Beer Business Asia #2-2016

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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.

However, these problems have a bright side – they cause fast premiumization and beer market diversification. Companies improve their product mix, develop and create new growth points. Driven by westernization wave, international brands, import and craft beers are rapidly gaining weight. In such conditions, the market leader share, namely CR Snow and international companies’ AB InBev and Carlsberg Group is increasing.

Part 1. Beer market – perfect storm or fundamental changes?

Beer and Economy
Beer market performance
• Production and sales
• Prices and market by value
• Market segmentation
Who and how much drinks beer in China?
• How often do Chinese drink beer?
• Age and beer consumption
• Gender and beer consumption
• Income and beer consumption
• Alcohol and social adaptation
• Employment and beer consumption
“Two speed” market
• “The black box” of the Chinese market
• Why is Wang Yong drinking less beer?
Weather affect
Beer among other alcohol drinks
• Do the Chinese drink a lot of alcohol?
• Do the Chinese drink a lot of beer?
• Alcohol consumption structure
• Beer vs Liquors – pressure from two sides
• Beer vs Cocktails – fashion takes toll
Imported beer
Chinese craft beer

Part 2. New reality for brewing companies

• Less but more expensive
• Expansion continues
Leading manufacturers and their brands
• CR Snow
• Tsingtao Brewery
• AB InBev
• Yanjing Beer
• Carlsberg Group

Conclusion for Part 1

The Chinese market decline is caused by fundamental factors. The core of active consumers is approaching the “demographic pit” that is, their number is simply decreasing. And this factor will be effective for the next 10 years.

As a result, the brewing industry is losing its positions in the alcohol market. On the one hand, there is the nation ageing and increase in strong drinks consumers. On the other hand, the population that has entered the older age category of liquor drinkers from the beer consumers’ category was not offset by the same number of youth, in other words, beer consumers’ group decreased numerically. The youth group, that is not so big in number, is increasingly interested in bottled cocktails, which are beer alternative. The negative influence on Chinese brewers is exerted also by import beer sales increase.

As for the volumes, the key negative effect on the beer market was obtained from the structural changes in the Chinese economy. They concerned the sensitive branches and groups and inner migrants in the first place. Their incomes and sense of security to a large extent determine the consumption dynamics of affordable mass brands.

The fluctuations in 2013-2014 were accidental and in mainly depended on weather. In 2016 heavy rains could not seriously affect beer sales and production in the first year half, but will substantially influence brewers’ performance in the second year half.

Thus, so far there is not much ground for optimism in outlooks of beer consumption volumes. But its development is progressing in the quality direction, that is, market premiumization is increasing, the craft movement is setting in, and E-Commerce is developing.

Conclusions for Part 2

Judging by leading companies’ reports and NBSC data, we can see, that the market consolidation is going on. The share of the leading five in 2015 grew by 0.7 p.p. to 73.3%. Yet the consolidation rate lost momentum. Previously, the process was driven by acquisitions and now by reduction of sales of independent regional producers.

At the brands level, the consolidation looks as follows: international brands sales are growing and exert pressure on major national brands in urban China. But resulting from the market premiumization, and marketing activity, the production mix is improving. Within sales of national brands, there is a share growth of “special” sorts in medium-priced segment, while the share and sales of “usual” economy sorts are falling. Likewise, the share and sales of the regional brands are falling, excluding those by several companies with a progressive marketing policy.

However, as the experience of other countries shows, in such conditions, the regional companies can develop only in case of distancing from the mass product, for example, promoting “beer patriotism”, selling draft fresh beer and/or unfiltered beer, and trying to work on craft format, etc. Such reformation can take several years, during which “others” share is likely to drop.

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