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Kirin’s joint venture activity in Shanghai and Guangdong show its current strategy is nothing near a wholesale change towards the country. However, the investment should speed up its development in China over the medium term.
Euromonitor International’s latest research findings show that Kirin remains a minor player in China’s buoyant soft drinks market compared to its Japanese counterpart Suntory. This situation is not really helping Kirin to achieve its ambition to become a leading food and beverage company in Asia and Oceania over the medium term.
China is set to account for 84% of Asia Pacific’s value growth in soft drinks over 2010-2015, so Kirin might find it hard to realise its corporate goal without increasing its investment in China.
To this end, Kirin boosted its stake in the Jinjiang joint venture (Shanghai Jinjiang Kirin Beverage & Food Co Ltd) from 57.6% to 93% by acquiring the stake owned by its Chinese partner, state-owned Jinjiang International Group, in late 2009 as part of its corporate strategy to boost income from overseas to mitigate domestic sluggishness. Shanghai Jinjiang Kirin Beverage & Food was set up in 1996, with a capital value of US$22.3 million.
The increase in stake in the joint venture will allow Kirin to be the key decision maker in the Jinjiang operation. With a controlling stake, Kirin can perhaps be quicker to respond to rival companies such as Coca-Cola, PepsiCo, Wahaha and Shanghai Suntory-Maling.
In January 2011, Kirin took another big stride and agreed to establish a non-alcoholic beverage joint venture with China Resources Enterprise Co Ltd (CRE). CRE is a consumer goods conglomerate whose core businesses include retail, beer, foods and beverages in China and Hong Kong. Kirin and CRE will hold stakes of 40% and 60%, respectively. The details of the joint venture are to be discussed and determined by both parties.
Kirin is mainly interested in CRE’s distribution set-up as it has over 3,000 retail outlets nationwide in China and an extensive logistics and sales network. Kirin will contribute its product development skills, technological know-how and research and marketing experience to the joint venture.
Kirin is right to target the Yangtze River Delta and the Pearl River Delta for immediate and quick access to the key middle classes. For the past two decades, the Yangtze River Delta and Pearl River Delta have been the “world’s factory”, experiencing rapid industrialisation, characterised by the swift accumulation of individual wealth, rising standards of living and increasing urbanisation. The number of white-collar middle-class workers is rising, along with industrialisation, while consumer goods such as soft drinks have become increasingly affordable.
The synergies created by Kirin’s joint venture with CRE should be meaningful for both companies’ further development in China’s soft drinks market. If things go according to plan, Kirin will have a good opportunity to improve its share in China’s soft drinks market over the medium term. Euromonitor International believes that with the two joint ventures in hand, Kirin is unlikely to seek to take full control of any major local companies.
For further insight, please contact Hope Lee, Senior Beverages Analyst at Euromonitor International on email@example.com.