The Beer Market: Consolidation and Competition

Unlike the US market for beer, which has been steadily dropping in prominence over the last 5 years, China’s beer market stands as the world’s most lively.

China is now the world’s largest producer and consumer of beer. China’s Snow Beer is now the world’s largest brewer by volume and the market share leader in China. Tsingtao is a close second and is rapidly innovating its product line up. Yanjing, a local producer, is third. SABmiller and ABinBEV are in the hot pursuit with their foreign brands, domestic purchases and controlling stakes in other breweries. (SABmiller owns 49% of Snow).

But there are over 300 beer producers in China! While the heavy hitters listed above control more than 60% of the entire market, small local producers continue to dominate away from China’s Tier 1 and Tier 2 cities.

Enter consolidation. As beer’s biggest players continue to eye the China market, they will look to buy up these smaller producers and increase their reach deeper across China. Awhile back, Harbin Brewery and Sedrin were gobbled up by what is now ABinBev.

If consolidation is one key trend to watch, increasing competition is certainly the second most important trend. While China’s beer market may wow potential investors with its size, this is a hard place to succeed. China’s beer is cheap. As one industry expert explained, a keg of Snow sells for about US$ 35. But most of that value is from the steel in the keg. The liquid inside, the actual beer, composes only a tiny fraction of the cost of the filled keg. Snow thrives off its volumes and must be the biggest in the world in order to survive with its razor thin margins. Budweiser, considered a premium brand, sells for about 1 USD. Again, small margins.

With these thin profits, beer companies have to be creative to differentiate themselves, attract new customers and convince people to spend a little more and avoid the cheap bottles on the shelf.

Two examples of this trend are Carlsberg and Suntory. Both are clearly targeting the younger generations in an attempt to bring in new drinkers with a more premium product.

Carlsberg’s campaigns attempt to speak to China’s post 80s generation with their overt displays of attitude and cool. Suntory, with its Mix flavored drinks, is trying to convince China’s female population, a segment not too keen to drink bitter and calorie rich beer, to try their new fruity creations. Many other brands are sponsporing music concerts and younger events to try to attract these drinkers. (China’s official drinkage age is 18.)

These are pretty smart strategies. As our internal research demonstrates, China’s younger drinkers prefer beer. Of course, beer is also incredibly cheap and always available in this segment’s favorite locations: Karaoke joints, restaurants and streetside eateries and clubs.

As consolidation takes over China and competition heats up, enoVate will surely be here to deliver insights and strategy for all of you interested in China’s beer.

China’s Wine and Spirits: “The Budding Yuppie Phase”

While China’s beer market faces a future of intense consolidation and competition, the spirits market in China is, in the words of one industry expert, in the Budding Yuppie Phase.

This contact was referring to alcohol consumption in China’s Tier 1 and Tier 2 cities and the drinking habits of China’s middle and upper class citizens in these cities. While even premium beers (excluding imports) remain relatively cheap in China, the wine and spirits market is in a completely different phase.

“Budding,” refers to the almost adolescent stage of growth in the market. Wines, vodkas, whiskeys, rums, etc are all rather new to China. Only recently have Chinese in big cities started to consume these products but their consumption has skyrocketed in the last few years and will continue to grow.

By yuppie, we refer to consumers’ tastes for brands. Consumers are not yet “mature” and concerned with finding eccentric niche brands. Chinese consumers are not looking to locate a Pinot Noir to convince their friends of their knowledge of wine. Instead, many Chinese are just looking for well-known international wine and spirits brands and buying them to display their wealth. After all, as many who have experienced long Chinese banquets know, those bottles of French wine aren’t for appreciation. Many times they will just be chugged alongside Baijiu and beer.

Chinese consumers are buying Scotch in such large quantities that they even caused a supply scare last year. Research suggests that Chinese consumers are doing so because Scotch is world renowned and perceived as a symbol of status. The most famous premium vodkas also do well in China because of their brand awareness.

Have you strolled around Shanghai or Beijing recently?

If so, you would notice the explosion in wines.  Chinese consumers in tier 1 cities are buying up all the foreign wines they can. Again, most consumers want to display their wealth or impress guests, friends or coworkers. Tea is meant for appreciation, not wine.

We are not neglecting the importance of China’s domestic wines. Baijiu will of course, still be an important drink for banquets and business. Other Chinese wines (huangjiu, etc) will also continue to be consumed at family gatherings, at restaurants and at the dinner table. We at enoVate are not ignoring these products, we only worry that their brands are losing their resonance with China’s youth and thus may have a hard future in a saturated market.

We at enoVate thoroughly enjoyed our time analyzing the alcohol market. Should you need any of your own tailor help within this industry, contact us at matt@enovatechina.com.

Recently in Shanghai, we’ve begun to notice Taiwan Beer popping onto shelves in convenience stores and restaurants throughout the city. Taiwan has been lobbying to gain access and trademarks in the Chinese beer market for over a decade and its recent success could be attributed to a warming in relations. It’s no surprise that Taiwan’s beer of choice is heading to the mainland, but will Chinese consumers buy a beer with such political baggage as this carries? It’s an interesting topic to debate, and if successful could trigger more and more cross-straight product and advertising.

Reuters has an excellent video on this topic as well as a good breakdown of the Chinese beer market.