Analysis of beer market in China (on Russian)
Beer market of Ukraine: big three losing weightIn 2016, fast increase of excises and resulting price spike stood in the way of the beer market stabilization. Most of competition (as well as mass sorts) moved to the economy segment of the market. The biggest losses were incurred by the leading three, especially Obolon, which again experienced pressure after reallocation of Efes market share. However, one should already speak of TOP-4. Group Oasis CIS (PPB) became a strong player and competitor to transnational companies. Besides the net sales of many regional medium breweries look rather good and 16-fold cost reduction wholesale trade license for craft brewers opens up a possibility of rapid growth in 2017.
Analysis of beer market in China
China’s transition to a “new normal” reality backfired on the brewing industry unexpectedly. Stagnation and subsequent market decline resulted from dynamic social and economic changes. There has emerged a “two speed” market where the medium class significance is growing, yet the share of main beer consumers, “blue collar” is decreasing. Also the inflow of consumers is shrinking, as demographics stopped being a growth driver. Finally, beer is giving way to other alcohol drinks....
Over the recent 3 years, weather has been often mentioned among the reasons for the decline in beer production and sales, though it is clear that it cannot be a constant negative factor.
As we have already noted, better dynamics in 2013 conflicts the social and economy context and the link between the beer market and the GDP. The reason is obvious – unusually hot summer breaking temperature records.
The area of the temperature anomaly is located in the eastern China. While it was just hotter than average in Beijing located to the north of this territory and in Guangzhou located to the south, territories from Shanghai to Xi’an broke temperature records for the recent 140 years. The prolonged spell of scorching temperatures is a result of stationary high pressure off the eastern coast, which has prevented tropical moisture from delivering normal summer rainfall.
As we match the temperature fluctuations to the production dynamics since 2012, we can conclude that if not for the weather affect, the dynamics would have looked like a smoothed curve or even straight line, that is, a gradual transition from growth to stagnation and decline.
The hot summer of 2013 created the high base effect. In 2014, when the weather was usual, it cannot support the beer sales. The simultaneous decline of the average price and the beer production dynamics from June to September 2014 can be seen at the graph*.
* In order to calculate the temperature, we used the weather monitoring archive data for 11 cities which in our view reflect the general situation in the country: Beijing, Shanghai, Chengdu, Wuhan, Kunming, Guangzhou, Chongqing, Harbin, Xi'an, Shenyang, and Qingdao. For daily data in each of the cities the monthly temperature average was calculated, then, the average for city data was calculated.
In order to check if the weather really played such an important role, let us analyze the dynamics of demand change for another seasonal product and beer rival – soft drinks. We can see the obvious connection between their production dynamics and beer output in the high sales season.
In 2015, the weather was rather favorable to the brewers’ sales. On an average in the country July was a little cooler versus 2014, yet the other months of the season were hotter. As for the weather, the base effect of 2015 can be considered neutral or moderately negative.
However the season of 2016 started not very well, and by the end of July we can speak of a pronounced negative effect not only for beer sales but for the country’s economy in general.
The weather in May in the central and eastern regions was comparatively cool, which had a minor negative effect on the production dynamics. In June, the temperature was already at the level with 2015, and in July it became much hotter. The number of days with precipitations in 2016 increased in April and May, but decreased in June and July. However, this year not the rainy days number but precipitation quantity matters.
Every year heavy rains in China occur along the seasonal Mei-Yu (“plum rains”) front extends from eastern China across Taiwan into the Pacific south of Japan. Associated with the southwest monsoon, these rains typically affect southeastern China from mid-May to mid-June and northern China during July and August.
In July 2016, record-breaking heavy and incessant rains caused dramatic floods in central and eastern regions of China. Torrential rains affected 33 million people in 28 provinces, submerging huge areas of cropland. Heibei province population suffered the most.
Heavy rains could not substantially affect beer production and sales in the first year half 2016, but will seriously influence brewers’ performance in the second half of the year.
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21 Sep. 2016