--- title: "Chongqing Brewery: Falling into Carlsberg's Premiumization Trap?" description: "After the relaxation of COVID-19 control policies, the market expected a strong recovery in beer sales and premiumization, with Chongqing Brewery being a top pick due to its past success. However, its 2022 annual report and 2023 Q1 results showed a slowdown in premium product growth, leading to a 28.96% stock price decline, the worst among A-share beer companies. This article argues that Chongqing Brewery's premiumization strategy is faltering due to high dividend payouts and frequent management changes under Carlsberg, which may hinder long-term development." author: "读懂君" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2023-06-16" categories: "Capital, Earnings & M&A, Consumer & Categories" language: "en" canonical: "https://xinjignxiao.com/en/articles/chongqing-brewery-falling-into-carlsberg-s-premiumization-trap-15916e88/" markdown: "https://xinjignxiao.com/en/articles/chongqing-brewery-falling-into-carlsberg-s-premiumization-trap-15916e88.md" original_source: "https://mp.weixin.qq.com/s/NxnUQ3Ctka2MYjU-lZ2lTw" translation: "https://xinjignxiao.com/zh/articles/%E9%87%8D%E5%BA%86%E5%95%A4%E9%85%92-%E6%8E%89%E5%85%A5%E5%98%89%E5%A3%AB%E4%BC%AF%E7%9A%84%E9%AB%98%E7%AB%AF%E5%8C%96%E9%99%B7%E9%98%B1-15916e88.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/chongqing-brewery-falling-into-carlsberg-s-premiumization-trap-15916e88/" citation: "读懂君. “Chongqing Brewery: Falling into Carlsberg's Premiumization Trap?.” New Distribution, 2023-06-16. https://xinjignxiao.com/en/articles/chongqing-brewery-falling-into-carlsberg-s-premiumization-trap-15916e88/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # Chongqing Brewery: Falling into Carlsberg's Premiumization Trap? > After the relaxation of COVID-19 control policies, the market expected a strong recovery in beer sales and premiumization, with Chongqing Brewery being a top pick due to its past success. However, its 2022 annual report and 2023 Q1 results showed a slowdown in premium product growth, leading to a 28.96% stock price decline, the worst among A-share beer companies. This article argues that Chongqing Brewery's premiumization strategy is faltering due to high dividend payouts and frequent management changes under Carlsberg, which may hinder long-term development. After the official relaxation of COVID-19 control policies, the industries most anticipated by the capital market were undoubtedly those directly benefiting from the policy relaxation, such as airport, shipping, tourism, and hotel sectors, followed by catering, entertainment, and consumer sectors, as well as beer industry listed companies strongly related to them. In fact, research institutions at the time reviewed the experiences of the US and Japan and believed that beer sales growth would significantly improve after the relaxation of pandemic controls. Meanwhile, the structural upgrade of beer products would continue in 2023. Considering rising beer costs and the recovery of on-premise channels, beer tonnage prices would rise significantly, and beer companies' profit margins were expected to improve markedly. Under such circumstances, Chongqing Brewery, which had achieved remarkable results in premiumization in recent years, became the most favored target in the market. Benefiting from the injection of Carlsberg's China assets, Chongqing Brewery led other beer companies in premiumization, with gross and net profit margins also leading among beer companies. However, disappointing the market, with the release of its 2022 annual report and 2023 Q1 report, its premiumization process slowed down or even slightly declined. While other beer companies accelerated their premiumization pace, what exactly happened to Chongqing Brewery? This article holds the following views on Chongqing Brewery: 1. Chongqing Brewery has had the worst stock price performance among beer stocks this year, with a decline of nearly 30%. In stark contrast, beer companies such as Yanjing, Huiquan, and Zhujiang have seen gains of over 10% this year. The core reason is that **Chongqing Brewery failed to seize the industry development opportunities this year, with its performance growth rate at the industry's mid-level, far from market expectations.** 2. In the past few years, Chongqing Brewery achieved remarkable results in premiumization, with high-end products represented by Wusu, 1664, and Carlsberg performing impressively. However, **as Chongqing Brewery pushed prices to the highest level, but its brand influence and channel system layout did not achieve significant results, it inevitably faced a slowdown or even decline in growth.** The 2022 annual report and 2023 Q1 report also confirmed this issue. 3. To some extent, **Chongqing Brewery's premiumization is superficial.** Carlsberg injected its assets and used its brand and products to open the market, but it lacked sufficient patience for the Chinese market. Over the past decade, Chongqing Brewery has changed its chairman six times, and profits have been almost fully distributed each year, making Chongqing Brewery seem like a "cash machine." At a critical period in the development of China's beer industry, Carlsberg's short-sightedness is not good for Chongqing Brewery. **The Worst-Performing Beer Stock This Year** If you were to pick the worst-performing beer stock this year, it would undoubtedly be Chongqing Brewery. Among the seven beer listed companies on the A-share market, as of the close on June 9, Yanjing Beer, Huiquan Beer, and Zhujiang Beer saw gains of over 10% this year, while Tibet Development rose 1.72%. The other three, Tsingtao Brewery, Lanzhou Huanghe, and Chongqing Brewery, declined, with year-to-date drops of 8.07%, 17.79%, and 28.96%, respectively. It can be seen that Chongqing Brewery ranks at the bottom of the A-share beer industry. Among the two beer peers listed in Hong Kong, China Resources Beer fell 2.24% this year, while Budweiser APAC dropped 13.03%. Overall, **Chongqing Brewery is indeed the worst performer in the beer industry this year.** From the stock price performance, we can clearly see that **the beer industry has shown obvious differentiation, with Yanjing Beer at one end and Chongqing Brewery at the other representing this trend.** Yanjing Beer is the best-performing beer stock this year, with a significant recovery in performance. In 2022, Yanjing Beer achieved operating revenue of 13.202 billion yuan, a year-on-year increase of 10.38%. Net profit attributable to the parent company was 352 million yuan, up 54.51%. Revenue and net profit both reached their best levels since 2015 and 2016, respectively. In the first quarter of this year, Yanjing Beer's stellar performance continued. In Q1, Yanjing Beer achieved operating revenue of 3.526 billion yuan, up 13.74% year-on-year. Net profit attributable to shareholders of the listed company was 64.5638 million yuan, a year-on-year increase of 7373.28%. In terms of revenue growth and net profit growth, Yanjing Beer ranks first in the entire beer industry, and is therefore highly favored by the capital market. As for Chongqing Brewery, it made rapid progress in premiumization a few years ago due to the injection of Carlsberg's assets, but since 2022, its performance growth has slowed. **Even in the first quarter of this year, when the beer industry generally recovered, Chongqing Brewery failed to restore high growth.** In 2022, Chongqing Brewery's revenue growth and net profit growth were 7.01% and 8.35%, respectively, both at the industry's mid-level. In Q1 this year, Yanjing, Huiquan, and Tsingtao all experienced strong recoveries, with revenue growth exceeding 17%, while Chongqing Brewery's revenue growth was only 8.35%, still at the industry's mid-level, which is barely satisfactory. The strong performance in previous years raised the capital market's expectations for Chongqing Brewery, but as its growth fell short of expectations, its premiumization story became difficult to sustain. **The Premiumization Story Is Hard to Sustain** The slowdown in Chongqing Brewery's performance growth directly reflects the practical problem that its premiumization strategy is difficult to sustain. In the past few years, premiumization has been an important direction for strategic upgrading in the beer industry and has now become a consensus among beer companies. However, **different beer companies have different understandings of "premium."** For example, Yanjing Beer, which has recovered strongly since the second half of last year, also has "premiumization" as its core investment logic. However, Yanjing Beer's premiumization is currently led by its Yanjing U8 series, which sold 390,000 kiloliters in 2022. The retail price of Yanjing U8 on JD.com's self-operated platform is about 5 yuan per 500ml bottle, and even the upgraded Yanjing U8 PLUS sells for around 10 yuan per 500ml bottle. This is completely different from Chongqing Brewery's understanding of premiumization. According to Chongqing Brewery's annual report, it classifies beer products with a consumer price above 10 yuan as high-end, products priced 6-10 yuan as mainstream, and products priced below 6 yuan as economy. According to Chongqing Brewery's classification, **Yanjing Beer's "premiumization" can only be said to have upgraded from "non-mainstream" to "economy."** Before 2022, Chongqing Brewery achieved high growth through comprehensive premiumization. In 2021, its high-end products represented by Wusu, Carlsberg, and 1664 achieved a high growth rate of 43.47%, while mainstream products represented by Lebao, Chongqing, and Dali, and economy products represented by Shancheng and Tianmuhu, saw revenue growth of only around 10%, showing remarkable premiumization results. However, starting from 2022, Chongqing Brewery's premiumization "locomotive" gradually stalled. In 2022, the revenue growth rate of Chongqing Brewery's high-end products was only 5.67%, while the revenue growth rates of mainstream and economy products were 7.56% and 6.25%, respectively, faster than high-end products. In the first quarter of this year, this trend became even more evident. In Q1, Chongqing Brewery's high-end product revenue was 1.328 billion yuan, a year-on-year decline of 3.36%. In contrast, mainstream and economy products saw revenue growth of 8.06% and 11.37%, respectively, far outperforming high-end brands. It can be seen that when the capital market generally expected Chongqing Brewery to benefit from the reopening of entertainment venues after the pandemic and high-end products to resume high growth, Chongqing Brewery went in the opposite direction: **high-end product growth slowed or even declined, while mainstream and economy products, which are difficult to drive and may even lower profit margins, experienced relatively high growth.** From this perspective, the premiumization story that Chongqing Brewery carefully crafted in previous years is becoming difficult to sustain. **Chongqing Brewery Falls into Carlsberg's "Vicious Circle"** At present, the premiumization trend in China's beer industry remains unchanged, and **Chongqing Brewery's contrasting performance is essentially a corporate development issue.** In fact, the domestic high-end beer market is still accelerating. Taking the competitors of Chongqing Brewery's high-end series as an example, Budweiser APAC saw a 7.4% increase in sales volume in China in Q1, with the proportion of high-end and super-premium categories continuing to rise and achieving double-digit growth, with revenue increasing by 10.9%. Another competitor, Heineken, performed weakly in the global market, but in Q1 this year, the Heineken brand grew by nearly 50% in the Chinese market. From this perspective, Chongqing Brewery's performance is truly puzzling. However, **the reasons can be discerned from Chongqing Brewery's development over the years.** In 2013, Carlsberg took control of Chongqing Brewery, and it has been ten years since then. During these ten years, Chongqing Brewery has undergone tremendous changes. But at the same time, **during these ten years, Chongqing Brewery's management has changed frequently, with six chairmen in ten years.** The first chairman in the "Carlsberg era" was Wang Keqin, chairman of Carlsberg Hong Kong Greater China, but he served only one year. In 2014, Li Qiji, CFO of Carlsberg China, succeeded Wang Keqin as chairman of Chongqing Brewery; in 2017, Ke Juncai, CEO of Carlsberg China and director of Chongqing Brewery, took over as chairman but resigned at the end of 2018. From the end of 2018 to the present, Carlsberg has successively had three chairmen: Roland Arthur Lawrence, Leo Evers, and João Abecasis. Six chairmen in ten years is quite frequent. **For China's beer industry, which is at a critical stage of development, frequent changes in senior management are not a good thing.** At the same time, **Chongqing Brewery seems to have become a "cash machine" for Carlsberg.** In the ten years since taking control, except for 2020 when no dividend was paid, large dividends have been distributed in all other years. In 2018 and 2019, Chongqing Brewery's dividend payout ratios were as high as 95.84% and 103.14%, respectively; in 2021 and 2022, its annual dividend payout ratios were also as high as 83.00% and 99.58%. **This dividend level is much higher than that of peer listed companies.** For example, Tsingtao Brewery's dividend payout ratio has remained between 40% and 50% in recent years, and Yanjing Beer's has also remained between 30% and 50%. If the industry structure were stable, high dividend payouts would be understandable. However, **China's beer industry is ushering in a new round of ranking and elimination competitions. If Chongqing Brewery pursues short-term high dividends, it will inevitably miss long-term development opportunities.** In a changing market, nothing is set in stone, even for global beer brands that have been tested in the international market. For Chongqing Brewery, having Carlsberg as a backer is an advantage, but perhaps also a disadvantage. How Chongqing Brewery will develop in the future is undoubtedly worth market attention. --- ## Citation metadata - Publisher: New Distribution - Author: 读懂君 - Published: 2023-06-16 - Canonical: https://xinjignxiao.com/en/articles/chongqing-brewery-falling-into-carlsberg-s-premiumization-trap-15916e88/ - Original source: https://mp.weixin.qq.com/s/NxnUQ3Ctka2MYjU-lZ2lTw ## Copyright and AI use This article is sourced from New Distribution. 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