Mainland beer giant's sales drop 1.3% in Q3

China Resources Enterprise Ltd, or CRE, the mainland consumer conglomerate that produces China's top beer brand, Snow Beer, said on Wednesday that consumer goods business in the near term is expected to remain under pressure due to the weak global economy.

Although sales climbed 11.1 percent to HK$34.2 billion ($4.41 billion) in the third quarter ended Sept 30, profit excluding one-time gains dropped 2.1 percent to HK$668 million from HK$682 million during the same period last year, the company said in a statement to the city's stock exchange on Wednesday, citing the "dismal state of the global economy" which "affected the short-term operating environment on the mainland".

Beer sales in the third quarter accounted for HK$9.15 billion, down 1.3 percent over the corresponding period last year. The profit also decreased 5.8 percent to HK$503 million over the same period, according to the company. Although the July to September period is deemed to be a "peak season" for beer sales, the unfavorable rainy weather conditions have affected its overall sales growth and average selling price of beer products, said the company.

The top beer maker, which is also involved in supermarkets operation as well as beverages and food processing and distribution, said slower economic growth, accompanied by increases in minimum wage levels across various regions led to higher labor costs, as well as new stores establishment, affecting its retail operating profitability in the same period.

Sales of CRE's retail division reached HK$20.9 billion in the third quarter, up 18.5 percent over the same period last year. The growth was mainly attributable to the opening of new stores and the contribution from the newly acquired Jiangxi Hongkelong Department Store Investment Co Ltd, according to the statement.

As the mainland's economy grew at a slower rate while the consumer confidence index retreated this year, retail industry now faces challenges and consumer goods business in the near term will remain under pressure, the company estimates.

Nielsen's quarterly Chinese consumer confidence index rose to 106 in the third quarter, up 1 percentage point over 105 in the second quarter, which is lower than the 110 registered in the first three months this year.

Consumer confidence stabilized on the mainland in the third quarter on lower inflation across all categories and income growth in both urban and rural regions, and consumers started to feel positive and expected to spend more in the future, Nielsen's president in China Yan Xuan said earlier this month.

As per capita beer consumption in China gradually keeps pace with the global average after its "relentless growth" in the past one to two decades, and these brewers who are able to gain leading positions in regional markets should be able to exert pricing power, a Haitong research report said last week.

Indicating that CRE owns a market share of approximately 22 percent on the mainland, Haitong said the brewery operation will remain the major profit growth driver for the company in the coming years.

Share of CRE dropped HK$0.55 or 2.1 percent to close at HK$25.7 on its Hong Kong trading on Wednesday.