This article is from WeChat public account CBNweekly2008, republished with permission.
Every evening at dinner time is the busiest period for "Red Flame General". This Korean BBQ restaurant is located in a residential area near Shuangjing in Beijing's Chaoyang District, populated mostly by young people. On the wall at the entrance, there is a blackboard illustrating how to distinguish different cuts of beef. The restaurant's average spend per person is around 150 yuan, targeting young consumers willing to spend. Both the owner and the customers exude the same vibe—trendy.
This vibe is also reflected in the kraft-paper menu, which lists over 20 imported brands such as "Chimay", "Dogfish Head", "BrewDog", and "Pale Ale", but notably excludes Budweiser, Tsingtao, Harbin, and Yanjing—the old stalwarts commonly found in restaurants.
At the "Red Flame General" BBQ restaurant, imported beer brands are displayed on the storefront.
Conventionally, summer is the peak season for beer sales, but for traditional domestic beers, this year has been a tough summer.
The decline began in 2015. According to data from Roland Berger, traditional beer still had a growth rate of 3% from 2010 to 2014, but in 2015, that figure turned negative at -3%. That year, domestic beer saw a turning point with declining sales. Almost all major Chinese beer giants experienced this decline, and domestic beer production hit a five-year low in 2015, with a total reduction of 2,514,100 kiloliters—equivalent to 1,330 standard swimming pools—a year-on-year decrease of 5.06%.
However, if you insert a thermometer into the imported beer market, you'll find that this segment is hotter than any city's summer temperatures in China. In Roland Berger's data, domestic sales of imported beer rose from 504,000 kiloliters in 2011 to 3,168,000 kiloliters in 2014, an annual growth rate of 62%.
In a beer brand survey conducted by CBNweekly, we also confirmed this trend. Niche brands such as Hoegaarden, Valentin, Franziskaner, Oettinger, and Panda Brew made it into the Top 10 favorite and most-wanted-to-try beer brands among consumers with monthly incomes above 10,000 yuan and post-90s consumers. Meanwhile, Snow, Yanjing, and Harbin occupied the top three spots on the "least willing to continue trying" list.
Those who brought imported beer to China and sparked the consumption upgrade are themselves the ones who upgraded their consumption first, such as Zhao Jun, the owner of the BBQ restaurant.
"I want to make my restaurant higher quality. In a consumption environment like Beijing, young people are willing to spend money to enjoy higher-quality food," Zhao Jun said.
The 36-year-old restaurant owner, dressed in gray-blue shorts and a light-colored stand-collar knit top, with his hair neatly styled with gel, was once a male model. He studied in Japan for three months and has traveled to many European and American countries. He is one of the Chinese consumers that many analysts describe as experiencing a consumption upgrade, and he wants to sell the beers he likes in his own store. "Customers initially don't know much about these beers, but they might try them if their spending power allows," he said.
That's Zhao Jun, the owner of the BBQ restaurant.
Consumption upgrades have changed the rules of the game. In the beer market monopolized by giants, a group of self-made beer entrepreneurs have still managed to build businesses.
Hu Hongwei's first imported beer was Chimay, a Belgian Trappist beer. In her hometown of Qingdao, beer is a source of pride and culture; people still buy fresh beer on the street in plastic bags and drink it with straws like soda. But Chimay was different—it was served in a more delicate glass than a typical beer mug, tasted bitter, and had a thicker body. Because of its high alcohol content, Hu Hongwei, accustomed to downing Tsingtao in one gulp, got drunk after finishing her first Chimay and fell off a bar stool. Hu Hongwei is now the deputy general manager of Yijingxing Trading Co., Ltd., one of the major importers of imported beer in China, specializing in Belgian beers.
But differences in taste, mouthfeel, and alcohol content are not the only weapons imported beers use to challenge domestic beers. In the Chinese market, uniquely shaped glasses have introduced first-time consumers to the novelty of imported beers. "Regular drinkers won't notice, but in some second- and third-tier cities, this is very novel," Hu Hongwei said. She believes that in a new market where brand and category education is insufficient, entry-level consumers, even if they can't remember the characteristics or names of an imported beer, will be attracted by its distinctive appearance.
One example is Corona, a Mexican beer, which has a unique drinking method in some mid-to-high-end restaurants: it is served upside down in a large goblet filled with shaved ice, accompanied by juice and mint. This cocktail-like method has been shared by consumers on social media, and it was actually Corona's own innovative idea.
The beer market seems to be in a Warring States period: imported beers are still growing rapidly, and craft beer players are also entering the fray.
"Brewing beer isn't hard at all. Grind the malt, boil it, add hops, add more hops, put in yeast, let it cool for 20 days... It's like cooking," said Shen Kai, founder of the beer review website "Jiu Hua Er". He noted that the market has long been dominated by a few giants because the competition goal at that stage was simply low prices.
Pan Dinghao and Xia Yulin had tasted craft beers in Canada and the UK respectively while studying abroad. In early 2013, they left their jobs and co-founded a craft beer bar named Panda Brew.
Xia Yulin handles operations, while Pan Dinghao is responsible for brewing technology, producing various innovative flavors on-site: honey beer with multifloral honey, bitter tea beer with Hainan small-leaf bitter tea, and a ginger-flavored beer in winter... Every two to three months, Pan Dinghao introduces a new flavor. These products are creative, seasonally inspired, and some even cater to Chinese dining pairings. Priced at over 20 yuan—three times the price of typical domestic beers—they still bring good foot traffic to the bar.
Chinese brand Panda Brew broke through traditional channels and opened its own independent stores.
Before the end of 2013, Pan Dinghao decided to expand the business. They found a brewery in Yiyang, Hunan, and rented its equipment to produce bottled Panda Brew beer.
Without reserving large channel entry fees for bottled beer sales, Panda Brew targeted cultural and artistic events for promotion. Theater, musicals, beer festivals, and music festivals—"People at these places are opinion leaders; they won't drink bland, monotonous beer every day," Pan Dinghao said. They once sponsored a play about post-80s entrepreneurship and felt embarrassed when they heard the line "I found a job; I'm going to learn brewing," but he knew that "having our brand appear in such venues is the right thing."
By the time the bar reached its sixth location, Pan Dinghao was no longer satisfied with using contract manufacturers for bottled beer. Now, Panda Brew has raised enough funds to build its own brewery. Once the factory in Yiyang, Hunan, officially opens, Pan Dinghao will become a true beer manufacturer.
International beer giants like Budweiser, SAB, and Carlsberg, along with their brands, entered the Chinese market long ago. This means that most imported beers currently available are from small breweries without global presence. If importers want to sell these beers in China without acquiring the companies, and want to ensure supply stability, the best approach is to negotiate agency agreements with these small breweries.
In addition to brewing his own beer, Pan Dinghao also wants to get into the imported beer business. This is beneficial for enriching the product line and expanding market share when the company's own production capacity is limited. It's not easy to snatch the China agency rights for a brand from well-capitalized importers, but having a brewery identity makes it easier to enter the imported beer business. "We tell them, 'We are also a brewery, so we know better how to treat beer,'" Pan Dinghao said.
While Pan Dinghao was starting his craft beer bar in Beijing, Shen Kai, who had left Google, was building a team of over 10 people in Shanghai to develop a beer review app called "Jiu Hua Er". Users can log in to the app to upload or review a beer, and accumulate points that can be redeemed for a bottle of beer.
"There are 200,000 types of beer worldwide, and 3,000 are already circulating in the Chinese market," Shen Kai said. Growing up in Shanghai with a family business in rice wine, he developed a taste for different alcoholic beverages. He believes that when the variety of alcohol explodes, the market needs a portal for information in this niche segment.
Seven months after launch, the app has collected over 3,600 beers through user uploads. This portal currently serves as a testing ground for importers bringing new brands into China: Jiu Hua Er samples 100 users from its user base based on demographics, geography, and occupation, and importers send free beer to these users to get feedback on taste, aroma, packaging, and other aspects. In seven months, Shen Kai's team has conducted such tests for 20 brands, and the waiting list for imported brands is reportedly booked until the end of the year.
According to Shen Kai's estimates, if 5% to 10% of China's total beer retail market of over 300 billion yuan is craft beer, that represents a market space of tens of billions. Unsurprisingly, after launching "Jiu Hua Er", the company also entered the brewing field. Unlike Pan Dinghao, who built his factory far away, Shen Kai chose a location closer to the market—Suzhou, Anhui, just 2.5 hours' drive from Shanghai. For the first batch, he created five recipes: osmanthus wheat, amber ale, red ale, IPA, and English stout, with colors ranging from pale yellow to black, amber, red, and yellow.
Emerging channels like "Jiu Hua Er" are bringing the latest beer brands into consumers' view, and so is "Beer Auntie".
"Beer Auntie" is considered the imported beer store with the widest variety and largest quantity in Shanghai. Located in the southwest corner of Shanghai, an area with a high concentration of foreigners, the store's first floor is only 30 square meters but sells over 1,100 types of imported beer. If you're not a regular, you might be overwhelmed by the dazzling array of beers.
The shelves at "Beer Auntie" display various new beer brands.
She started selling beer out of personal interest, but "all beers must be tasted by me before deciding whether to put them on the shelf; only if it's special enough will I stock it," Zhang Yindi told CBNweekly. She requires herself to quickly answer and recommend when customers ask about flavors.
When agents or distributors approach her, she asks for their beer catalogs to understand the taste and also to determine the profit situation and ranking of a particular beer in its home market. She also stocks a series of beers and then decides what to keep or remove based on sales over the following one to two months. Beijing's Tiantang Supermarket follows a similar model, and these small stores have become pioneers for new products.
Beer Auntie Zhang Yindi herself loves trying various beers.
E-commerce platforms with massive traffic are also sales boosters for these new brands.
According to CBNData, Hoegaarden, Valentin, Paulaner, Kronenbourg 1664, and Corona have surpassed old brands like Asahi, Suntory, Zhujiang, and Yanjing to become bestsellers online.
These beers don't just see sales soar in summer. In the experience of Yang Zheng, head of beer business at Tmall, July and August are traditionally the peak season for beer sales, but he has seen sales of some Belgian and German imported beers start growing from March and April this year, with overall imported brand sales increasing 100% year-on-year. "These high-end beer products that don't influence consumption based on season are gradually being accepted and experienced by a broader consumer base," Yang Zheng said.
However, 90% of beer sales still come from traditional offline dining channels. The Chinese beer market is dominated by three giants—China Resources, Tsingtao, and Budweiser—which is the result of the previous round of industry competition where beer companies "conquered territories" by buying out restaurants, regional sales, and local breweries.
Although AB InBev is the world's largest beer giant, it is notoriously stingy—employees need approval from the Asia-Pacific VP for color printing, and monthly black-and-white printing is limited to 40 pages. However, sales staff don't complain much about these rules because AB InBev saves on office costs to invest more in areas that drive sales, such as rewarding employees who meet sales targets with overseas trips and, more importantly, "buying stores" on a large scale in China.
As a professional term in the FMCG industry, "buying stores" refers to a company or brand providing cash rebates to dining establishments in exchange for the latter selling more of its products, or even stopping selling competitors' products.
AB InBev, which is keen on acquisitions, has introduced over a dozen imported beer brands to China. Except for Hoegaarden and Corona, which entered China over a decade ago, other imported brands account for less than "one decimal place" of sales in China. Therefore, besides these two brands, other less-established imported beers rely more on sales staff to promote them, making them the first imported beers most consumers encounter.
Every summer, restaurants in Chengdu are besieged by sales representatives from beer companies. Li Dan was one of them, handling all Budweiser brands. Compared with domestic beer companies like Tsingtao and China Resources, his only advantage was Budweiser's pyramid-shaped brand portfolio, which includes mass-market Budweiser and mid-to-high-end imported beers like Corona and Hoegaarden, priced at over 20 yuan.
A hotpot restaurant with high turnover can sell 50,000 to 60,000 yuan of alcohol in one evening, and every brand wants to get in. "The most effective method is 'buying the store'," Li Dan said, meaning requiring a store to sell only Budweiser brands for a period and not allow competitors. Such exclusivity agreements involve different buyout prices, potentially up to 5 million yuan per year.
Zhang Lifeng, who has run bars in Beijing and Shanghai for nearly a decade, often receives "small gifts" from beer companies when they sell beer, including branded ashtrays, beer mugs, umbrellas, light boxes, and even outdoor furniture. Zhang Lifeng said he basically doesn't need to buy these hardware items for his bar; imported beer suppliers use these gifts to increase brand exposure and maintain good relations with terminal operators like him.
Suppliers also have more blatant ways to build relationships. Zhang Lifeng told CBNweekly that a store in the same business district as his bar was given 100,000 yuan in one lump sum by AB InBev sales staff in exchange for selling only AB InBev beers. "Sometimes they also sign sales agreements, and if you reach a certain sales volume, you get rebates. For suppliers, this is about grabbing territory," Zhang Lifeng said, adding that his own bar has not been bought out by any brand.
In Li Dan's view, it's not uncommon for dining establishments in China to have buyout relationships with beer companies; it's an open secret. "It's very common (in the dining channel); 60% of places have been bought out by different brands," he said. Within AB InBev, if the official sales rebate is 10% to 20%, due to intense competition, the actual maximum rebate rate can reach 40%.
These imported or craft beers also bring them more profit margins. "A bottle of Yanjing costs only a little over 1 yuan to buy, sells for 8 yuan, making a profit of 7 yuan. But a glass of Chimay draft costs 25 yuan, and I sell it for 48 yuan, making 23 yuan," said Zhao Jun, the BBQ restaurant owner.
AB InBev, which ranks third in the traditional beer market share, clearly has more say in the imported beer segment. A distributor who declined to be named told CBNweekly that AB InBev now has both mass-market Harbin and Budweiser, as well as imported brands like Stella Artois, Hoegaarden, Corona, and Leffe, giving it a more complete product matrix and larger supply, which strengthens its bargaining power in negotiations with terminals and distributors.
The distributor also told CBNweekly that Budweiser is negotiating with other intermediaries to become "exclusive distributors", making them exclusively represent dozens of AB InBev brands. "This is not good for consumers; the market needs diversity, but Budweiser has strong arms, so we cooperate with them the most; if you want to eat, you have to listen to them," he said with concern.
China Resources and Tsingtao are also playing the "buying stores" game. They send out sales representatives, allowing them to negotiate with restaurants using flexible prices and private agreements. Without the restaurant owner's knowledge, the employee responsible for beverage procurement might be bribed.
Asahi has not joined this capital-driven competition. The Japanese beer company acknowledges that a niche market has emerged in the beer sector, but with a company size only one-tenth of Budweiser's, it's difficult to leverage capital to pry open a small market like Budweiser does.
Budweiser has gained an advantage in the imported brand layout, while Chinese beer brands are more focused on changing their image to win over young consumers.
"Now post-85s and post-90s young people no longer want to drink a dozen bottles of beer in one gathering; they feel bloated and unhealthy," Qin Yuanyuan, market analyst at Euromonitor, explained to CBNweekly. "Not drinking excessively will inevitably affect sales, which is why beer companies have to try to change their brand image to respond to consumer changes."
Tsingtao Beer bought the "Warcraft" IP from Tmall and printed the image of this online game popular among young people on its beer packaging, hoping to cater to young people's preferences.
"The drinking population is gradually segmenting," is also a conclusion Yang Zheng has drawn from long-term observation of backend sales data. Fresh draft beer delivery services will also become one of the mainstream businesses in e-commerce channels in the future.
Laibao, a fresh draft beer brand that has risen in recent years, has confirmed this trend. It produces different categories of fresh draft beer for different groups such as urban white-collar workers and ordinary consumers, and delivers freshly filled draft beer to consumers promptly after they place orders online.
Budweiser won't let this group go either. AB InBev, which is good at marketing itself, hosts various electronic music festivals around the world, inviting consumers to attend and drink beer while interacting. This has become a regular activity. This year, Budweiser brought this global marketing campaign to Shanghai's Xintiandi, launching the first stop of the Summer Electronic Music Beer Garden. It will then tour 10 cities across China, with each city stop lasting 7 days of celebration.
Budweiser hosted a summer electronic music beer event to get closer to young people.
"The core of all our work is to connect with young consumers. No matter the scale, you can't directly link marketing activities to return on investment. Your job is to understand them and communicate with them," Michel Doukeris, President of AB InBev Asia Pacific, told CBNweekly.
A new competitive order has not yet been established, and it is mixed with chaos. There are still few dedicated imported beer festivals, but craft beer festivals are everywhere.
Almost every city is hosting its own craft beer festival. A few craft beer bars can initiate such a festival. The circle is small: Beijing's Panda Brew knows how many craft beer bars have opened in Chengdu, and Shanghai's Jiu Hua Er knows whether Nanjing's Master Gao craft beer is using contract manufacturing... They compete over who first translated "craft beer" into Chinese as "精酿", and they also reject industrial beer companies that want to participate in craft beer festivals. Tsingtao Beer and Yanjing Beer have received rejection emails from the Shanghai Craft Beer Festival initiated by Shen Kai.
Riding the wave of craft and imported beers, Budweiser has increased its efforts to promote imported beers in China. Imported brands like Corona and Goose Island have begun to have independent brand promotion teams; previously, these brands only had sales teams in China. Tsingtao Beer has also established its own craft beer brewery. These major industrial beer companies do not over-explain the concepts of craft beer and imported beer in their promotions.
Craft beer companies are very concerned about this. In the eyes of some who want to guard against competition from big companies, craft beer must adhere to the American definition: annual production of no more than 6 million barrels, the brewery cannot be controlled by an industrial brewery, and no adjuncts can be used in brewing. Only those meeting these three American craft beer standards can be called craft beer. Because it was acquired by Budweiser, Corona, even if brewed without adjuncts, is excluded from the craft beer category.
"Many beers on the Chinese market also print the word 'craft' on them. But even with a loose definition, they can't be considered craft beer," said Xiao Bian'er, founder of Beijing's NBeer Pub, a craft beer bar.
Some distributors who lack the ability to acquire or act as agents, but want to do craft or imported beer business, may directly purchase beer from overseas retail markets and ship it back to China for sale. This gives some agents and retailers headaches: gray market prices may be lower than what agents get.
In the rapid rise of this niche market, some brands have been "ruined". "Some importers see that German beer sells well, so they go to Germany for OEM production, but those breweries actually produce industrial beer," Hu Hongwei said. After a period of surging sales in China, German beer has now been blacklisted by some heavy beer consumers.
It took the U.S. market over 10 years to grow from a 3% market share to 20%. Given the current pace of the Chinese market, it may only take half that time. Every player in the new market is small, but they have already shaken the battlefield of traditional beer companies. In 10 years, the golden signboard of the beer market may emerge from these brands.
Pan Dinghao has obtained the China agency rights for Empire Brewing Company in New York State, and Shen Kai is also eyeing the imported beer business. "Maybe while the importer is shipping the beer, we can help sell it on our end," he said. In the future, this model will definitely take business away from the pyramid-style distribution that layers wholesale and squeezes profits.
(At the request of the interviewees, Li Dan and Zhang Lifeng are pseudonyms.)
Text by Guo Suyan, Wu Yangyang, Huang Hanyu, Gao Song, Zheng Jingmin, Wang Jiayuan Data compilation by Liu Pingting, Lu Hong, Wu Ziyi Data cooperation: CBNData; Data analysis by Chen Shaosha Graphics by Xiang Kai; Charts by Xu Chunmeng, Che Lingling Coordinated by Lin Zhongmin Cover image source: Bēhance -END-
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