---
title: "Carlsberg Beer: An Untold but Colorful Story in China"
description: "The story begins in 1999 with Sunny Wong, a Hong Kong local who had worked at Carlsberg for many years. He joined Carlsberg in 1987 as a sales manager and eventually became general manager for North China. In 1999, at age 45, he was told the company was pulling out of China, and he might lose his job. This was a pivotal moment for both him and Carlsberg."
author: "Jeffrey Towson"
publisher: "New Distribution"
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published: "2018-01-18"
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# Carlsberg Beer: An Untold but Colorful Story in China

> The story begins in 1999 with Sunny Wong, a Hong Kong local who had worked at Carlsberg for many years. He joined Carlsberg in 1987 as a sales manager and eventually became general manager for North China. In 1999, at age 45, he was told the company was pulling out of China, and he might lose his job. This was a pivotal moment for both him and Carlsberg.

The story begins in 1999 with Sunny Wong, a Hong Kong local who had worked at Carlsberg for many years. He joined Carlsberg in 1987 as a sales manager and, over the years, was promoted several times, eventually becoming general manager for the North China market.
As he recounted in his TED talk, in 1999, at age 45, he was well-off, had been with Carlsberg for 12 years, and was stable. His wife had just quit her job to accompany their daughter, who was in high school, to study in the UK. But one day in 1999, his boss told him that the company was pulling out of China and he would likely lose his job. It was a significant moment for both him and Carlsberg.
To better understand why Carlsberg took such a drastic step at that time, we need to consider the **actual state of the Chinese beer market**:
China is a major beer-consuming country. According to Euromonitor, Chinese consumers drink 52 billion liters of beer a year, roughly twice that of the United States. But per capita consumption is still low. In 2012, the average Chinese person consumed 38 liters of beer, compared to 74 liters in the U.S. (and 109 liters in Germany). So the market is large and has significant growth potential.
In China, consumers at all income levels buy beer. Few companies can claim to have 1 billion consumers buying their products, but beer companies can.
From 2007 to 2012, beer consumption grew at an annual rate of 5.7% nationwide.
80% to 85% of beer is reasonably priced (about $1.20 per liter), thanks to decades of cheap beer from state-owned breweries. "Premiumization" is a big topic and a source of hope for the Chinese beer industry.
Finally, there is a rumor (which we have heard but cannot confirm) that Chinese households have more beer in their refrigerators than households in any other country.
Almost all Chinese people drink beer, both branded and cheap.
## **After Reform and Opening Up, China's Beer Output Surged, and International Brewers Were Hit Hard**
Several years ago, with China's opening-up policy in 1979, the beer industry began to flourish. From 1979 to 1988, the number of operating breweries increased tenfold to about 800. Total beer output increased 15-fold, and China's beer production quickly jumped from 26th in the world to third, behind Germany and the United States. By 1993, China's total beer output reached 10.2 billion liters, ranking second in the world.
This explosive growth attracted the attention of major international brewers. Brewers like AB InBev and Interbrew were among the first foreign companies to enter China. Initially, they imported and distributed products through agents, usually at higher prices. Later, they chose to invest in and partner with local breweries. For example, AB InBev bought a 4.5% stake in Tsingtao Brewery in 1993 for a mere $16 million. In October 2002, they invested another $182 million to buy a 22.4% stake. Most of the deal activity during this period was aimed at acquiring these breweries.
Overall, progress was not smooth for international brewers. Low prices made mainstream beer almost unprofitable. Chinese state-owned enterprises quickly moved into the sector, gradually expanding and capturing regional market share one by one. After several difficult years, most international brewers exited the Chinese market, sticking to import strategies or adopting one of the following three approaches.
## **Approach 1: Stick to Premium Beer**
Heineken adopted this strategy. They moved upmarket, largely due to the low pricing and thin margins in China's mainstream beer market. In 2012, the average price of beer in China was $1.20 per liter, compared to $3.70 in the U.S. and over $5 in Japan. Currently, China ranks first in global beer production, but its operating profit ranks only eighth in the world.
In 2012, Heineken acquired Singapore-based Asia Pacific Breweries (Tiger Beer), which increased its premium beer market share in Southeast Asia and China, placing it second in the premium segment behind AB InBev but ahead of Tsingtao.
So far, this strategy seems to have worked. Heineken is now one of the leading brands in China's premium beer segment. In recent years, its premium market share has seen double-digit growth.
## **Approach 2: Become an Industry Giant (and Wait for Prices to Rise)**
Becoming a beer giant in the world's largest beer market is a Chinese dream. But only one foreign brewer has achieved this dream, which is surprising. In 2008, InBev merged with Anheuser-Busch, which had a significant impact on both companies' China operations. The merged AB InBev became the first and only foreign brewer among China's top five beer makers.
InBev (formerly Interbrew) had been active in China since 1984, but like other brewers, it had its struggles. AB InBev performed better; in terms of volume, their Budweiser brand leads China's premium beer segment. Additionally, they invested in Tsingtao Brewery. As a merged entity, both companies jumped to the top tier of the industry. The Budweiser brand currently holds a 1.7% market share across all segments. Their mainstream brands include Budweiser, Harbin, and Sedrin.
## **Approach 3: Partner with Large Chinese State-Owned Enterprises**
This is a derivative of Approach 2: "If you can't beat them, join them." In 1994, global beer giant SABMiller and state-owned China Resources Enterprise created a joint venture called China Resources Snow Breweries (CR Snow). As mentioned in the pop quiz above, Snow is currently the world's best-selling beer. SABMiller holds a 49% stake in the joint venture.
CR Snow is now expanding its market share in China, rising from 15% in 2007 to 22% in 2012. CR Snow currently operates over 90 breweries nationwide, has more than 30 local brands, and continues to acquire other companies, such as Jiangsu San Tai, Henan Lan Pai, and Kingway Brewery. Most importantly, through its partnership with a Chinese brewer, it can achieve retail sales of 2.5 million in China. This is a significant factor driving its continued progress.
These are the three main approaches foreign brewers have used in the Chinese market so far. Either dominate the premium segment or become a giant, while those that didn't survive, failed, or exited are the cases we saw at the beginning with Carlsberg and Sunny Wong.
## **Sunny and Carlsberg's Exit from the Chinese Market**
Sunny Wong joined Carlsberg China in 1987 as a sales manager. Six years earlier, Carlsberg had opened its first brewery in China (Hong Kong). In 1995, Carlsberg acquired a brewery in Huizhou, Guangdong, its first major move on the mainland. They transferred all production lines from Hong Kong to this location. During this period, they also acquired a stake in a Shanghai brewery.
But like almost all other foreign brewers, Carlsberg struggled in China. Despite China's large population, beer prices were low. Foreign companies found it difficult to grow, whether organically or through acquisitions. The three major brewers that emerged during this period—Yanjing, Tsingtao, and China Resources—were all state-owned, as were the subsequent Zhujiang and Kingstar breweries.
Over time, certain brewers increasingly dominated regional markets. In East China, Tsingtao performed best; in the Northeast, China Resources and Harbin were strong; in the North, Yanjing performed well. There was also a clear oversupply in the market, with excess capacity as high as 40%. The resulting price wars and shrinking profits were not surprising.
Let's return to 1999, mentioned at the beginning of the article, when Carlsberg seemed to have decided to exit the Chinese market. We don't know exactly what happened inside the company, but by 1999, Carlsberg's competitors appeared much stronger. In 2000, Carlsberg sold its 75% stake in the Shanghai brewery to Tsingtao, and the remaining shares were later sold. They also exited a 50/50 joint venture with Thailand's Chang Beverage Company. In 1999, after 12 years at Carlsberg, Sunny left the company and moved to the UK (where he pursued an MBA).
## **Mr. Wong and Carlsberg's Ambitious Western Development Strategy**
What exactly happened at Carlsberg between 1999 and 2002 is unclear to outsiders, but we know that in early 2002, Carlsberg began a series of bold and surprising moves in China. From this point on, the story gets interesting.
Instead of partnering with state-owned enterprises like SABMiller, or merging and acquiring like AB InBev, or focusing on the premium segment like Heineken, they chose to leave China's major markets and target the western region, going deep into China's interior. They exited Shanghai and Beijing and headed to Xinjiang and Yunnan. In 2002, Sunny returned to Carlsberg and took on a task he considered "mission impossible": developing Carlsberg's business in western China. He joked that it was the first time he had actually been to those places.
It was a bold strategy. At the time, the beer market in China's inland regions was not yet dominated by large state-owned brewers. It was still open territory, but you can also imagine western China in 2003: it was the poorest part of the country, a vast, undeveloped region. There was no infrastructure and certainly no money. **It wasn't the ends of the earth, but you could almost see the ends of the earth from there.**
Tibet market, photo by Matt Ming
Looking back at Sunny's 2006 presentation at Carlsberg, it was quite impressive. Per capita beer consumption in western China was very low. In 2005, per capita consumption in eastern China ranged from 30 to 80 liters per person, but in Tibet and Ningxia it was only 10-15 liters per person, and in Yunnan and Xinjiang it was less than 3 liters per person. Of course, one could argue this means significant growth potential, but it also means that in the foreseeable future, only small amounts of money could be made in these difficult regions.
Carlsberg's "Western Development" strategy depended on quickly acquiring local scale players. In early 2003, they began an impressive spree of deals. Sunny was among the first employees sent to Yunnan. In Yunnan, Carlsberg acquired 100% of Kunming Huashi Brewery and Dali Brewery Group. Then they acquired a majority stake in Lhasa Brewery in Tibet (initially 33%, later increased to 50%). Next, they acquired majority stakes in three breweries of Lanzhou Yellow River in Gansu Province (initially 30%, later increased to 50%). Then they invested in Qinghai Greenland Brewery, which started production in 2005, and acquired a 34.5% stake in Wusu Brewery in Xinjiang. In 2005, Carlsberg increased its stake in Wusu Brewery Group to 50%. In 2006, through a joint venture with Ningxia Agricultural Reclamation Enterprise Group, they created Greenland Brewery Group in Ningxia, with Carlsberg holding 70% of the joint venture.
By 2006, Carlsberg owned 20 breweries, covering half of China's territory. In all western provinces where they had invested in breweries, they were market leaders.
## **Carlsberg's Western Development Strategy Depended on Four Factors:**
**First, they entered the market through joint ventures with local breweries.**
These local breweries were mostly state-owned "legacy" enterprises with over 40 years of history. This state-owned partnership partially offset the disadvantage that private enterprises (foreign and local) faced when competing with state-owned brewers.
**Second, they established local distribution channels in China's vast, impoverished regions.**
Here, most beer is sold wholesale, meaning they only needed to lock in the best wholesalers and then deliver beer to numerous small shops. If you want the best wholesalers, you need the largest market share, and vice versa.
**Third, their product range covered the entire customer spectrum.**
Carlsberg's beer prices range from discount, mainstream, premium, to super-premium. Now, its brands include Carlsberg, Carlsberg Chill, Carlsberg Special Brew, Tuborg, and Kronenbourg 1664. These brands complement each other and create upgrade opportunities.
**Fourth, they used upgraded sales and marketing models to boost beer sales in western China, including rebranding in Xinjiang, Yunnan, and Ningxia.**
The entire board considered this a regional advantage strategy. They were building competitive advantages based on local marketing, distribution, and production economies of scale, aiming to quickly become the western industry giant.
Sunny was appointed CEO of Carlsberg China in 2006. In 2012, he became Chairman of Greater China. By 2013, he had grown Carlsberg China from one brewery in Huizhou to 39 breweries in seven provinces, employing over 11,000 Chinese staff.
In 2010, Carlsberg became the largest shareholder of Chongqing Brewery. Chongqing Brewery has 16 breweries in Chongqing, Sichuan, Hunan, Anhui, and Zhejiang. Carlsberg's goal is to continue expanding its brands in the mountain city, making them leading brands in these markets. For most companies, entering the Chongqing market could be seen as a major westward move, but for Carlsberg, it was actually a move eastward.
Carlsberg says it now has over 50 breweries in China and holds more than 60% market share in western China. Beer consumption in the west has been growing at 12% annually (compared to 4-5% nationally). Carlsberg is also currently building the world's second-largest brewery, a $782 million investment with an annual capacity of 10 million tons, to be located in Yunnan, China.
 _Source_ _: This article is partially excerpted from the book "Understanding the Chinese Consumer in One Hour."_
 _Author:_ _Jeffrey Towson_
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