The baijiu price surge has been halted, but a beer price surge is already underway. What's the pace? Recently, a reporter from Jiuye Jia learned from an informed source that Budweiser, under the world's largest beer company AB InBev, had already raised prices before the Chinese New Year, with the post-holiday wholesale price increasing from 57 yuan per case to 85 yuan per case, a rise of nearly 50%, effective from March 10. The distributor also revealed that Harbin Beer plans to raise prices in April. The price adjustment notice stated that the increase was due to significant rises in raw material and transportation costs, and was aimed at standardizing the market price system. It applied to 500ML bottles. Additionally, the notice proposed a regular promotion of 10 cases for the price of 6 (i.e., 4 cases free with every 10 cases). Consumption Upgrade Drives Production and Sales Rebound, Beer Prices Rise Collectively At the end of January, media reported that from February 1, 2018, Budweiser's beer wholesale prices would increase by 3.9%. Prior to that, Snow Beer, Tsingtao Beer, and Yanjing Beer had already raised their prices. "Price increases are normal and won't affect sales. Because every year after the New Year, products quietly raise prices, just with different categories and magnitudes; second, Snow, Tsingtao, and Yanjing are all raising prices," a beer industry insider from Xi'an, Shaanxi, told Jiuye Jia. Industry data shows that in 2017, China's beer imports reached an unprecedented 716,200 kiloliters, a historical high, and in January 2018, beer imports increased by 83.9% year-on-year. Meanwhile, China's beer production and sales, which had been declining for 25 consecutive months, came to a halt at the end of 2017. These figures reflect the upgrading demand of Chinese consumers for beer. Analysts believe that last year, major domestic beer manufacturers simultaneously intensified their mid-to-high-end product strategies, entering a phase of high-quality development, which was a primary factor. The continued growth in beer import volume and value is also considered one of the driving forces behind the rebound in production and sales. According to Euromonitor forecasts, by 2020, the share of mid-to-high-end and above beer in China will exceed 30% (with high-end accounting for 13.5% and mid-to-high-end 17.2%), and the value share will exceed 60% (with high-end at 42.2% and mid-to-high-end at 24.9%). In fact, under the environment of consumption upgrading, the beer industry's production and sales have rebounded, and imports have grown steadily. Therefore, the collective price increase by four of the five major beer giants is not without foundation or reason. What other factors prompted Budweiser's price increase? Besides objective trends, it also requires support from Budweiser's industry position, brand strength, and market operation capabilities. Data shows that Budweiser currently has two national brands in China, Harbin and Sedrin, and 13 regional brands. Additionally, according to relevant media reports, on March 1, AB InBev announced its fourth-quarter results for the period ending last December. In China, Budweiser's sales volume increased by 1% under product premiumization, while the industry overall declined. Budweiser successfully positioned itself as a leading brand in the e-commerce market, and Harbin also outperformed domestic peers. The super-premium brand portfolio, mainly Corona, Hoegaarden, and Franziskaner, accelerated growth throughout the year, with sales volume nearly doubling year-on-year, making Budweiser a leading super-premium beer brand in China. Short-Term Impact on Sales, Long-Term Dividend for Leaders Some industry observers believe that the per capita consumption of beer has limited room for growth, with mid-to-high-end as the future direction. Production is declining, there is overcapacity, and domestic beers are focusing on mid-to-high-end products. Rising costs are pushing up prices, but profitability remains to be confirmed. "Profit margins are already very thin," a regional Budweiser distributor told Jiuye Jia. After the factory price increase, channel profits have declined. However, senior beer marketing expert Fang Gang told Jiuye Jia that the entire FMCG industry is raising prices, and cost is only one reason. In fact, scale growth has hit a bottleneck, and companies are seeking new value growth. Beer companies typically control price increases within 5%-20%, and the increase for individual products is not uniform. There may be short-term effects, but in the long run, there are dividends. Fang Gang believes that compared to domestic beers, Budweiser has clear advantages in consumer cultivation and brand enhancement. Budweiser emphasizes promotion, while domestic brands focus on channels. In brand operation and market promotion, domestic beers still need to learn from Budweiser. Meanwhile, Zhongtai Securities also believes that the beer industry has passed its high-growth period. Although per capita consumption still lags behind developed countries, the increase will be a slow process. The industry structure has gradually stabilized, and concentration is expected to further increase in the next 3-5 years. With the structure stabilizing, companies must seek new growth points, which will inevitably be driven by price. China's beer market is highly concentrated, with the top five players—China Resources Snow Breweries, Tsingtao Brewery, Budweiser, Yanjing Beer, and Carlsberg—holding over 80% of the market share. Therefore, beer price increases will make the strong stronger, and leading companies are expected to continue profiting. Source: Jiuye Jia (ID: jiuyejia360) -END-