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After two years’ waiting, Chinese liquor brewer Swellfun was finally able to announce that the British winemaker Diageo’s offer to acquire Swellfun had been approved by China’s National Securities Regulatory Commission on March 24. This was the first case that a Chinese liquor company being acquired by the foreign company.
The disclosed part of the DiageoSwellfun acquisition revealed that Diageo would take over all the stocks of Swellfun held by the Chinese liquor maker’s shareholders except Quanxing Group. The total shares that to be acquired accounts for 60.29% of the company’s total shares and the bid values 6.318 billion yuan.
On top of Diageo, Louis Vuitton Mo?t Hennessy, Lenovo and other domestic and foreign giants – some of them are even not associated with the wine market before – are all contending in the liquor industry.
In recent two years, there are more than 50 enterprises investing in liquor only in Maotai Town, Guizhou. In this small town about tens of billion yuan is converging in this place. Stock participation, acquisition and listing… these words are frequently heard in this town, exciting many liquor brands. Erlang Town, Sichuan, which stands on the other bank of the river against Maotai Town, is also witnessing a fierce battle of expanding production capacity. Foreign investors, along with some ambitious and smart domestic investors are swarming into the liquor market, behind which there is the depression of the stock and property market in China.
Ji Keliang, emeritus board chairman of Guizhou Moutai Group said that Moutai had the space for overseas expansion but the foreign capital’s acceler- ation in getting into the liquor industry brings explosive development into this industry and challenges to traditional liquor industry.
Capital Contenst in Maotai Town
“Presently, we need to receive at least two groups of guests aiming for cooperation every day,” said a director from Maotai Town-based Huaxing Liquor on April 30. “In the past one month, we received the orders from different dealers totally valuing 2 mil- lion yuan.” In the 86th Chengdu Candy& Liquor Trade Fair that was ended in March, this company’s employees present in this Fair all wore traditional Chinese clothes, impressing the visitors and other exhibitors very much.
Early in the Shenyang Candy & Liquor Trade Fair in September 2011, Huaxing Liquor used the same method to earn the orders valuing 102 million yuan. It represents the potential of China’s liquor business. Such a potential tempts many businessmen to invest vastly into this field. Half a year ago, Li Ronggen, a commercial tycoon from Zhejiang, threw 580 million yuan in the cooperation with Zhou Jieming, board chairman of Guizhou Central Brewing Factory.
Zhou Jieming’s brewery lies next to Chishui River, whose water is used to brew the famous Moutai Liquor. In people’s eyes, Maotai Town which gestated the Moutai Liquor, is more mysterious than the liquor. Li Ronggen successfully tapped into the Qiandaohu Beer and Castel Wine years ago. Before establishing the cooperation, Li Ronggen went to Maotai Town several times for surveys.
This small town only covering less than 2 square kilometers accommodates about 300 brewers companies. The production capacity and value take more than 80% of liquor industry in Guizhou.
Tianjin-based Tasly Group took actions earlier than Li Ronggen. In 1999 this company acquired Guizhou Guotai Liquor Co., Ltd and in the past 12 years it invested over 1 billion yuan in Guotai Liquor to reconstruct and expand the old factory. In 2010 this factory’s sales amount exceeded 300 million yuan, ranked at the second largest brewery company in Maotai Town.
In August 2011, Tasly Group announced the additional investment of 3 billion yuan in Guotai Liquor, planning to increase the production capacity to the level of 10,000 kiloliters and the sales amount to 6 billion yuan in five years.
According to the 12th Five-Year Plan of Huairen City, the whole city’s production capacity of liquor should be increased twice to 500 thousand kiloliters by 2015 and the value of liquor industry is expected to reach 10 million yuan. This is a tough task because in 2010 the production capacity of liquor in this town was only 133 thousand tons while the total value only amounted to 17.57 billion yuan.
Sun Chi, deputy director of the Huairen Economic Trade and Wine Administration Bureau said that the amount of outside capital was undergoing explosive development in recent years. More than 50 enterprises have already expressed their will to invest in Huairen, including state-owned enterprises like Huairun Beer and private companies like Tang Dynasty Wine. According to the official data, the amount of capital put into the liquor industry of Huairen had totaled 10 billion yuan and is expected to reach 50 billion yuan by 2015.
Guizhou Jinshaoyao Liquor Co., Ltd received the investment from Hubei Yihua Group for expansion and reconstruction in July 2007. In the past four years the Hubei-based company invested 600 million yuan into this factory and additional 700 million is waiting in tow as a source said. Hainan Airlines has already established cooperating relationship with Guizhou Huaijiu Liquor Co., Ltd with the initial investment amounting to 780 million yuan for whole integration of resources. The goal is to push the production capacity of Huaijiu Liquor to over 50 million tons per year in five years, giving it the No. 3 position in Chin’s liquor market. Hainan Airlines owns 300 supermarkets and over 50 hotels, which are good channels for distributing. It is also the largest enterprise stationed in the liquor industry of Guizhou.
“Hainan Airlines owns a broad viewpoint. It steps into Guizhou not only as a strategic investor but also as a spreader of advanced concepts,” said Long Yongtu, former secretary-general of Boao Forum. In his opinion, the liquor world in Guizhou should not be monopolized but be attended by diversified companies.
Lenovo is trying to be another initiator for the diversification of participants in Guizhou’s liquor industry. This PC maker is reported to follow the strategy of diversifying its business and the liquor industry is certainly an ideal target.
In June 2011, Lenovo spent 130 million yuan acquiring 39% of the stock of Hunan Wuling Wine Co., Ltd, a subsidiary of Luzhou Laojiao Co, Ltd. Five months later, it spent 1 billion yuan acquiring 87% of the stock of a Hebeibased liquor company. Then, it acquired Shuguang Wine Corp. in Luzhou, Sichuan, adding a new brick onto its liquor industry. Two famous liquor makers in Shandong and Anhui also became its targets. The Lenovo liquor empire is on the way.
The whole Guizhou Province witnesses more acquisitions and integrations. Beverage giant VV Group, Beijing-based logistics company Yish- entong Corporation, and Hong Kongbased Silver Base Group all extended their arms to the liquor inudstry of Guizhou.
According to the research, producing additional ten thousand kiloliters of Moutai Liquor needs the investment of 7.5 billion yuan to produce ten thousand kiloliters of ordinary liquor costs 5 billion yuan. Presently, the production capacity of liquor in Guizhou is around 400 thousand kiloliters. Based on the aforementioned data, about 20 thousand kiloliters of Moutai Liquor will be added into the production capacity and this needs about 15 billion yuan. Additional 150 billion yuan is needed to produce 200 thousand more kiloliters of ordinary liquor.
That means Guizhou needs at least 200 billion yuan of investment in the liquor industry. This is undoubtedly a big challenge and opportunity for this southwestern province in China. Capital Strain as a Problem
Apart from the large-sized investors, some private investors were found to focus on liquor industry as well. In the cellars of several brewers, there are thousands of wine jars with people’s names carved. The workers said that these wine jars belonged to private investors.
Chen Xiaoyong, a rich man in Gui- zhou, is one of the private investors. In 2009 he spent 1.68 million yuan buying an old liquor brand from a merchant in Zhejiang. Then he put multi-million yuan – all he had – in recovering the production of this brand. Now the liquor is sold well but the capital stress is bigger and bigger.
Chen Xiaoyong plans to increase the size of his plant but he needs the capital of 14 million yuan. “Without any tangible mortgages, the banking loans are hard to get.”
The casual research revealed that many bosses of small- and middle-sized liquor brewers are facing the same prob- lem of capital strain.
An inside material from the Financial Administration Bureau of Huairen showed that the balance of various deposits amounted to 17.37 billion yuan in 2010 but the balance of various loans was only 3.45 billion yuan. The depositcredit ratio was 20% and the disparity between deposit and credit amounted to 13.92 billion yuan. The banks are not willing to lend money to these small liquor makers; instead, they are more willing to idle this huge amount of money in their treasuries without bringing them into real use. If the funds can be used by the liquor industry of Guizhou, great impact will come out.
Erlang Town in Sichuan is separated from Maotai Town by Chishui Town. Wang Junlin, board chairman of Lang Liquor, announced proudly that the production capacity of the Lang Liquor was about 20 thousand tons and a new plant with the 13-thousand-ton capacity will be put into use this October. By 2014 Lang Liquor will have the ability to produce 50 thousand tons of highquality liquor and the investment will total over 3 billion yuan.
Lang Liquor is the second best liquor following Moutai. In 2011, Lang Liquor aggressively marched into the high-end liquor market. “Now we have already opened 10 exclusive stores to sell our high-end products and we are going increase the number to 50-60 this year,” said Wang Junlin.
“Compared with these big companies, the second-class liquor brands or the emerging power in the liquor circulation channels are in need of investment,”said Chen Hongju, director of a Chengdu-based VC fund. “The growth of liquor enterprises depends on comprehensive factors, such as team management, brand construction, channel distribution and market publicity. The investors need to have a close contact with these liquor enterprises before making an accurate evaluation of their growth potential.” Jinliufu Liquor invested 2 billion yuan in Chengdu with the strong support from its parent company Huaze Group to build an original liquor brewery base covering hundreds of acres in this city. The base is expected to be completed in 2013. Apart from Chengdu, many other cities in Sichuan also see the establishment of new projects or expansion of old projects by liquor enterprises. Both foreign and domestic investors are instigating a hot wave of investing in liquor market in Sichuan as in Guizhou.
Shi Yuzhu, a tycoon previously rooted in the Internet business, also senses the unlimited opportunities in the liquor market. On October 28, 2008, his Giant Group worked with Wuliangye Group to launch the Golden Liquor. Now the profit margin of this product has reached 48.1%.
Foreign investors did not sit there idly. Goldman Sachs bought the stocks of Kouzi Wine and Songhe Liquor; Blackstone has already absorbed a portion of stocks of Jiannanchun Liquor…
With so much capital into the liquor market, a large round of mergers and restructurings has already begun in this field.
By now, Huaze Group has already acquired ten liquor brands. Lenovo, Hainan Airlines and COFCO also finished some impressive acquisitions while Goldman Sachs and Ping An Fund are still looking for proper targets.
Tang Qiao, board chairman of Wuliangye, pointed out that the number of liquor enterprises in China is large with a great disparity in management and quality. Mergers and restructurings are necessary for both the sustainability and safety control of the entire industry.
Driven by Amazing Profits
“During the inflation, liquor has the features of being stored and immune to inflation. In addition, as the government is intensifying its regulation and control of the property market, some businessmen in Wenzhou need to move their capital out of the property market to some new areas. The liquor market is an ideal destination,” said Ma Fei, an analyst of wind industry.
A local government official in Guizhou said that the new ordinary liquor is usually sold at 25 yuan per liter with the net profit of 5 yuan. But if you store the liquor for one year, the price increases to 35 yuan. The longer you store it, the higher its price is. If you give the liquor a proper package and promotion, it can be sold at hundreds of even thousands of yuan. Thus this market owns great potential of value increase.
According to Sun Chi, the Huairen government once planned to spend 1 billion yuan building a base for storing liquors, but the project was delayed due to the liquor problem. Now, the project is full-fledged with the injection of a large amount of money.
Now two kinds of liquor enterprises have the ability and will of capital connection. The first are second-class liquor enterprises, which have good brand awareness and influence in a certain area but need the support from outside capital for further development; the second class are the major liquor enterprises in the original liquor production area, such as Maotai Town, Gujing Town and so on. These brands are well recognized and have some value-added functions for consumers and capital owners.
According to the statistical data of Wind, the gross profit margin of liquor industry reached 70.64% in the first three quarters of 2011, ranked at the first position among 150 industries and paling the property, gold and oil industries which are famous for their high profit margin.
Maybe such a high profit margin is the main reason for the liquor industry to be so attractive for investors.
The disclosed part of the DiageoSwellfun acquisition revealed that Diageo would take over all the stocks of Swellfun held by the Chinese liquor maker’s shareholders except Quanxing Group. The total shares that to be acquired accounts for 60.29% of the company’s total shares and the bid values 6.318 billion yuan.
On top of Diageo, Louis Vuitton Mo?t Hennessy, Lenovo and other domestic and foreign giants – some of them are even not associated with the wine market before – are all contending in the liquor industry.
In recent two years, there are more than 50 enterprises investing in liquor only in Maotai Town, Guizhou. In this small town about tens of billion yuan is converging in this place. Stock participation, acquisition and listing… these words are frequently heard in this town, exciting many liquor brands. Erlang Town, Sichuan, which stands on the other bank of the river against Maotai Town, is also witnessing a fierce battle of expanding production capacity. Foreign investors, along with some ambitious and smart domestic investors are swarming into the liquor market, behind which there is the depression of the stock and property market in China.
Ji Keliang, emeritus board chairman of Guizhou Moutai Group said that Moutai had the space for overseas expansion but the foreign capital’s acceler- ation in getting into the liquor industry brings explosive development into this industry and challenges to traditional liquor industry.
Capital Contenst in Maotai Town
“Presently, we need to receive at least two groups of guests aiming for cooperation every day,” said a director from Maotai Town-based Huaxing Liquor on April 30. “In the past one month, we received the orders from different dealers totally valuing 2 mil- lion yuan.” In the 86th Chengdu Candy& Liquor Trade Fair that was ended in March, this company’s employees present in this Fair all wore traditional Chinese clothes, impressing the visitors and other exhibitors very much.
Early in the Shenyang Candy & Liquor Trade Fair in September 2011, Huaxing Liquor used the same method to earn the orders valuing 102 million yuan. It represents the potential of China’s liquor business. Such a potential tempts many businessmen to invest vastly into this field. Half a year ago, Li Ronggen, a commercial tycoon from Zhejiang, threw 580 million yuan in the cooperation with Zhou Jieming, board chairman of Guizhou Central Brewing Factory.
Zhou Jieming’s brewery lies next to Chishui River, whose water is used to brew the famous Moutai Liquor. In people’s eyes, Maotai Town which gestated the Moutai Liquor, is more mysterious than the liquor. Li Ronggen successfully tapped into the Qiandaohu Beer and Castel Wine years ago. Before establishing the cooperation, Li Ronggen went to Maotai Town several times for surveys.
This small town only covering less than 2 square kilometers accommodates about 300 brewers companies. The production capacity and value take more than 80% of liquor industry in Guizhou.
Tianjin-based Tasly Group took actions earlier than Li Ronggen. In 1999 this company acquired Guizhou Guotai Liquor Co., Ltd and in the past 12 years it invested over 1 billion yuan in Guotai Liquor to reconstruct and expand the old factory. In 2010 this factory’s sales amount exceeded 300 million yuan, ranked at the second largest brewery company in Maotai Town.
In August 2011, Tasly Group announced the additional investment of 3 billion yuan in Guotai Liquor, planning to increase the production capacity to the level of 10,000 kiloliters and the sales amount to 6 billion yuan in five years.
According to the 12th Five-Year Plan of Huairen City, the whole city’s production capacity of liquor should be increased twice to 500 thousand kiloliters by 2015 and the value of liquor industry is expected to reach 10 million yuan. This is a tough task because in 2010 the production capacity of liquor in this town was only 133 thousand tons while the total value only amounted to 17.57 billion yuan.
Sun Chi, deputy director of the Huairen Economic Trade and Wine Administration Bureau said that the amount of outside capital was undergoing explosive development in recent years. More than 50 enterprises have already expressed their will to invest in Huairen, including state-owned enterprises like Huairun Beer and private companies like Tang Dynasty Wine. According to the official data, the amount of capital put into the liquor industry of Huairen had totaled 10 billion yuan and is expected to reach 50 billion yuan by 2015.
Guizhou Jinshaoyao Liquor Co., Ltd received the investment from Hubei Yihua Group for expansion and reconstruction in July 2007. In the past four years the Hubei-based company invested 600 million yuan into this factory and additional 700 million is waiting in tow as a source said. Hainan Airlines has already established cooperating relationship with Guizhou Huaijiu Liquor Co., Ltd with the initial investment amounting to 780 million yuan for whole integration of resources. The goal is to push the production capacity of Huaijiu Liquor to over 50 million tons per year in five years, giving it the No. 3 position in Chin’s liquor market. Hainan Airlines owns 300 supermarkets and over 50 hotels, which are good channels for distributing. It is also the largest enterprise stationed in the liquor industry of Guizhou.
“Hainan Airlines owns a broad viewpoint. It steps into Guizhou not only as a strategic investor but also as a spreader of advanced concepts,” said Long Yongtu, former secretary-general of Boao Forum. In his opinion, the liquor world in Guizhou should not be monopolized but be attended by diversified companies.
Lenovo is trying to be another initiator for the diversification of participants in Guizhou’s liquor industry. This PC maker is reported to follow the strategy of diversifying its business and the liquor industry is certainly an ideal target.
In June 2011, Lenovo spent 130 million yuan acquiring 39% of the stock of Hunan Wuling Wine Co., Ltd, a subsidiary of Luzhou Laojiao Co, Ltd. Five months later, it spent 1 billion yuan acquiring 87% of the stock of a Hebeibased liquor company. Then, it acquired Shuguang Wine Corp. in Luzhou, Sichuan, adding a new brick onto its liquor industry. Two famous liquor makers in Shandong and Anhui also became its targets. The Lenovo liquor empire is on the way.
The whole Guizhou Province witnesses more acquisitions and integrations. Beverage giant VV Group, Beijing-based logistics company Yish- entong Corporation, and Hong Kongbased Silver Base Group all extended their arms to the liquor inudstry of Guizhou.
According to the research, producing additional ten thousand kiloliters of Moutai Liquor needs the investment of 7.5 billion yuan to produce ten thousand kiloliters of ordinary liquor costs 5 billion yuan. Presently, the production capacity of liquor in Guizhou is around 400 thousand kiloliters. Based on the aforementioned data, about 20 thousand kiloliters of Moutai Liquor will be added into the production capacity and this needs about 15 billion yuan. Additional 150 billion yuan is needed to produce 200 thousand more kiloliters of ordinary liquor.
That means Guizhou needs at least 200 billion yuan of investment in the liquor industry. This is undoubtedly a big challenge and opportunity for this southwestern province in China. Capital Strain as a Problem
Apart from the large-sized investors, some private investors were found to focus on liquor industry as well. In the cellars of several brewers, there are thousands of wine jars with people’s names carved. The workers said that these wine jars belonged to private investors.
Chen Xiaoyong, a rich man in Gui- zhou, is one of the private investors. In 2009 he spent 1.68 million yuan buying an old liquor brand from a merchant in Zhejiang. Then he put multi-million yuan – all he had – in recovering the production of this brand. Now the liquor is sold well but the capital stress is bigger and bigger.
Chen Xiaoyong plans to increase the size of his plant but he needs the capital of 14 million yuan. “Without any tangible mortgages, the banking loans are hard to get.”
The casual research revealed that many bosses of small- and middle-sized liquor brewers are facing the same prob- lem of capital strain.
An inside material from the Financial Administration Bureau of Huairen showed that the balance of various deposits amounted to 17.37 billion yuan in 2010 but the balance of various loans was only 3.45 billion yuan. The depositcredit ratio was 20% and the disparity between deposit and credit amounted to 13.92 billion yuan. The banks are not willing to lend money to these small liquor makers; instead, they are more willing to idle this huge amount of money in their treasuries without bringing them into real use. If the funds can be used by the liquor industry of Guizhou, great impact will come out.
Erlang Town in Sichuan is separated from Maotai Town by Chishui Town. Wang Junlin, board chairman of Lang Liquor, announced proudly that the production capacity of the Lang Liquor was about 20 thousand tons and a new plant with the 13-thousand-ton capacity will be put into use this October. By 2014 Lang Liquor will have the ability to produce 50 thousand tons of highquality liquor and the investment will total over 3 billion yuan.
Lang Liquor is the second best liquor following Moutai. In 2011, Lang Liquor aggressively marched into the high-end liquor market. “Now we have already opened 10 exclusive stores to sell our high-end products and we are going increase the number to 50-60 this year,” said Wang Junlin.
“Compared with these big companies, the second-class liquor brands or the emerging power in the liquor circulation channels are in need of investment,”said Chen Hongju, director of a Chengdu-based VC fund. “The growth of liquor enterprises depends on comprehensive factors, such as team management, brand construction, channel distribution and market publicity. The investors need to have a close contact with these liquor enterprises before making an accurate evaluation of their growth potential.” Jinliufu Liquor invested 2 billion yuan in Chengdu with the strong support from its parent company Huaze Group to build an original liquor brewery base covering hundreds of acres in this city. The base is expected to be completed in 2013. Apart from Chengdu, many other cities in Sichuan also see the establishment of new projects or expansion of old projects by liquor enterprises. Both foreign and domestic investors are instigating a hot wave of investing in liquor market in Sichuan as in Guizhou.
Shi Yuzhu, a tycoon previously rooted in the Internet business, also senses the unlimited opportunities in the liquor market. On October 28, 2008, his Giant Group worked with Wuliangye Group to launch the Golden Liquor. Now the profit margin of this product has reached 48.1%.
Foreign investors did not sit there idly. Goldman Sachs bought the stocks of Kouzi Wine and Songhe Liquor; Blackstone has already absorbed a portion of stocks of Jiannanchun Liquor…
With so much capital into the liquor market, a large round of mergers and restructurings has already begun in this field.
By now, Huaze Group has already acquired ten liquor brands. Lenovo, Hainan Airlines and COFCO also finished some impressive acquisitions while Goldman Sachs and Ping An Fund are still looking for proper targets.
Tang Qiao, board chairman of Wuliangye, pointed out that the number of liquor enterprises in China is large with a great disparity in management and quality. Mergers and restructurings are necessary for both the sustainability and safety control of the entire industry.
Driven by Amazing Profits
“During the inflation, liquor has the features of being stored and immune to inflation. In addition, as the government is intensifying its regulation and control of the property market, some businessmen in Wenzhou need to move their capital out of the property market to some new areas. The liquor market is an ideal destination,” said Ma Fei, an analyst of wind industry.
A local government official in Guizhou said that the new ordinary liquor is usually sold at 25 yuan per liter with the net profit of 5 yuan. But if you store the liquor for one year, the price increases to 35 yuan. The longer you store it, the higher its price is. If you give the liquor a proper package and promotion, it can be sold at hundreds of even thousands of yuan. Thus this market owns great potential of value increase.
According to Sun Chi, the Huairen government once planned to spend 1 billion yuan building a base for storing liquors, but the project was delayed due to the liquor problem. Now, the project is full-fledged with the injection of a large amount of money.
Now two kinds of liquor enterprises have the ability and will of capital connection. The first are second-class liquor enterprises, which have good brand awareness and influence in a certain area but need the support from outside capital for further development; the second class are the major liquor enterprises in the original liquor production area, such as Maotai Town, Gujing Town and so on. These brands are well recognized and have some value-added functions for consumers and capital owners.
According to the statistical data of Wind, the gross profit margin of liquor industry reached 70.64% in the first three quarters of 2011, ranked at the first position among 150 industries and paling the property, gold and oil industries which are famous for their high profit margin.
Maybe such a high profit margin is the main reason for the liquor industry to be so attractive for investors.