Recently, the transfer of control of a Gansu-listed company has drawn attention in the beer industry. As the former 'Northwest King' of beer, Lanzhou Yellow River has long declined, losing competitiveness in China's mainstream beer market. Therefore, after new shareholders take over, injecting assets to promote restructuring of the listed company has been a plan set over a decade ago. Carlsberg, which jointly operates Yellow River and Qinghai Lake beers with Lanzhou Yellow River, faces a choice: exit completely or take over these assets? Carlsberg China has faced such decisions several times before. When Beer Flower sold its shell to Tongjitang, it acquired Wusu Beer; when facing Lhasa Beer under Tibet Development, Carlsberg had already shown signs of wanting to exit, though after several years of effort, it still hasn't succeeded. From early investments without controlling stakes, focusing on the west and casting a wide net, to now concentrating all beer business into Chongqing Brewery, Carlsberg China's strategic adjustments have one goal: to stay at the table in China's beer market. However, after decades of development, China's beer industry has transitioned from 'one city, one beer' to 'five powers contending,' with market competition moving from big fish eating small fish to big fish eating big fish, and fast fish eating slow fish. Facing traditional giants like China Resources Beer, Tsingtao Brewery, AB InBev, and the recent growth star Yanjing Beer, how much opportunity remains for Carlsberg China and Chongqing Brewery?

Lanzhou Yellow River Finally Changes Hands

Recently, Lanzhou Yellow River is planning a change of control. Actual controller Yang Shijiang and Xinsheng Industry & Trade will transfer their 50.7% stake in Xinsheng Investment, the controlling shareholder of the listed company, to the second largest shareholder, Hunan Yucheng. Currently, Hunan Yucheng already holds 49.3% of Xinsheng Investment and directly holds 5% of the listed company's shares; after the transaction, it will directly and indirectly hold 26.5% of Lanzhou Yellow River, becoming the actual controller. The founder of Lanzhou Yellow River, Yang Jiqiang and Yang Shijiang family, will cash out and leave. This day, Hunan Yucheng and its backer Tan Yuexin, have waited for 16 years. In 2008, Tan Yuexin's company first entered Lanzhou Yellow River and agreed to restructure the listed company. However, the backdoor listing was delayed, and the three parties were in litigation for years. It wasn't until the end of 2024 that this cross-time transaction finally saw the light of day. After Tan Yuexin takes over, it is likely that assets will continue to be injected. As an equity investment platform, Hunan Yucheng's assets are spread across healthcare, environmental protection, real estate, commercial management, property, elevators, education, elderly care, and other fields, with a large scale. Perhaps in the near future, the beer listed company Lanzhou Yellow River (000929.SZ) will become history.

The beer 'Northwest King' Lanzhou Yellow River owns two well-known beer brands, 'Yellow River' and 'Qinghai Lake,' and in its early years was able to compete with Tsingtao Brewery, Yanjing Beer, and Chongqing Brewery (600132.SH). It was listed on the Shenzhen Stock Exchange in 1999 and reached its performance peak in 2008, with annual revenue exceeding 1 billion yuan. As China's beer market transitioned from the initial stage of 'one city, one beer' to a mature stage of national market and regional division, market concentration increased significantly, making life harder for small and medium beer manufacturers. The company's operating revenue declined year after year, and it has been loss-making for six consecutive years excluding non-recurring items; in 2023, the beer gross margin fell to 11.57%. In the first three quarters of 2024, operating revenue was 178 million yuan, and net profit attributable to the parent was -38.6838 million yuan, down 10.41% and 445.30% year-on-year, respectively. Helplessly, this beer listed company planned to transform into premixed drinks and beverages, and put most of its energy into stock trading, with company performance tied to stock market fluctuations for years. So, after the change of ownership, injecting new assets is a turning point for the company's fate. Of course, behind the ups and downs of beer brands like Yellow River and Qinghai Lake, not only Lanzhou Yellow River is embarrassed, but also the international beer giant Carlsberg. In 2004, Carlsberg China invested in the main beer companies under Lanzhou Yellow River: Tianshui Yellow River Jianiang, Jiuquan Western Beer, Lanzhou Yellow River Jianiang, and Qinghai Yellow River Jianiang, each with a 50% stake; the listed company held 50% of the shares but had 60% voting rights. With Lanzhou Yellow River welcoming a new owner and new business plans, where will the beer business go? How will Carlsberg's stake be handled? More critically, in the upcoming turmoil, how much autonomy does Carlsberg China have?

Carlsberg China's Strategy

Carlsberg's investment-without-control strategy in the Chinese market directly led to its passive position in the disposal of Lanzhou Yellow River's beer business. As early as 1978, Carlsberg noticed the emerging Chinese beer market and set up a branch in Hong Kong to handle business in Hong Kong and mainland China. Carlsberg entered the Chinese market possibly earlier than AB InBev. However, at that time, Carlsberg was more of an observer and did not deeply participate. It wasn't until the Chinese beer market grew with the rise of local beer brands, and after international peers like AB InBev rushed into the Chinese market, that Carlsberg entered cautiously in 1995. Facing local traditional giants like Tsingtao Brewery (600600.SH), as well as foreign giant AB InBev and upstart China Resources Beer's aggressive mergers and acquisitions, Carlsberg's first few years were not smooth. Even around 1999, Carlsberg seriously discussed whether to exit the Chinese market, and in 2000, it transferred its 75% stake in Shanghai Beer to Tsingtao Brewery. Ultimately, Carlsberg stayed by adjusting its strategy. On one hand, it avoided the eastern market where other giants were deeply entrenched and focused on western China; on the other hand, unlike AB InBev and China Resources Beer (00291.HK) with their large-scale acquisitions and integrations, Carlsberg China was content to be a strategic investor. It formed strategic alliances with listed companies such as Beer Flower, Lanzhou Yellow River, and Tibet Development, investing in their beer companies, supporting brands like Wusu, Yellow River, Qinghai Lake, and Lhasa, while also introducing and acquiring several brands.

Through this differentiated competitive strategy, Carlsberg managed to stay at the table in China's beer market, but it didn't fare well. There are many reasons behind this, but the most fundamental issue is that Carlsberg did not control those joint venture beer companies. The three listed companies it cooperated with were all 'unable to be helped,' and Carlsberg was almost powerless. Beer Flower sold its shell to Tongjitang in 2016, and Carlsberg China took over its Wusu Beer and related assets. Lanzhou Yellow River, with weak main business and obsessed with stock trading, had its two major shareholders fighting for years over backdoor listing and other matters, entangled in various lawsuits, and only recently saw a glimmer of hope. Tibet Development (000752.SZ), whose former legal representative and chairman Wang Chengbo was sentenced to five years in prison for the crime of damaging the interests of listed companies through breach of trust. Now, due to deep debt disputes, the company is in the midst of a restructuring marathon. The three listed companies that cooperated with Carlsberg in the beer business have all had troubled fates, which is hardly a matter of luck.

Strategy Adjustment Again

China's beer market is turbulent, and the global beer market is even more competitive and consolidating. Five of the world's top ten beer companies—Anheuser-Busch, Interbrew, AmBev, SAB, and Miller—merged multiple times to form AB InBev. This put tremendous pressure on global beer giants like Carlsberg that were left behind. Data shows that in the first three quarters of 2024, Carlsberg Group achieved sales volume of 3.5 million hectoliters, down 0.2% year-on-year, of which beer sales were 2.87 million hectoliters, down 1.3%, and operating revenue was 20.476 billion Danish kroner (approximately 21 billion yuan), up only 0.9% year-on-year. So, facing the attractive Chinese market, even after suffering setbacks, Carlsberg dare not easily let go. China is already Carlsberg Group's largest market globally, and in its 'Sail 27' strategy for 2027, 'continue to succeed in China' is listed as one of the strategic priorities. Carlsberg China, which is passive in market competition, has long since started another strategic adjustment. The previous strategy was to invest without controlling, operate in a decentralized manner, and export technology, management, and brand experience. Now, it is to concentrate all resources and personally operate a beer industry platform—Chongqing Brewery.

Those familiar with the beer industry and capital markets will know this company well. Chongqing Brewery was once the undisputed 'Southwest King' of beer, but it gained greater fame from the speculative stock experience manipulated by Xu Xiang and others. This target once made many small and medium investors 'turn off the lights and eat noodles,' making the capital market fearful. In 2008, Carlsberg acquired 17.46% of Chongqing Brewery through the acquisition of S&N Brewery, increased its stake in 2010, and continued to acquire shares in 2013, becoming the controlling shareholder. In 2020, Carlsberg China injected most of its beer business into Chongqing Brewery, forming the current beer operation platform. On one hand, it concentrated resources into Chongqing Brewery; on the other hand, it planned to exit those beer businesses cooperating with other listed companies. However, the subsequent exit plans were not as easy as taking over Wusu Beer. In 2021, Carlsberg planned to transfer its 50% stake in Lhasa Beer to Jinmai Qingfeng, but it didn't materialize. In March last year, Carlsberg found a buyer, Daohe Industrial, but Lhasa Beer refused to cooperate in issuing capital contribution certificates and applying for shareholder change registration. Tibet Development's reason was that according to relevant agreements, Carlsberg's equity transfer was not approved in writing by the company, making the transfer invalid. As a result, a long tug-of-war litigation ensued. In July this year, the Lhasa Intermediate Court made a first-instance judgment: revoke the equity transfer agreement signed between Carlsberg and Daohe Industrial; Tibet Development has the preemptive right to purchase Carlsberg's 50% stake in Lhasa Beer under the same conditions. Carlsberg China's plan to extricate itself from Lhasa Beer has been shelved until now. Relatively speaking, Lhasa Beer under Tibet Development is still a quality asset, with sales of 337 million yuan and net profit of 87.502 million yuan last year. As for the beer business under Lanzhou Yellow River, with total revenue of over 200 million yuan and losses of over 10 million yuan last year, what reason does Carlsberg have to stay?

Can Chongqing Brewery Shoulder the Burden?

If divesting Lhasa Beer and Yellow River/Qinghai Lake beers is a set strategy, then can Chongqing Brewery, built with concentrated resources, single-handedly shoulder Carlsberg China's burden? In 2013, China's beer market production and sales reached a peak, followed by several years of intense industry adjustment. Since 2016, with a round of industry recovery centered on premiumization, AB InBev, Tsingtao Brewery, and China Resources Beer, which gradually filled its premiumization gap, have all become big winners, with market size significantly increased. Yanjing Beer and Carlsberg have been slightly inferior. In 2016, the market shares of China Resources Beer, Tsingtao Brewery, AB InBev, Yanjing Beer, and Carlsberg were 25.9%, 17.6%, 16.2%, 10.0%, and 5.0%, respectively. By 2022, the ranking of the top five beers remained unchanged, but their market shares had changed to 31.9%, 22.9%, 19.5%, 10.3%, and 7.4%. In the past two years, even Yanjing Beer (000729.SZ), which had been silent for years, has gradually perked up, relying on core big products like U8 to stage a beautiful comeback, becoming the growth king of beer since 2023. Next, repairing profitability is also expected. So, in the pattern of five powers contending in China's beer market, Carlsberg China looks a bit lonely. Chongqing Brewery, as Carlsberg China's main beer industry operation platform, has 26 breweries under its jurisdiction and owns a multi-tiered brand matrix including Carlsberg, Tuborg, 1664, Wusu, and Chongqing.

In the new era, Chongqing Brewery, leveraging Carlsberg's experience in brand and channel operations, has reversed its previous conservative stance and become extremely creative, even somewhat aggressive. Under Chongqing Brewery, almost every brand has its own spokesperson: Tuborg-GAI and Asen, 1664-Yu Shi, Somersby-Zhao Lusi, Chongqing-Tian Liang, Dali Beer-Jike Junyi, Wind Flower Snow Moon-Fangdong de Mao, etc. The overall lineup is no weaker than Yanjing Beer. To fill the gap in craft beer, Chongqing Brewery acquired Jing A, pioneering the acquisition of local craft beer brands by Chinese beer giants. It also innovatively introduced scenario-based market strategies: Chongqing Beer + hot pot, Wusu Beer + barbecue. To this end, the company directly opened a barbecue restaurant in Shanghai, Wusu Da Kao. From brand to channel, Chongqing Brewery has done almost everything possible in beer operations, and many strategies are at the forefront of the industry. However, judging from current business and performance, the results are not outstanding. In the first three quarters of this year, the company's operating revenue was 13.063 billion yuan, up 0.26% year-on-year, and net profit attributable to the parent was 1.332 billion yuan, down 0.90% year-on-year. In Q3, operating revenue was 4.202 billion yuan and net profit attributable to the parent was 431 million yuan, down 7.11% and 10.10% year-on-year, respectively. Besides industry-wide reasons like the shrinking beer market, this is still related to the China strategy Carlsberg implemented for many years. The western market, where Carlsberg China focused, is itself a secondary market in China's consumption, with limited value; when the company wants to enter higher-tier markets, such as setting up a factory in Foshan, Guangdong, it cannot avoid the fierce attacks from China Resources Beer and AB InBev—there is no incremental market left, only a zero-sum game for existing market share. Just when Carlsberg China and Chongqing Brewery were helpless about the market, trouble arose in the backyard. The controlling party of the subsidiary Chongqing Jiawei, Yuxin Group, accused Carlsberg China and Chongqing Brewery of shelving the 'Shancheng' brand, which has been making a fuss this year. Before this, due to Yuxin Group's occupation of Chongqing Jiawei's funds, the two sides had been in litigation for years. The dispute between Carlsberg Chongqing Brewery and Yuxin Group over Shancheng Beer can be seen as a collection point of the sequelae of Carlsberg China's strategy. Investing without control, unreliable partners, market contraction, anti-low-endization, and ultimately, several fuses tied to Shancheng Beer, also causing trouble for Chongqing Brewery.