SHANGHAI/HONG KONG -- The world's top brewer Anheuser-Busch InBev is gearing up for a major push into the Chinese market by targeting high-end beer consumers -- a demographic also coveted by its biggest rival, Heineken.
To bankroll that endeavor, AB InBev will list its Asian business in Hong Kong as soon as this summer, in what could be this year's largest initial public offering in Asia.
Although China's beer sales peaked in 2013 by volume, sales by value surged nearly 40% between that year and 2018, based on provisional numbers. The price per unit jumped thanks to the popularity of premium beer.
For years, Chinese have appreciated cheap beer, favoring the kind sold in 500 milliliter cans for roughly 55 cents. Lately, their tastes have expanded along with their wallets during the country's economic boom that has led to a rise in popularity for imported craft beers, which sell for about $3.
Goose Island Beer, a craft beer under AB InBev's umbrella, has seen its Shanghai brewhouse grow into a popular hangout for young professionals. "Although the 50 yuan ($7) drinks are a bit on the high end, I'm not too concerned about the price," said a 34-year-old startup employee named Li who said he frequents the bar with friends and coworkers.
"There are many flavors of beer, and it's fun drinking and comparing premium beer," Li said.
Lately, the premium beer market in China has simultaneously drawn global brewers smarting from sluggish international sales.
However, AB InBev was relatively late to the party as it focused on a $100 billion merger with SABMiller, completed in 2016.
To comply with antitrust regulations, SABMiller had to unwillingly part ways with China Resources Beer, its partner since 1994 and the country's largest brewer. That gave Heineken, AB InBev's largest rival, an opportunity to grow its share on the mainland, which was less than 1%. Last year, Heineken and China Resources entered into a capital and operational tie-up.
The deal involves Heineken owning 40% of parent company China Resources Beer Holdings, with the $3.1 billion transaction only recently finalized. The two sides are reportedly consolidating operations in China, with the aim to market the Heineken brand heavily.
AB InBev sold off multiple premium European brands to Japan's Asahi Group Holdings, the world's seventh-largest beer maker, in a 2017 deal for 7.3 billion euros ($8.2 billion at current rates). Asahi in turn started introducing high-end beer to China last year, under the labels acquired from AB InBev.
The Belgian heavyweight could no longer watch silently. On May 10, AB InBev filed to float its Asia-Pacific business with the goal of becoming the "champion" in the region, CEO Carlos Brito said.
"AB InBev chose to list in Hong Kong because they believe China will be the principal market," said an insider at a Japanese brewer.
The subsidiary being floated, Budweiser Brewing Co. APAC, could be worth up to $50 billion, according to Jefferies' analysts, which would put it on par with Xiaomi, the Chinese smartphone startup that debuted in Hong Kong last year.
The subsidiary logged a net profit margin of about 17% in 2018, according to the Hong Kong filings. That surpasses the 8% margin at AB InBev, indicating the rosy growth prospects in Asia. But "I've heard frequently in the industry that InBev's executives are not satisfied with the sales and margins in China and the rest of the Asian business," said a source close to a rival company.
The IPO could raise about $5 billion. Some of those funds could be used to pay down the debt taken on to finance the SABMiller buyout. On the other hand, the filings say that the group will pursue mergers and acquisitions in Asia, which will help AB InBev rise from its third-place position in China. The market is abuzz with rumors of which premium brewers the company would swallow up.
The battle for supremacy is playing itself out in Chinese supermarkets and convenience stores as sparks between the rivals begin to fly. Both AB InBev and the Heineken-China Resource alliance are renting shelf space for limited periods to promote Budweiser and Heineken products.
Further heating things up, AB InBev has become the exclusive Chinese distributor for Sapporo Premium Beer, made by Japan's Sapporo Holdings which exited the market in 2009.