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FMCG, Lifestyle, M&A, Trends
June 26, 2012 | 0 Comments

Warm and Bubbly: A sober look at China’s beer market

Ad for Kirin's Chinese brand, Haizhu

Haizhu, Kirin's China-only beer brand

China became the world’s largest beer producer and consumer in 2002. Since then, the country retained its top position, selling nearly 50 billion litres in 2011 – a quarter of the overall global volume. Still, China consumes far less beer per capita than America or Europe, leaving plenty of room for growth. The local market is dominated by a few large brands but is still relatively fragmented, with hundreds of local and foreign competitors engaged in territorial battles and strategic maneuvers. The end of 2011 saw a spike in demand for beer, signaling a fresh round of expansion and consolidation. Here’s what you need to know. 

Chinese beer production shifted to high gear in 2011, growing more than 20% in the fourth quarter – the highest rate since 2007. But following a decade of growth, China still consumes only 35 litres of beer per capita each year, compared to an average of 80 litres in Europe and the US. China has nearly 500 beer companies, led by 3 local brands – Snow, Qingdao, and Yanjing. Total beer sales reached RMB 33.9 billion in 2011. Shandong province is China’s largest source of beer, followed by Guangdong and Henan with an annual yield of 6.5 billion, 4.8 billion, and 4.28 billion litres respectively  (more here and here, in Chinese).

Snow sold over 10 billion litres of beer in 2011, giving it 21% of the market, while Qingdao and Yanjing sold 7 billion and 5.5 billion respectively. The market is dominated by local brands, but AB Inbev, owner of brands like Budweiser and Beck’s, is also a contender. The Belgian-Brazilian giant sold about 5.7 billion litres of its various brands in 2011, surpassing Yanjing for the first time. Heineken and Carlsberg are significant regional players in China, as are Japan’s Kirin and Asahi, who respectively distribute China-only brands Haizhu Beer and Beijing Beer.

The top three local producers dominate different geographic markets. Since beer is not amenable to long distance travel, plants are normally set up within 200 km of target markets. Snow has 23 plants across China, and is the best selling beer in ten provinces and cities, including Liaoning, Sichuan, Anhui, Shanxi and Guizhou. In each of the above, Snow controls over 50% of the overall market. Qingdao has 19 plants and dominates Shandong and Shaanxi with 60% and 70% market share respectively. Yanjing operates 14 plants and dominates Beijing, Guangxi, and Inner Mongolia, with 60-82% of the market.

Each of the brands follows a discrete expansion strategy. Snow’s main growth drivers are its high end brands, following the company’s investment in R&D and branding and its strong position in the affluent Yangtze River Delta. Snow’s eponymous main brand sold more than 9 billion litres in 2011, above and beyond Qingdao Breweries’s Qingdao brand’s 4 billion. Qingdao, meanwhile, focused on upgrading its management and on overseas expansion, but it is still not able to compete with Snow and Yanjing on local distribution and, as a result, on price. Snow also went on an aggressive acquisition spree in 2011, taking over regional brands such as Sunday Beer, Kingway, and Moutai Beer. Yanjing, meanwhile, has recently focused on China’s central and western provinces and made inroads into Xinjiang and Sichuan.

China’s smaller brands maintain significant position in some regional markets, but are struggling to compete with Snow, Qingdao, and Yanjing. The market in China’s populous Henan province, for example, was dominated by local brands like King Star and Aoke as late as 2007. Since then, Aoke has been bought by Snow, and King Star is still the best selling brand, but it now holds only 28% of the market, far less than the share the three leaders hold in their own key markets. We expect more small brands to be decimated or swallowed as the battle shifts towards China’s inland and western provinces. Meanwhile, growing incomes would enable Chinese consumers to reach drinking levels comparable to their fellows in Europe and the US. After all, to be rich is even more glorious with beer goggles on.

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