Contributed by Jen Ong, Regional Account Director, Schawk, Inc.
Even if you’re not in the beer business, or doing business in China, or even in consumer packaged goods at all, the next few years in the Chinese beer category are worth watching – for instruction on how to battle stiff competition, or just for the sport of it.
“The battle is expanding and intensifying throughout [China] to the point where no geographic boundaries or traditional market strongholds are sacred,” wrote Brewers’ Guardian in mid-2011.
The Chinese are gaining wealth, and rural workers are moving to cities, where beer has always been more popular. Brewers – led by a handful of large Chinese companies and Chinese/Western consortiums – are gobbling up local breweries and now own almost half of all brewing facilities in the country. And although sales volume is expected to grow considerably, Brewers’ Guardian sees that rate slowing, especially as brewers raise prices along with the cost of ingredients and to remedy historically low margins.
The result could be a tremendous battle among the Big 4 or 5 – for additional capacity, for loyal customers and for successful marketing tactics that capture attention and build affinity. As Brewers’ Guardian summarized, “If that sounds like an alarm for a possible borderless bloodbath in the near-term, it should.”
And all over something as appealing as beer.
The Chinese beer battle points to many key realities of business in China today:
The marketplace is ever-changing. Young, well-educated middle-class men are the prime movers right now, but women are influencers, too, as traditional roles change and young women become more aspirational. Health-conscious women (and men) are demanding more low-calorie and non-alcohol beer. And pubs and restaurants are growing, providing settings where trends can start and brewers can market. Brewers have to be alert to trends and preferences, such as competition from whiskeys and cognacs perceived as upscale and wines perceived as more healthy (even good for the skin!), and the growing cachet of beer in more-expensive cans and even plastic bottles.
But old habits die hard. Much of rural and lower-income China has long imbibed the high-alcohol drink baijiu, and countless Chinese are loyal to their local brews, typically mild lagers. They can be resistant to bigger brands, especially since some of these are not fully national in distribution and can seem unfamiliar.
And foreign beers are very expensive and, well, foreign. (Emulating the West is primarily a big-city phenomenon in China still. And when the Chinese do buy imported beer, it’s usually German or Mexican; U.S. imports are minuscule still.) The Chinese are also used to buying their beer in local stores; they are not always ready to buy from chain supermarkets unless they are attracted by upscale promotional settings in-store.
The marketplace is far from homogeneous. The climate varies greatly across China, and, with it, drinking habits. Preferences vary hugely between megacities and rural areas, and between the coast and inland. And economic upheaval has effects: bankruptcies in the manufacturing area Guangdong caused a large worker emigration in the past, for example, which affected beer sales.
The government can change everything. Industries in China are subject to the greater goals of central planning, and in the past, the government has restricted access to grains for beverages, to reserve them for food and to influence drinking habits toward wine; it raised taxes on spirits in 2009 for the same reason. The current growth is a direct result of China’s joining the World Trade Organization in 2002. So anything can happen.
Counterfeiting is an issue. More a problem with high-priced spirits, counterfeiting is present in China wherever it’s profitable, the more so in less populous areas where the government may be less able and less motivated to intervene. Some spirit makers are seeding bars with “spies” to identify fake product.
For all the changes and peculiarities in China, observers feel its beer market will follow those in other large countries, where two – at most three – large breweries control the market, leaving room for a modest secondary tier, some scrappy local breweries and the craft-brew culture.
Currently the Big 4 – CR Snow (affiliated with SABMiller), independents Yanjing and Tsingtao, and Anheuser-Busch InBev – have more than 60 percent of the market, and together account for more than 100 percent of the category increase in 2010: as a group, their competition lost sales, according to Brewers’ Guardian. So they’re the ones to watch, along with MolsonCoors and Carlsberg. The results should prove interesting – and influence what beer you drink next time you’re doing business in China.
Sources: The Chinese Beer Market: Consolidation Continues. Brewer’s Guardian, March/April, 2011. China Beer Market (report). Global Agricultural Information Network (GAIN), USDA Foreign Agricultural Service. July 23, 2010. “Carlsberg and SABMiller invest further in China.” FoodNavigatorAsia.com, August 2, 2011. Economic Boom in China Sends Booze Market Skyrocketing. China Beverage News, posted on ChinaBevNews.com, July 23, 2011. Consumer Trends: Wine, Beer and Spirits in China. Agri-Food Trade Service, Agriculture and Agri-Food Canada, June 2010. “Asian Affluence: The Emerging 21st Century Middle Class,” Morgan Stanley Smith Barney, June 2011.
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