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By Zhang Xiaojie

BEIJING - Now that Yanjing Beer Group Corporation (SZ.000729) has secured its sponsorship for the 2008 Olympic Games, some analysts believe the time has come for the Beijing-based beer provider to raise money for brand promotion and market expansion.

In February, the board of directors of the listed A share company approved a plan to issue up to 86 million more shares for a minimum of RMB20.95 (US$3.02) each in order to raise RMB1.8 billion (US$260 million). Despite a 45% plunge in the stock price in the last two months, the plan seems promising. It's estimated that the Olympic Games will drive its sales growth enough to break through RMB9 billion (US$1.3 billion).

In addition to raising cash, Yanjing Beer has also kicked off a nationwide expansion strategy. The new money will be used to build factories in Sichuan and Shanxi provinces and improve production at existing factories in several other regions and provinces. Malt production bases will also be set up in Xinjiang and Inner Mongolia. The goal is to boost beer productivity by 975,000 kilolitres and increase sales by RMB2.53 billion (US$365 million). "Although it's an established national brand, it still lags far behind Tsingtao Beer and Snow Beer. For Yanjing Beer, the Olympics are a precious opportunity," says Yu Kai, an analyst at Wuhan Newland Securities Investment & Consulting Co., Ltd.

Compared to its competitors, Yanjing Beer is fairly conservative in the regional market. Last year, both Yanjing Beer's sales and growth sagged, leaving it no choice but to explore new market opportunities. By the end of 2007, its sales volume in Beijing accounted for 39% of the total and in other areas except Guangxi, Fujian and Inner Mongolia, less than 14% in total. In recent years, Tsingtao Beer and Snow Beer have acquired more than 100 regional beer companies and improved productivity to compete for the No.1 spot in the domestic beer market. In 2008, Yanjing Beer hopes to achieve production of 5 million kilolitres, still behind Tsingtao Beer's 6.5 million kilolitres and Snow Beer's target of 10 million kilolitres by the year of 2010. Meanwhile, foreign brands such as Carlsberg and Budweiser continue to dominate the high-end beer market.

Regardless of the tight spot Yanjing Beer currently finds itself in, its Olympic sponsorship deal gives it a chance to raise much needed money. Over the past ten years, Yanjing Beer has asserted a firm grip on the Beijing market. It currently maintains more than 85% market share in the capital. Foreign competitors attribute the dominance to long-held consumer drinking habits. As one foreign sales executive put it, drinkers are accustomed to their brand choice the way smokers are accustomed to their particular brand of tobacco. They are tough habits to break.

If Budweiser's Olympics sponsorship is any indication, Yanjing Beer's powerful position in the Beijing market will ensure that it benefits immensely from the 2008 Olympic Games.

During the 2000 Sydney Olympic Games, the Olympic park sold about 10,000 glasses of beer each day. In 2008, Beijing's beer market is expected to be even more tempting for inbound visitors. Five million foreign travelers are expected in addition to the 120 million domestic visitors, and a lot of them will be drinking beer.

Yanjing Beer has adopted a series of marketing measures aimed at opening up access to more star-rated hotels, airlines, supermarkets and of course, several high-profile events. Li Fucheng, the chairman of Yanjing Beer, says the plan is to globalize the brand by providing several high-end products such as Draft Beer and Alcohol-Free to the Olympic Games. Last year, medium- and high-end Yanjing beers accounted for 47% of the bottom line, up from 31% previously.

In 2007, Yanjing Beer's marketing expenditures rose by 22% to RMB770 million (US$111 million). It will be interesting to see if the increased cost of promotions and the Olympic sponsorship deal pay off with more beer drinkers choosing Yanjing Beer.