditional territory in China, and is looking to grow through a strategic alliance with Tsing Tao, in which it owns 29 percent.

The Chinese beer market is huge. Eric Shepard, executive editor of "Beer Marketer's Insights," said in 2005 the volume of beer sold in China was 256 million barrels, compared to 206 million barrels in the U.S. "It's just not as consolidated as it is here," he said of the market. A-B has 50 percent of U.S. market share, while in the more fragmented China, the largest market share held by any brewer is 15 percent.

Ten years ago, brewers rushed into a new China. "Some pulled out and then returned," Shepard said. It is hard to make money in China, because beer sells so cheaply, but it continues to be the largest-volume market in the world and is growing quickly. "You want to be positioning yourself there for long-term play," he said.

Meanwhile, A-B this week lost a copyright battle with Czech brewer Budejovicky Budvar, which entered China in 1997. The High People's Court in Beijing ruled that the Czech brewer may remain in the Chinese beer market, thereby safeguarding the company's position there. A-B had objected to the Czech company's trademark, saying the name was too similar to Budweiser.