---
title: "A Bottle of Yanjing Beer, Full of Bitter Tears"
description: "Since 1989, Yanjing Beer has experienced a rise to prominence and subsequent decline, marked by missed opportunities in market expansion and premiumization, as well as persistent management issues. By 2019, its revenue and net profit had fallen to 83% and 32% of their peak levels, respectively."
author: "读懂君"
publisher: "New Distribution"
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published: "2020-11-15"
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# A Bottle of Yanjing Beer, Full of Bitter Tears

> Since 1989, Yanjing Beer has experienced a rise to prominence and subsequent decline, marked by missed opportunities in market expansion and premiumization, as well as persistent management issues. By 2019, its revenue and net profit had fallen to 83% and 32% of their peak levels, respectively.

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In 1989, Li Fucheng, who had just been promoted to the top position at Yanjing Beer, was both pleased and worried. At that time, Yanjing was in a tight spot.
First, Beijing's core market had long been dominated by two older players, Wuxing and Beijing Brewery, which had been established before the founding of the People's Republic of China. Yanjing, which started in the remote suburb of Shunyi in 1980, could only be considered a "farmer's beer."
Second, stimulated by the "Beer Special Project," more than 800 breweries sprang up nationwide in those years, with over 10 in Beijing alone. The seller's market suddenly turned into a buyer's market.
What's more, beer sales at that time still followed the planned economy's unified purchase and distribution model. Breweries were only responsible for production; how to sell and how much to sell were entirely decided by the state-owned tobacco and alcohol companies.
To break through, Yanjing had to solve the "bottleneck" of distribution channels. To this end, Yanjing purchased 2,600 tricycles at once. Li Fucheng led senior executives personally through the streets and alleys, bypassing the state-owned tobacco and alcohol companies to supply small shops directly. This "Hutong Strategy," later written into McKinsey's classic cases, laid the foundation for Yanjing's "miracle" growth in the years to come.
By 1995, Yanjing's market share in Beijing had reached 85%. Four years later, Yanjing became the first beer company in China to exceed 1 million tons in sales, leaving the century-old brand Tsingtao behind. In 2013-2014, Yanjing reached its performance peak, with revenue up to 13.748 billion yuan and net profit up to 726 million yuan.
After reaching its peak, it declined. Since 2014, China's beer industry has shifted from a growth period to a decline. Yanjing's performance also declined all the way. By 2019, revenue and net profit were only 11.468 billion yuan and 230 million yuan, respectively, only 83% and 32% of the peak. In the capital market, Yanjing has long been "out of favor," with a market value of only 23.4 billion yuan, less than 1/4 of Tsingtao and 1/7 of China Resources.
From rising to falling behind, looking at the 40 years of ups and downs, Yanjing has made at least three mistakes: being too conservative during the industry's land-grabbing period; being slow in premiumization during the industry's intensive cultivation period; and unresolved management problems, including overstaffing and inefficiency.
Truly, a bottle of Yanjing beer is filled with bitter tears.
**-01-**
**Missed the "Land-Grabbing"**
As Yanjing gradually emerged through channel reform, the landscape of China's beer industry was quietly changing. Among these, 1993 was an important node. In that year, three major events occurred.
First, the century-old brand Tsingtao listed in Hong Kong and Shanghai, raising 1.6 billion yuan. Second, reportedly impressed by the blueprint depicted in Tsingtao's prospectus, the wealthy China Resources also set its sights on the beer industry, spending 300 million yuan to acquire Shenyang Snow. In addition, dozens of foreign beer giants such as Budweiser and Carlsberg began to enter China.
The old giants "getting rich overnight," the new industry upstarts being wealthy, and the foreign giants eyeing covetously—these three factors combined into a whirlwind that swept the beer industry into a new era of "buy, buy, buy."
In 1994, while China Resources was still finding its footing, Tsingtao took the lead, heading south with 80 million yuan to acquire Yangzhou Brewery. A year later, it spent over 80 million yuan to gain control of Xi'an Hans.
Of course, the real climax came after the turn of the century.
From 1999 to 2001, in just three years, Tsingtao completed nearly 40 acquisitions of various sizes from north to south, including Ma'anshan Gongxun, Guangdong Huangmei, Langfang Beer, Shandong Lubao, Laoshan Beer... This not only consolidated its home base in Shandong but also established a strong position in Hebei, Shanxi, Shaanxi, and other places.
After consolidating its foundation, China Resources proposed the famous "Mushroom Strategy" and began to expand westward and southward. In 2006, it acquired Lanjian, dominating Sichuan; in 2007, it acquired Huaibei Xiangwang, dominating Anhui; in 2010, it acquired Xihu, entering Zhejiang; in 2011, it acquired Santai and Dafuhao, opening up Jiangsu...
Budweiser and InBev, which formed a synergy in 2008, were also not idle. The former acquired Harbin Beer, Dalian Daxue, and Jilin Jinshibai in the northeast; Wei Xue in Henan; Tangshan in Hebei. The latter acquired Jinling in Jiangsu, Shuanglu, Shiliang, and Zhedong in Zhejiang in the east; Jinlongquan in Hubei and Changsha in Hunan in the central region.
Carlsberg focused on the northwest, successively acquiring Kunming Huashi and Dali Beer in Yunnan, Lanzhou Yellow River in Gansu, Lhasa Beer in Tibet, Xixia Jianiang in Ningxia, Chongqing Beer, and Wusu Beer in Xinjiang since 2003.
The reason why the giants kept buying is not hard to understand. Besides being wealthy, it was also related to the characteristics of the beer industry.
At that time, beer was basically bottled in glass, which was heavy and required bottle return, making transportation extremely inconvenient. Basically, each brewery's coverage radius was only 200km. To open up the local market, it was necessary to build factories first, but building factories would either compete with local brands or be time-consuming and labor-intensive. Therefore, mergers and acquisitions became the best choice.
In this process of "big fish eating small fish," Yanjing was also one of the main "aggressors." In 2000, it acquired Baotou Xuelu, gaining the Inner Mongolia market; in 2001, it acquired Wuming and Sankong, integrating nearly 1/4 of Shandong's market at a minimal cost; in 2002, it acquired Guilin Lijiang, gaining the Guangxi market; in 2003, it took control of Huiquan, entering the Fujian market.
However, compared with Tsingtao's willingness to pay any price, China Resources' high-profile approach, and the foreign giants' measured advances, Yanjing appeared too conservative in both quantity and strategic choices.
Li Fucheng once said that acquisitions must follow five principles: **First, there must be market demand; second, there must be high-quality water sources; third, the equipment must be highly modifiable; fourth, the leadership team must be capable; fifth, local leaders must strongly support.**
This allowed Yanjing to maintain a stable financial foundation and strong profitability at the time. For example, in 2001 after the "big moves," Yanjing's debt-to-asset ratio was only 12.7%, while Tsingtao's was as high as 55.82%; with gross margins both around 40%, Yanjing's net margin was as high as 12.42%, while Tsingtao's was only 2.27%.
But it also gave up market share. The most regrettable was the 2013 bidding war for Kingway Beer.
Just before the Spring Festival in 2012, Hong Kong-listed Kingway Beer announced it would package and sell its beer assets, including 6 factories, 3 of which were in Guangdong, and the other 3 in Tianjin, Xi'an, and Chengdu, with a total production capacity of over 1.2 million tons. As one of the few remaining "medium fish" in the market, it immediately attracted bids from major giants.
Especially Yanjing, swallowing Kingway would not only make up for its previous "land-grabbing" deficiency but also connect Guangxi, Guangdong, and Fujian provinces. At that time, Yanjing was also the most favored buyer in the market. But in 2013, Kingway was married to China Resources for nearly 5.4 billion yuan. It is said that the reason was that Yanjing could only offer up to 4.5 billion yuan.
After this battle, the power structure of China's beer industry was basically divided. In 2013, China Resources had a market share of 20.4%, Tsingtao 15.4%, AB InBev 12.9%, Yanjing 10.6%, and Carlsberg 5.9%. The industry CR5 had reached 65.2%.
In the 15-year land-grabbing era, from outsider to leader, China Resources was undoubtedly the biggest winner. Yanjing, which fell from first to fourth, became the biggest loser.
**-02-**
**Slow in Premiumization**
At the end of the land-grabbing era, the development of China's beer industry reached its peak.
In 2013-2014, Yanjing's revenue and net profit reached 13.748 billion yuan and 726 million yuan, respectively; Tsingtao's revenue and net profit reached 29.049 billion yuan and 1.99 billion yuan, respectively, both historical highs.
But 2014 was also a turning point. Due to population aging, the main beer-consuming population (20-49 years old) decreased, and the beer industry officially shifted from a growth period to a decline. By 2019, total production of 37 million tons had fallen by more than 13 million tons from the 2013 peak.
In this process, the giants that had been running blindly were generally hurt.
Comparing 2019 data with the peak, Yanjing's sales volume dropped by 1.9 million tons, a decline of over 33%; revenue and net profit fell by 2.28 billion yuan and 496 million yuan, respectively, with declines of 16.58% and 68.32%. Tsingtao's sales volume also fell by 1.1 million tons, a decline of 12%; revenue and net profit also fell by 1.065 billion yuan and 138 million yuan, respectively, with declines of 3.67% and 6.93%.
Logically, during the industry's adjustment period, Yanjing, which was the most conservative (stable) in operations, should have been the least affected. But in reality, whether in sales volume, revenue, or net profit, Yanjing's declines were larger; compared with Tsingtao, Yanjing's sales volume decline had a greater impact coefficient on its performance.
The reasons are mainly two points.
**First, Yanjing's home base is Beijing, which is both an advantage and a disadvantage. The advantage is that the capital has a large population, high demand, and brand endorsement. The disadvantage is that Beijing is a must-fight place for giants, and market competition will continue to be extremely fierce. Even if Yanjing holds its share, it pays a very high price (sacrificing profits).**
More importantly, just as it failed to seize the opportunity in the land-grabbing era, Yanjing was again half a beat slow in the wave of industry premiumization.
Since 2014, although the total industry volume has continued to shrink, benefiting from consumption upgrades, high-end products have grown against the trend. According to data from Budweiser APAC's prospectus, from 2013 to 2018, the market size of high-end/super-premium beer in China grew from 5.9 million tons to 8.03 million tons, with a compound annual growth rate of 6.4%.
At the same time, on the supply side, as the power structure became clearer, in most regions, the fighting among giants gradually became less intense. Shifting from seeking share to seeking profits became a common demand.
The way to seek profits was also simple: direct price increases as a supplement, and product upgrades as the main approach.
In this regard, foreign giants had natural advantages. Both AB InBev and Carlsberg have always focused on high-end products.
Among the domestic three giants, Tsingtao, with a deeper historical accumulation, started its premiumization layout earlier. Since 2010, Tsingtao has successively launched high-end products such as Classic 1903, Auguste, Hongyun Dangtou, and Pilsner, gaining a good reputation.
China Resources, which was teased as "Snow is closest to water," originally had the worst reputation, but it was wealthy and responded in time. In 2018, China Resources spent over 24 billion Hong Kong dollars to acquire the China business of the old foreign giant Heineken. At the same time, it also launched high-end products such as Brave the World SuperX, Face Series, Ingenious Creation, and MARRSGREEN, gradually filling the gap.
On the contrary, Yanjing has not made any major moves for many years. It wasn't until 2019 that it woke up and launched several high-end products, but it was already too late. So much so that even now, when people mention Yanjing, many people's first reaction is still "big green bottle."
This directly lowered Yanjing's price per ton. In 2019, China Resources' price per ton was 2,903 yuan, Tsingtao's was 3,431 yuan, Chongqing Beer (Carlsberg) was 3,719 yuan, and Budweiser APAC was 5,600 yuan (2018). Yanjing's was 2,817 yuan, the lowest among the five giants.
Failing to keep up with the pace of premiumization not only made Yanjing's performance unsatisfactory but also caused its market share to decline further. In 2018, the total market share of the five giants increased to 70.4%. Among them, China Resources 23.2%, Tsingtao 16.4%, AB InBev 16.2%, Yanjing 8.5%, and Carlsberg 6.1%.
In the nearly 7 years of intensive cultivation, although the ranking has not changed, Yanjing is the only one whose market share has declined.
**-03-**
**Management Issues Still to Be Resolved**
From land-grabbing to intensive cultivation, behind Yanjing's repeated failure to keep up with industry changes, management is an old but unavoidable issue.
In fact, during the wave of foreign capital entering China, due to its excellent market performance, Yanjing was the company most "coveted" by the giants. But today, Yanjing is the only national enterprise that has not introduced foreign capital.
Some people have counted that Li Fucheng blocked more than 30 waves of foreign investment at the door. His attitude was "no domestic joint ventures, no foreign joint ventures." In his view, although foreign capital was strong, it did not understand China, and compared with it, China's beer brewing technology was not backward.
In hindsight, this integrity is admirable. However, it also caused a "lack of fresh water" within Yanjing. As it grew step by step, after the entrepreneurial backbone became meritorious veterans, Yanjing gradually lost its combat effectiveness.
These problems might have been concealed during the industry's growth period, but when entering the decline period, who is swimming naked? It is all clear. And until today, compared with external competition, internal management issues are still a greater困扰 for Yanjing.
In 2019, Yanjing's revenue was 11.468 billion yuan, with a net profit of 230 million yuan; Tsingtao's revenue was 27.984 billion yuan, with a net profit of 1.852 billion yuan. Obviously, the two are no longer at the same level. But in terms of the number of employees, Yanjing had 30,148, while Tsingtao had 38,169, a gap that is not very large.
Reflected in per capita revenue, Tsingtao was 733,200 yuan, while Yanjing was 380,400 yuan, barely half of the former; reflected in per capita profit, Tsingtao was 48,500 yuan, while Yanjing was 7,600 yuan, less than 1/6 of the former. And compared with Chongqing Beer, whose per capita revenue was as high as 1.4141 million yuan and per capita profit as high as 259,300 yuan, the difference is even greater.
Both brew and sell beer, why is the gap so large? To put it bluntly, it is mainly because Yanjing "keeps too many idle people."
Under the demand for profits, in recent years, in addition to launching high-end products to "open up sources," the giants have also been closing inefficient factories to "cut costs."
In this regard, Chongqing Beer, which has been controlled by Carlsberg, is undoubtedly the most aggressive. From 2015 to 2018, it successively closed or transferred more than 10 factories in Liuzhou, Jiuhuashan, Yongchuan, etc., reducing production capacity by at least 200,000 tons; China Resources followed closely, closing nearly 30 factories; AB InBev and Tsingtao also took actions. Although Yanjing also said it would close factories, it has not taken action for a long time.
Not only on the revenue side, but on the expenditure side, two of Yanjing's data are also particularly glaring.
**The first is R&D expenses.** From 2015 to 2019, Yanjing invested at least 200 million yuan in R&D each year, while Tsingtao's highest was only 21 million yuan during the same period. Normally, high R&D investment is understandable, even commendable. But under such a huge gap maintained for many years, Yanjing's products have always been the ones being beaten, which is a bit unreasonable.
**The second is business entertainment expenses under administrative expenses.** From 2015 to 2019, Yanjing's total expenditure on this item exceeded 60 million yuan. No wonder some investors complained that it "has insufficient profits but never stops eating and drinking."
In addition, another indicator that must be mentioned is inventory turnover days. In 2019, Yanjing was 200.49 days, Tsingtao was 61.47 days, and Chongqing Beer was 60.44 days. This means that every time Yanjing sells a bottle of beer, its competitors have already sold more than three bottles.
Carrying a millet plus rifle, how can it deal with the enemy's ships and cannons?
**-04-**
**Time Is Running Out for Yanjing**
It flourished because of innovation, and declined because of stubbornness.
From 1980 to 2020, looking at the 40 years of ups and downs, this sentence is probably the best annotation for Yanjing.
In fact, facing today's predicament, Yanjing has not thought about change. In 2017, Li Fucheng, who was over 60 years old, retired, and Zhao Xiaodong, born in the 1970s, took over. Subsequently, Yanjing began a global search for a general manager, which once made the market see hope for reform.
Whether it is the revenue and net profit reflecting scale, or the per capita revenue and per capita profit reflecting efficiency, although Yanjing has been weak for a long time and cannot compete with the other four giants, since 2017, they have all shown a trend of improvement year by year.
In 2019, under the leadership of Zhao Xiaodong, Yanjing launched a "Five-Year Reconstruction Plan," aiming to complete the transformation before 2025 through improvements in brand, market, channels, talent, and cost control. To this end, Yanjing not only launched multiple mid-to-high-end products such as U8, 7-Day Fresh, and Yanjing Eight Sceneries at once, but also invited the popular star Wang Yibo as brand spokesperson, striving to make a breakthrough in youthfulness.
However, not long ago, Zhao Xiaodong was suspected of violating his duties, which once again hit Yanjing's pain point. The previous global search for a general manager eventually came to nothing, which also made the market question whether its reform was real.
A hero in his twilight years going to battle, an old giant making a comeback—this is a story everyone wants to see. But now, once again surrounded by enemies, if it cannot learn from past pain and undergo radical reform, the time left for Yanjing to "change its fate" is really running out.
Source: Understanding Finance (ID: dudongcj), Author: Sun Yong


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