M&A Analysis and Research Report on Alcohol Industry of China

Abstract:
•  The background analysis over status quo and M&A in alcohol industry of China.

Alcohol industry has long history in China which is inextricably linked with culture. This sector is known for generating high tax while swimming in profit.

Alcohol market analysis

1. Market outlook looking rosy

As of the first half in 2006, the production and sales tends to be centralizing from vertical figure. The major production region is less than 10 provinces where 76.2% of alcohol producing has been generated while 67.6% of market share was held by top 16 companies. The bankruptcy has been declining with 77% of companies gaining. From horizontal number, the alcohol production has reached 1.83 million kiloliters growing 21.1% over the same period of last year. The gross value of industrial output was RMB 46 billion up 25.3% while return from main scope of business was RMB 44 billion growing 24.4% with total profit and tax at RMB 11.6 billion growing 25.2%. According to insiders, there is close correlation between booming alcohol industry and surging price in high-end proucts.

Proportion of output of Chinese liquor

At the same time, the vast number of bills is flowing into certain big companies evidenced by 43.25% of market is shared by top 10 while top 50 staking 65.42%.

Top 10 in China 's alcohol industry between 2005 and 2006

Name of company

Sales income (billion Yuan)

Comparative growth (%)

Wuliangye Group, Yibin , Sichuan , Province

156.56

13.37

Kweichou Moutai Co., Ltd

41.90

28.26

Luzhou Laojiao Group Co., Ltd

23.57

21.05

Sichuan Jiannanchun Group Co., Ltd

22.27

9.95

Fenjiu Group, Shanxi Province

18.90

23.30

Anhui Gujing Group Co., Ltd

15.54

10.16

Sichuan Tuopai Group Co., Ltd

9.90

7.29

Zhi Jiang Liquor Trade Co., Ltd, Hubei Province

9.32

29.85

Hubei DaoHuaXiang Liquor Industry Co., Ltd

7.48

43.14

Anhui Golden Seed Winery Co., Ltd

7.00

55.49

2. Increasing price and gearing up profitability

After price hiking in 2003, the second round of it is coming.

3. Consumption tax regulation boosting centricity in this sector

Based on Circulation No.33 by Ministry of Finance People's Republic of China and State Administration of Taxation in 2006, the policy was put into effect on April 1, 2006. With that, the alcohol industry is facing rosy picture ahead and consolidation cross-the-board while big companies take more shares of market resources.

4. Flavor liquor continues to take 70% of market

Flavor liquor stands dominant position in alcohol industry, which is 70%. This type of liquor includes Wuliangye, Luzhou Laojiao and Swellfun.

•  The motives behind alcohol industry

The inevitability of M&A in spirit industry is real. Low threshold for companies to come in gives rise to ferocious competition. However, the impact from state policy and alternatives, among others, beer, wine and beverage have put cap on alcohol industry. The withering customer basis and change in drinking habit along with reform in state-owned companies made M&A inevitable.

Case study of M&A in alcohol industry

Time

Event

Case brief

 

Kweichou Moutai Co., Ltd reorganized Guizhou Xijiu

On May 21, 2002, Kweichou Moutai signed an agreement on Asset Acquisition over Yeast Liquor Production with Guizhou Moutai Xijiu Co., Ltd. and engaged fund-raising for RMB 21,488.48 to take over the business implied in the Agreement including equipments, workshop, bodega and relevant equipments.

 

Baoguang Group Co., Ltd take over Lang Jiu Group

In March, 2002, the Lang Jiu Group having been loss for a whole was bought by Baoguang Group Co., Ltd as private company in Luzhou City with RMB 0.49 billion, hence the first reorganized alcohol industry coming into being.

 

VV Group took over Jiangsu ShuangGou liquor group Co.,Ltd.

On Nov. 14, 2006, the Property Transfer Contract was signed between VV Group and Jiangsu ShuangGou liquor group Co.,Ltd. After acquisition, VV Group became the first shareholder of Jiangsu ShuangGou liquor group Co.,Ltd.. VV Group has been hailed as King soy bean milk which shares 80% of the market.

 

Diageo take over Swellfun

Chengdu Yingsheng Investment Holding Co., Ltd. as shareholder will transfer 43% of stock in Sichuan Quanxing Co.,Ltd to Diageo, the biggest liquor guru in the world. This is the first case for a China 's top spirits company to be purchased. Diageo has 14 famous brands under its umbrella which shares 30% on world stage.

     
•  M&A trend in alcohol industry of China

The character of M&A hinges on industrial traits.

1. The market share among small plants is eroding while market resources will concentrate into competent companies which enable them to stand on bargaining position. This character determines the main body of M&A is big companies and small ones will be taken over.

2. The development of spirits industry in the future is moving towards high-ends where upscale products will expand its shares with customers being targeted. This indicates that the trend of M&A and post M&A development basically spearheads to high ground.

3. Though red wine, rice wine and foreign brands will deal threat as alternatives, the position of spirits is standing still. The taste of spirits is irreplaceable with other products. This sector is concentrated and enjoying loyal customers internationally. The most prestigious brands were monopolized by cluster of groups. On the other hand, high profit will lure more capital to step in and this attraction seems no sign of stop. Outside capital has possibility to dabble at this sector.

It is safe to say that the M&A storm will sweep through this sector cross-the-board two and five years to come. There is going to have number of famous brands out-competing each other.

Content: 


Chapter 1   Research Overview
Section 1   Background of the research
Section 2   Contents of the research
Section 3   Method over the research
Section 4   Team for the research
Section 5   Conclusion for research

Chapter 2   The Status Quo in Foreign Counterparts
1. The performance of alcohol industry between 2006 and 2009
2. The supply and centricity of supply between 2006 and 2009 
3. The demand scale and centricity between 2006 and 2009
4. The demand and supply between 2006 and 2009

Chapter 3   Performance in China¨s Spirits Industry
Section 1   The performance of China¨s spirits industry between 2006 and 2009
1. Performance in spirits industry between 2006 and 2009
2. The supply and centricity of supply between 2006 and 2009
3. The demand scale and centricity between 2006 and 2009
4. The demand and supply between 2006 and 2009

Chapter 4   The Analysis on Alcohol Industry in China
Section 1   The Upscale market of alcohol 
1. Profile and character of market
2. Supply and demand scale between 2006 and 2009
3. Prospect on supply and demand between 2006 and 2009
Section 2   The Middle-grade market
1. Profile and character of market
2. Supply and demand scale between 2006 and 2009
3. Prospect on supply and demand between 2006 and 2009
Section 3   The Low-grade market
1. Profile and character of market
2. Supply and demand scale between 2006 and 2009
3. Prospect on supply and demand between 2006 and 2009

Chapter 5   Analysis on Investing Policy Environment of China¨s Alcohol Industry 
Section1   The Macro-economic policy on spirits sector
Section 2   Industrial policy upon spirits industry 

Chapter 6   Factoring Analysis over China¨s Spirits Industry
Section 1   Risk in spirits industry development
1. Raw material supply
2. Changing in spending power
3. Tax policy
4. Environmental policy
Section 2   The Existing problem in spirits industry development

Chapter 7   Regional M&A in Alcohol Industry of China.
Section 1   North China  
1. Demand for alcohol between 2007 and 2010
2. Developmental and industrial pattern in regional alcohol industry
3. Regional competition and major player in regional competition
4. M&A trend and feasibility in regional alcohol industry 
Eastern region  
1. Demand for alcohol between 2007 and 2010
2. Developmental and industrial pattern in regional alcohol industry
3. Regional competition and major player in regional competition
4. M&A trend and feasibility in regional alcohol industry
Southern region  
1. Demand for alcohol between 2007 and 2010
2. Developmental and industrial pattern in regional alcohol industry
3. Regional competition and major player in regional competition
4. M&A trend and feasibility in regional alcohol industry
North-eastern region  
1、Demand for alcohol between 2007 and 2010
2、Developmental and industrial pattern in regional alcohol industry
3、Regional competition and major player in regional competition
4、M&A trend and feasibility in regional alcohol industry
North-western region 
1. Demand for alcohol between 2007 and 2010
2. Developmental and industrial pattern in regional alcohol industry
3. Regional competition and major player in regional competition
4. M&A trend and feasibility in regional alcohol industry
South-western region
1. Demand for alcohol between 2007 and 2010
2. Developmental and industrial pattern in regional alcohol industry
3. Regional competition and major player in regional competition
4. M&A trend and feasibility in regional alcohol industry
Central region 
1. Demand for alcohol between 2007 and 2010
2. Developmental and industrial pattern in regional alcohol industry
3. Regional competition and major player in regional competition
4. M&A trend and feasibility in regional alcohol industry

Chapter 8   Current M&A of Alcohol Industry in China
The background of M&A in alcohol industry
The status quo of M&A in alcohol industry
The case study of M&A in alcohol industry
The trend of M&A in alcohol industry

Chapter 9   Obstacles in M&A of Alcohol Industry in China
Policy restriction
Capital drawback
Material hindrance 
Engineering hurdles

Chapter 10   Case study on Foreign Counterparts 
Pernod Ricard purchasing Allied Domecq
1. Motives and value of M&A
2. Procedures of M&A
3. Solution and lesson of M&A
4. Strategy of M&A
Bacardi purchasing 42 BELOW
1. Motives and value of M&A
2. Procedures of M&A
3. Solution and lesson of M&A
4. Strategy of M&A
NDC purchasing Atlanta Alcohol  
1	Motives and value of M&A
2	Procedures of M&A
3	Solution and lesson of M&A
4	Strategy of M&A

Chapter 11   Case study of M&A in China¨s Alcohol Industry
Diageo take over Swellfun
1	Motives and value of M&A
2	Procedures of M&A
3	Solution and lesson of M&A
4	Strategy of M&A
Delong purchasing Tuopai Qujiu
1	Motives and value of M&A
2	Procedures of M&A
3	Solution and lesson of M&A
4	Strategy of M&A
Wanji Group purchasing Kongfujia Group
1	Motives and value of M&A
2	Procedures of M&A
3	Solution and lesson of M&A
4	Strategy of M&A
VV Group purchasing Jiangsu shuanggou winery CO., Ltd
1	Motives and value of M&A
2	Procedures of M&A
3	Solution and lesson of M&A
4	Strategy of M&A

Chapter 12   The Major Player of M&A in China¨s Alcohol Industry
Wuliangye Group
69. Production and marketing
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Kweichou Moutai Co., Ltd 
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Sichuan Quanxing Co.,Ltd
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Anhui Golden Seed Winery Co., Ltd
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Jian Nan Chun 
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Lu Zhou Lao Jiao
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Tuopai Qujiu 
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Lan Ling Chen Xiang
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Yang Shao
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Xing Hua Cun 
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Dao Hua Xiang Group
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Zhanggong
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  
Yang He
1	Capital operation 
2	Marketing network	
3	Major customer bases 
4	Strategic development
5	The Trend and feasibility of M&A  

Chapter 13   Possibility of M&A in Industry Chain 
Industry Chain in Alcohol Industry
M&A between Liquor producer and up-stream companies

Chapter 14   Possibility of Scale M&A in China¨s Liquor Industry 
Possibility of scale M&A 
1.	Wuliangye Group
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
2.	Kweichou Moutai Co., Ltd 
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
3.	Quan Xing 
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
4.	Jian Nan Chun
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
5、Lu Zhou Lao Jiao
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
6、Tuopai Quijiu
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
7、Lan Ling Cen Xiang
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
8、Yang Shao
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
9、Dao Hua Xiang
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
10、Zhang Gong
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A
11、Yang He
1.	Production and marketing capability
2.	Capital operation 
3.	Marketing network	
4.	Major customer
5.	Strategic development
6.	Feasibility of M&A
7.	Value of M&A

Chapter 15   Risk of M&A in China¨s Liquor Industry
Asset reshuffle
National consuming policy
Food security and sanitation
Corporate management

Chapter 16   Recommendation of M&A in China¨s Liquor Industry 

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