Summer is approaching, and beer sales are about to enter the peak season. As the leader in the beer industry, Budweiser's recent performance has been disappointing. According to Budweiser APAC's first-quarter financial report, in the first three months of this year, Budweiser APAC saw declines in both revenue and sales volume, with sales volume and revenue in the Chinese market falling by 6.2% and 2.7%, respectively. Although part of the revenue decline can be attributed to weather, the media generally believe that the fundamental reason is related to poor product sales, especially for Budweiser's high-end series, whose market share is being continuously eroded by competitors, and it may be difficult to recover for a long time in the future. As we all know, Budweiser's prices are relatively high compared to domestic peers. In addition to the familiar Budweiser beer, there are sub-brands such as Stella Artois, Corona, Hoegaarden, and Cass, many of which are high-end or even ultra-high-end products. For example, Budweiser launched a limited-edition beer priced at 1,500 yuan last year, which sparked online controversy because it was outrageously expensive. To boost revenue, Budweiser raised the price of its core products by 6.9% in April last year and also took price increase measures for its high-end products, but unfortunately, things did not go as planned. In the current environment, blindly raising prices is tantamount to cutting off sales channels, and it also had a negative impact on Budweiser's first-quarter performance. Although Budweiser has encountered setbacks on the path to high-end development, it has not prevented domestic peers from rushing into this track. After all, the low-end industrial beer market has become saturated, and 'moving upward' has become the only way out for everyone. According to statistics, from 2011 to 2018, the market share of low-end light beer in China dropped from 61.60% to 35.50%, nearly halved. Meanwhile, the market share of high-end light beer increased from 11.20% to 34.85%. In 2022, the production and sales volume of mid-to-high-end beer in China was approximately 15 million to 18 million kiloliters, accounting for 35% to 40% of the industry's total sales, and the market share also increased by more than 10% compared to 2021. Accompanying market growth is the rise of many breweries under the banner of 'craft beer.' According to data from Tianyancha, from 2019 to 2023, the number of newly established craft beer companies reached 6,179, with an average of 1,200 new companies each year. According to CICC's forecast, the domestic craft beer market will reach 134.2 billion yuan by 2025. Why have so many players emerged in the craft beer track all at once? This requires us to start with the development of the domestic beer market. China's beer industry began with the reform and opening-up. Thanks to a series of national policy supports, many cities built their own breweries, leading to the saying 'one city, one beer.' Due to the lack of significant differences in brand and quality, the main competitive strategy at the time was price wars. If you sold a bottle for 4.5 yuan, I would sell for 3 yuan; if you sold for 3 yuan, I would sell for 2 yuan. When further price cuts would lead to losses, they resorted to 'buy one get one free,' printing redemption codes on bottle caps, allowing winners to get 'another bottle.' If this continued, all breweries would go bankrupt within a few years, so the quality of domestic beer was generally low at that time because costs had to be reduced to sustain price wars. This situation persisted for decades until around 2013, when fundamental changes finally occurred. The main drivers behind this were foreign beer brands represented by Heineken and Carlsberg. In 2013, Danish beer brand Carlsberg took control of Chongqing Brewery, and shortly after, Dutch Heineken took control of China Resources Beer, leading to a major reshuffle in the beer industry. The entry of foreign brands had a huge impact on the operations of domestic breweries. Before this, most of these breweries were local state-owned enterprises with conservative management and outdated concepts, and they dared not take bold marketing actions. The purpose of foreign control was simple: to make money. So they took measures such as obtaining loans, laying off employees, and providing incentives, completely changing the original business model. Taking Chongqing Brewery as an example, since Carlsberg took control, the company has been completely transformed, with its net profit margin soaring from 3% ten years ago to 18.4% now, not only crushing all domestic breweries but also surpassing the leader Budweiser. With the entry of giants, the beer market has shifted from a state of 'no leader' to a stage of 'oligopoly.' On one side are foreign-controlled local breweries, and on the other are traditional state-owned and central enterprises, each monopolizing a regional market. In Chongqing, Carlsberg's market share reached 81%. China Resources Brewery holds 80% of the market in Guizhou, while Tsingtao Brewery has secured 71% of the market in Shanghai. Thus, a new stock market was formed again, with the main players being China Resources, Tsingtao, Budweiser, Yanjing, and Carlsberg, who have been fighting exhaustedly for ten years. The market size has peaked, and price wars are no longer effective, so everyone has unanimously turned their attention to the high-end market. The so-called high-end beer refers to high-value-added products represented by craft beer, raw pulp, and draft beer. Compared with traditional industrial beer, the biggest feature of this type of beer is that it is not sterilized, not filtered, and not diluted, retaining active yeast in the beer. Whether it is draft beer or craft beer, the common point is that the flavors are more diverse, but the prices are also higher than industrial beer. This is not difficult to understand. To maintain freshness, the supply chain for such products cannot be too long, and the transportation radius is also short. If you want to have a national layout, you can only acquire local breweries and build supply chains locally. However, for those big brands, these are not problems. In recent years, more and more breweries have launched their own high-end series. For example, Tsingtao Brewery has successively launched its own white beer, Pilsner, and Auguste products, with prices ranging from 6 yuan to 100 yuan. In addition, Tsingtao also has beers priced at hundreds of yuan, such as 'Centennial Hongyun,' 'Blue Ribbon Beer,' and 'Centennial Journey,' fully targeting high-spending consumers. China Resources Brewery has also launched high-end series such as SuperX and Mars Green, and even sold the 'Nong Li' series priced at 1,119 yuan in September last year, turning beer into a gift. Budweiser, as the leader in Asia, is not willing to fall behind. It once launched two limited-edition beers priced at over 1,500 yuan to harvest the middle class, but unfortunately, sales were poor, and netizens called it a 'beer assassin.' In fact, not only these traditional giants, but also catering companies such as Haidilao, Mixue Ice City, and even Starbucks have successively launched their own craft beer products, and there are countless local small craft breweries. So the question arises: since so many companies want to get a piece of the high-end beer market, is it really a good business? This involves an important issue: channels. Industrial beer is available in supermarkets and convenience stores, and many restaurants and eateries also serve as sales channels. But for high-end beer, due to scale and regional limitations, these brands find it difficult to occupy as many channels as low-end beer. With limited funds, they also lack the budget to advertise during prime time. But these brands have found a way: exposure through beer festivals held in various places. I specifically searched online and found that dozens of beer festivals were held in China last year, with larger ones in provincial capitals such as Qingdao, Beijing, Harbin, Changchun, Guiyang, and Shijiazhuang, as well as second- and third-tier cities like Dalian, Changzhou, and Foshan. Taking the Qingdao International Beer Festival as an example, it introduced more than 2,000 brands of beer from over 40 countries last year, of which 200 were craft beers. Appearing at beer festivals has several advantages. First, these events have significant influence within the industry, and the budget required is relatively small compared to advertising. In addition, most attendees at beer festivals are people who understand and enjoy drinking, and once they recognize your product, they can form consumption stickiness. Thus, beer festivals have become the main channel for various brands to compete for traffic and exposure. In addition to beer festivals, another way for high-end brands to reach consumers is by establishing small pubs. The essence of small pubs is to provide direct sales channels for these brands, where consumers can both drink and purchase products. Small pubs are also a preferred layout method for giants because they help brands form a moat and increase the chances of consumers coming into contact with the product. For example, Budweiser acquired the Shanghai craft beer brand 'Boxing Cat' and opened the 'Goose Island' bar and restaurant in Shanghai. Yanjing Beer has established Lion King craft beer pubs offline; giants like China Resources and Tsingtao have also opened their own small pubs. Currently, Tsingtao Brewery has opened more than 260 1903 pubs in over 60 cities across the country, and Carlsberg has opened more than 10 stores in Beijing and Shenzhen. In addition, the sales of high-end beer are completely different from industrial beer. The strategy for affordable beer is to compete for market share, specifically by occupying physical store shelves and improving distribution efficiency. For channels such as restaurants, many giants also use free freezers to compete for terminal markets. So the essence of these markets is B2B, where breweries mainly deal with retail and catering channels. These brands already have strong momentum, and with years of deep cultivation in the market, occupying channels is not difficult. But high-end beer is different. The consumer base in this market is more segmented, with more diverse needs. Especially when you open a pub, your business changes from B2B to B2C. You must understand that selling beer to supermarkets and restaurants is fundamentally different from opening a bar to attract consumers, with completely different logic behind them. Understanding this, you can see why Budweiser cannot beat domestic peers in the high-end market. Budweiser's advantage lies in traditional channels. It is said that in China, one in every three stores sells Budweiser beer, showing that Budweiser has put great effort into channels. Moreover, Budweiser's most important stronghold is nightlife venues and large restaurants, where Budweiser typically adopts a direct supply model, effectively occupying the main consumption scenarios for beer. This is where Budweiser's strength lies. However, there are gains and losses. Budweiser's direct supply system is strong, but its distribution system is weak, so it cannot cover the rest of the market, which brings opportunities for other domestic brands. In this sense, high-end beer is reshaping consumption habits and the entire market, bringing a series of changes from channels to strategies. So, will high-end beer see a monopoly by giants similar to industrial beer? At least for now, it is unlikely. For traditional breweries, whether developing draft beer or craft beer, it is merely a strategy or means to maintain performance growth, but they will not adjust their strategic focus accordingly. That is to say, whether it is China Resources, Tsingtao, Budweiser, or Carlsberg, the basic foundation of these traditional powers remains industrial beer. After all, unlike baijiu or red wine, beer is always perceived by consumers as an affordable product. Especially at a time when the purchasing power of the entire population is weakening, high-end beer that pursues price increases will face more severe tests. Budweiser's failure in high-end development has already proven this point. Many people think that the craftsmanship of high-end beer is more complex than mass-produced beer, but in reality, there is almost no difference in the production process between industrial beer and craft beer, except that the steps that extend shelf life, such as centrifugation and sterilization, are omitted. Moreover, in a strict sense, mass-produced industrial beer has even more stringent requirements for craftsmanship than craft beer, because industrial beer must be produced in large quantities and ensure that every bottle tastes exactly the same. Only the combination of science and craftsmanship can guarantee the stability of beer quality. Although craft beer has a richer taste, its craftsmanship cannot be as strict as industrial beer, and due to shelf life limitations, the supply chain scope is limited, making it difficult for giants to leverage their advantages in standardization and supply chain. This market is naturally left to small and medium-sized enterprises. In fact, the expansion of high-end beer is also limited by another factor: the channels we have repeatedly mentioned. Taking craft beer as an example, the current market shows a characteristic of 'hot at both ends, cold in the middle.' The upstream industry continues to see new breweries emerging, with numbers increasing dramatically each year, while downstream is filled with chain pubs and beer-dispensing stations. Only the middle link—supermarkets, convenience stores, and restaurants—remains cold. Why is this? The reason is simple: these channels are dominated by traditional breweries, which have the funds, strength, and brand to enter these channels relatively easily. Small enterprises do not have enough money to develop distributors, and distributors lack trust in this category, leading to generally weak B2B sales for high-end beer. This is also why many craft beer brands seek direct-operated channels. On one hand, it is to get closer to consumers; on the other hand, it is a helpless move because they cannot break into the B2B market, so they have to 'find another way.' However, in terms of market development efficiency, opening pubs is certainly not as efficient as developing retail and restaurant channels. High-end beer is a broad and segmented diversified market. The advantage is that the products will be extremely rich, and you will have the opportunity to taste various flavors and different price points of craft and draft beer. Of course, it is also difficult for super giants to emerge in this market, and it is relatively friendly to entrepreneurs for now. In fact, this also conforms to the laws of the business world. As I mentioned in a previous article, everyone loves cost-effectiveness, but not everyone can afford to play that game. This is because it requires a series of endorsements from scale, brand, and operational capabilities, which are destined to be a game for giants, and industrial beer fits this characteristic. In contrast, making differentiated products for niche markets is the viable option for most entrepreneurs. After all, the world needs both the big and strong and the small and beautiful. In the marginal areas where giants cannot reach, infinite possibilities always exist. Recommended Reading