Among the five giants, who will be the first to exit? If one or two become the final oligarchs, who will they be? While baijiu (white liquor) is making waves in the capital market, beer is not idle. China Resources Beer and Tsingtao Brewery have both hit record highs, with market values leaping into the 100-billion-yuan club; Zhujiang Beer, Yanjing Beer, and Huiquan Beer have also surged. Beyond the capital market, competition among companies for the beer market has intensified. This includes both domestic enterprises chasing each other and foreign enterprises vying for position, as well as mixed Sino-foreign struggles. All signs indicate that the beer industry, which has been fighting for over a century, is brewing a new large-scale war. -01- Flourishing and Wild Growth Compared to the fiery baijiu market, beer seems somewhat desolate. But it is also the most competitive industry. A hundred years ago, it faced global competition. 120 years ago, Russians established the Ululevsky Brewery in Harbin, the earliest brewery to appear on Chinese soil. ▲ Original appearance of Tsingtao Brewery factory Three years later, a group of German brewers built the Anglo-German Brewery (predecessor of Tsingtao Brewery) in Qingdao. This was China's first modern brewery. In 1914, when World War I broke out, German beer could no longer be imported. Zhang Tingge, a Chinese merchant living in Russia, saw an opportunity to fill the gap left by German beer. He transferred overseas funds back to China and, together with seven others, including Shandong businessman Hao Shengtang, who shared the dream of "saving the nation through industry," raised 200,000 silver dollars to establish a Chinese-owned brewery—the Shuanghesheng Five-Star Brewery—next to Guang'anmen Station, which could draw water from Yuquan Mountain. The following year, the first batch of Five-Star beer was produced, becoming popular in Beijing, Tianjin, Shanghai, and even selling as far as Hong Kong and Macau. The Chinese beer industry, still in its infancy, thus began to spread like wildfire. Over the next 30 years, due to various restrictions, China only established about a dozen breweries in places like Qingdao, Beijing, and Harbin, with few consumers. It wasn't until the 1980s, with the spring breeze of reform and opening up, the rise of the consumer market, and the support of the national "Beer Special Project," that the beer industry truly exploded. First, local breweries sprang up like mushrooms after rain. Every province and city had its own brewery, and within a few years, hundreds of breweries appeared across the country. Today's Yanjing Beer is a product of that era. Second, foreign capital that had disappeared made a comeback. In 1984, InBev (formerly Interbrew) cooperated with the under-construction Zhujiang Beer, becoming its second-largest shareholder, and transferred brewing technology to several breweries, including Beijing Five-Star Brewery, marking its entry and exploration of the Chinese market. Also in that year, Japan's Suntory Beer officially entered the Chinese market, with its first project investing $50 million to establish the first Sino-foreign joint venture brewery in Lianyungang, Jiangsu—China Jiangsu Suntory Foods Co., Ltd. In the following years, more foreign beer companies entered China in force. In 1993 alone, over 60 multinational companies brought huge capital, technology, and internationally renowned brands to cultivate China, the "last virgin land for brewing." According to statistics, from the 1990s to the early 21st century, as many as 28 foreign beer brands produced in China, and nearly 100 Sino-foreign joint ventures were established. Global beer giants such as Carlsberg, Blue Ribbon, and Budweiser almost all gathered in China. During this phase, foreign competition for the Chinese beer market was mainly through importing successful foreign beer brands, established marketing models, good brand culture and concepts, and mature market operation techniques, investing in building factories in China. At that time, in foreign beer companies in China, senior management was almost entirely foreign, and they did everything themselves, hoping to "conquer the Chinese market with foreigners." However, due to price, taste, market, and other reasons, in the first round of confrontation, these blindly confident foreign beer companies ultimately failed due to being unaccustomed to the local environment. In the 1990s, large groups such as Bass and Zhongce withdrew from the Chinese mainland beer market; subsequently, Foster's and Danone also gave up their beer businesses in mainland China. The accelerated pace of Chinese and foreign enterprises led to the rapid growth of China's beer industry. By 1988, the total beer production in mainland China had reached 6.564 million tons, ranking second globally after the United States and Germany. During this period, competition among companies was still at a rough stage of staking claims and fighting independently. Although the overall volume of China's beer industry was among the world's largest, it was still fragmented and small. But the situation soon changed, and the days of independent operations and peaceful coexistence were gone forever. -02- Era of Melee, Rise of Capital While the domestic beer market was flourishing, foreign capital, seemingly in decline, was brewing a larger frontal "attack." While some foreign companies withdrew from China, more chose to "make a comeback" after learning from their mistakes. They moved from the front stage to behind the scenes, using methods such as equity participation and acquisition of local breweries to steadily advance, "save the country by indirect means," and strengthen their power openly or covertly, launching a second "offensive." Examples include SABMiller and China Resources Beer, AB and Tsingtao Beer, InBev and Zhujiang Beer, and Newcastle and Chongqing Brewery, all of which "joined hands" during this period. While foreign capital was making a comeback, local breweries were also charging toward the goal of becoming bigger and stronger. First, local new forces represented by Yanjing Beer began to quickly expand beyond their local areas and spread across the country. With the support of the Beijing Shunyi District government, Yanjing, established only in the 1980s, not only quickly covered Beijing's streets and alleys with its sales network, defeating century-old local brands including Five-Star, but also, through a series of innovations and breakthroughs that broke tradition, entered the top three nationally in 1993, with production and sales approaching Tsingtao Beer. Second, established local brands like Tsingtao and Snow, under immense pressure from new giants like Yanjing, also abandoned their reliance on past glory and began more aggressive growth. Tsingtao had a long history and strong brand, while Snow was acquired by China Resources in 1993 and quickly expanded nationally with the strong resources of a central state-owned enterprise. Moreover, as their strength increased, major local enterprises also followed the example of foreign capital and adopted acquisition strategies to grow faster. Among them, the most aggressive acquirers were Tsingtao Beer and China Resources Beer. Tsingtao Beer's acquisitions were, to some extent, forced. While Yanjing was growing rapidly and China Resources was charging like a tiger down the mountain, Tsingtao's development was relatively lagging, and it was even overtaken by Yanjing at one point. How to catch up? Tsingtao Beer's first thought was acquisition. And it had the money. In 1993, Tsingtao Beer was officially listed, raising 1.6 billion yuan in one go, which was a huge sum at the time. With this confidence and a century-old brand heritage, Tsingtao Beer became the vanguard of acquisition expansion. It used various capital operation methods such as mergers and reorganizations, bankruptcy acquisitions, and joint venture factory construction to successively acquire brands like Beijing's Five-Star and Sanhuan, Shaanxi's Hans and Hanzhong, and Hebei's Langfang Beer, quickly establishing over 50 beer production bases in 18 provinces and municipalities, completing its national strategic layout first. China Resources Beer, backed by a central state-owned enterprise, invented a "mushroom strategy" to quickly drive its chariot across the country. The core of the so-called mushroom strategy is to enter a regional market by acquiring a production plant as a base in areas with good market conditions, then achieve regional oligopoly status through competition, and then extend to a wider range with this as the core. With this strategy, China Resources Beer successively acquired enterprises such as Anhui Shengquan, Hubei Dongxihu, and Sichuan Lanjian, successfully occupying large regional markets in Sichuan, Liaoning, Tianjin, and Wuhan, and achieving near-monopoly status locally. While Tsingtao and China Resources continued to lead with capital, Yanjing, which had once focused on self-reliance, also followed the acquisition path pioneered by the former and raised the banner of acquisition and integration. Local enterprises such as Guilin Liquan Beer, Quanzhou Huiquan Beer, Hangzhou Qiandao Lake Beer, Baotou Xuelu Beer, and Zhengzhou Jinxing Beer all came under its umbrella; even in Shandong, Tsingtao's stronghold, Yanjing joined forces with local giants Sankong and Wuming, forming a confrontational stance against Tsingtao. While China's beer industry was undergoing intense reshuffling, the global beer industry was also stirring up huge waves, driving the reshaping of the industry landscape and staging even more intense integration stories than Chinese local enterprises: head concentration, the big get bigger. The flames of war were naturally brought into China, and together with local enterprises, pushed the competition in the beer industry from big fish eating small fish to a more intense stage of big fish eating big fish. Take InBev as an example. After completing the acquisition of Nanjing Jinling Brewery in 1997, over the next 10 years, it successively acquired, through equity participation and acquisitions, 24% of Zhujiang Beer, 55% of Zhejiang Yandang Mountain Jinshi Beer, the foreign equity of 12 beer production plants owned by Malaysia's Lion Group in China, and assets such as Hubei Yichang Dangyang Snow Leopard Brewery; and on January 23, 2006, it spent 5.8 billion yuan to acquire 100% of Fujian's largest beer company, Xuejin Beer Co., Ltd., one of the largest single acquisitions by foreign capital in the Chinese beer market. In July 2008, Anheuser-Busch (A-B), the parent company of Budweiser, was acquired by InBev for $52 billion and merged into Budweiser InBev; then, Budweiser InBev merged with SABMiller, the world's second-largest beer company at the time. To complete this global merger as quickly as possible, Budweiser InBev sold its 49% stake in China Resources Beer to China Resources Group. This made China Resources Beer a wholly-owned listed company of China Resources, while also further expanding its own territory in China. Under the trend of global integration and the survival of the fittest, amid continuous capital wars, price wars, and brand wars, from the 1990s to the 2010s, the hundreds of local beer enterprises that once flourished everywhere mostly became history in the struggles of the giants, either becoming part of the giants or completely becoming memories. -03- Dragon and Tiger Fight, Who Will Rise and Fall As early as 2003, China's beer consumption reached 24 million tons. From that year on, China replaced the United States as the world's largest beer consumer market. With hundreds of beer enterprises, China has therefore been the "world's largest beer country" for over 10 consecutive years. In the past 30 years, China's beer market has transitioned from highly fragmented to relatively concentrated. Now, the top five beer companies are China Resources Snow, Tsingtao, Budweiser InBev, Yanjing, and Carlsberg. Public data shows that since 2013, the total market share of the five major beer giants has exceeded 70%, and the total market share is still increasing year by year. Among them, China Resources has the highest market share, reaching 23.2% in 2018. China Resources' 2019 annual report shows its beer comprehensive revenue was 33.19 billion yuan, with net profit increasing by 34.3%. Next are Tsingtao Beer and Budweiser Asia Pacific, each with a market share of over 16%. Apart from the top five brands, hundreds of small and medium-sized brands "share" the remaining less than 30% of the market share. Currently, the domestic beer market has gradually formed a pattern of five major giants standing in a tripod. As the leader among the giants, China Resources Snow Beer has attracted much attention in recent years. Since 2015, the company's stock price has climbed from HK$7 to a high of HK$55, with a market value of up to HK$170 billion. Especially in 2019, the stock price rose nearly 70%, and market value increased by HK$50 billion. This achievement is mainly due to China Resources Snow's acquisition of Heineken for HK$2.3 billion in April last year. The mastermind behind this acquisition, Hou Xiaohai, CEO of China Resources Snow Beer, once said: The future competition in the beer industry will definitely be about high-end products. Under the trend of consumption upgrading, China's beer industry is shifting from staking claims to a corporate race. China Resources Beer's acquisition of Heineken China can both further move toward high-end and, by leveraging the global channels of this century-old international brewery, participate in international competition. Tsingtao Beer, which has been in a "tug-of-war" with China Resources Snow, has a market value far lower than China Resources Snow, only recently entering the 100-billion-yuan club. However, at the 17th "World Brand Conference and China's 500 Most Valuable Brands Release" on August 5, Tsingtao Beer ranked first in the Chinese beer industry for 17 consecutive years with a brand value of 179.285 billion yuan. Its sub-brands, Laoshan Beer, Hans Beer, Tsingtao Beer Museum, and Prince, were also listed. Tsingtao Beer has deeply refined its brand value through innovation and high-quality development, and kept its brand value chain co-evolving. Tsingtao Beer's 2019 annual report shows revenue of 27.98 billion yuan, a year-on-year increase of 5.3%; net profit of 1.85 billion yuan, a year-on-year increase of 30.2%, a record high in nearly a decade. Recently, Tsingtao Beer launched the "Century Journey" and "Amber Lager" series of artistic brewing new products, which were immediately sought after by consumers upon release. Budweiser InBev, with a market value of over $100 billion, is also making frequent moves in the Chinese market. In August 2017, Budweiser InBev and Diageo launched a distribution cooperation for the stout brand Guinness in mainland China; in September 2018, Budweiser InBev became the distributor for Japan's Sapporo Beer in China; in the same month, it became the exclusive distributor for the full range of Sapporo beer in mainland China. Last year, it also restarted the IPO of its Asian business. Yanjing Beer, ranked fourth, appears somewhat "tired." Not long ago, the first-quarter reports of six listed beer companies on the A-share market were all disclosed. Yanjing Beer, with a market value of over 20 billion yuan, saw its net profit turn from profit to loss, with a decline of up to 518.03%; net cash flow from operating activities also decreased to 250 million yuan. Regarding the decline in performance, Yanjing Beer stated that the COVID-19 pandemic caused market shrinkage, adversely affecting its production and operations. The company has gradually resumed work, and production and operations are proceeding in an orderly manner. But is the pandemic really the culprit behind this huge decline in performance? Has this beer manufacturer, just past its forties, also encountered a "midlife crisis"? These questions still await answers from time. Carlsberg, which has controlled Chongqing Brewery for over 6 years and is unwilling to be just the "King of the Southwest," also has new moves. On June 19, Chongqing Brewery announced that Carlsberg plans to inject all its beer assets outside the system into Chongqing Brewery. It is reported that the assets to be injected in this "expansion" involve 11 controlled breweries. With this, Carlsberg finally fulfilled its commitment made in 2013 to "avoid potential horizontal competition." This will undoubtedly stir up the already white-hot competition in the Chinese beer market. Currently, the five major beer giants have achieved "warlord separatism" in their respective main battlefields. China Resources Snow can be described as "blooming everywhere" on the Chinese map, occupying the top market position in ten provinces and cities; Tsingtao Beer has firmly established its "home base" provinces north of the Yellow River, including not only its headquarters in Shandong but also the top market in Hebei, Shanxi, Shaanxi, and Gansu; Budweiser, Yanjing, and Carlsberg, through acquiring strong regional brands, have each secured the top market share in three or four provinces. The market division among the five giants has formed an oligopolistic pattern in the Chinese beer market, but the internal struggles have never ceased. With the global battles and integration of foreign giants coming to an end, the continuous strengthening of local leading enterprises, the escalation of the war among the five giants, and the acceleration of industry consolidation are all high-probability events. Among these, the most imaginative and potentially decisive is whether the Chinese beer industry will see a super merger like Budweiser swallowing SABMiller, the world's second-largest beer company. If it happens, who among the five giants will be the first to exit? If one or two become the final oligarchs, who will they be? Source: Huashang Taolue (ID: hstl8888) Tips will be paid 400-2000 yuan once adopted.