---
title: "Craft Beer Industry: Gold Mine or Trap?"
description: "Since 2021, China's craft beer market has boomed, entering the mass market. Capital markets have validated its popularity, with financing events in 2021-2022 exceeding the total of the previous six years. However, despite the favorable environment, not all craft beer companies can benefit, and small and medium-sized enterprises lacking funds and channel capabilities should enter cautiously."
author: "勾勾"
publisher: "New Distribution"
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published: "2023-06-30"
language: "en"
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---

# Craft Beer Industry: Gold Mine or Trap?

> Since 2021, China's craft beer market has boomed, entering the mass market. Capital markets have validated its popularity, with financing events in 2021-2022 exceeding the total of the previous six years. However, despite the favorable environment, not all craft beer companies can benefit, and small and medium-sized enterprises lacking funds and channel capabilities should enter cautiously.

**Introduction: Half gold mine, half trap.**
**Author** 丨 Gougou
**Review** 丨 Gougou **Layout** 丨 He Wen

Since 2021, China's craft beer market has been booming and gradually entering the mass market. The capital market has validated the popularity of craft beer, with financing events from 2021 to 2022 exceeding the total of the previous six years. The five major beer giants have all launched their own craft beer products. Ubrew, which focuses on fresh draft and flash delivery, has opened 2,000 stores in 800 cities and counties nationwide, exploring another possibility in business models. As the main consumers of craft beer, the middle class has made having a drink after work a daily routine. Clearly, the craft beer industry is accelerating. However, while the overall environment is improving, not all craft beer companies can enjoy the dividends, due to factors such as industry immaturity and the companies' own capabilities. Small and medium-sized enterprises lacking funds and channel capabilities need to enter cautiously.

**Rapid Development, Yet Profitability Challenges**
In 2013, after China's beer production peaked, it began to decline. Traditional beer giants started adjusting their product structures, all aiming to transform into high-end products. The transformation of traditional beer coincided with the accelerated development of craft beer. In 2013, craft beer began to attract capital market attention, and the industry entered a period of rapid growth. CICC data shows that the number of registered craft beer-related enterprises increased from less than 100 in 2013 to over 1,000 in 2019.

Image source: CICC

But it is still too early to say that craft beer has entered an explosive phase. The concept of craft beer originated in European and American markets. Compared with the mature US market, **China's craft beer market still has significant room for development.** CICC data shows that in 2020, China's craft beer penetration rate was only 1.9%. In 2021, known as the first year of craft beer, the penetration rate was still less than 3%, at 2.8%, with a market size (sales caliber, same below) of 51.7 billion yuan. In comparison, the US craft beer penetration rate in 2021 was 13.1%. As for when it will exceed 10%, major institutions generally predict that by 2025, China's craft beer penetration rate will increase to 6.3%, corresponding to a market size of over 130 billion yuan.

**Due to immature development, craft beer companies still face profitability challenges.** Data from CICC Securities shows that in 2021, the number of craft beer-related enterprises with cancellations/revocations reached 506, far exceeding the 11, 40, 116, 278, and 414 in 2016 to 2020. Although the craft beer industry is booming, not all entrants can steadily advance in the industry's wave, especially many small and medium-sized craft beer enterprises that may struggle to sustain themselves when facing market competition and operational pressure. The rapid opening and closing of enterprises has become a major feature of the current stage of craft beer development.

**Two Factors Restricting Development:**
In addition to small pubs, beer stations similar in size to milk tea shops have appeared on the streets. An industry insider introduced that such stations can provide various types of alcohol. Customers dining at restaurants only need to make a phone call, and the alcohol can be delivered within 15 minutes, diverting traffic from other channels. Behind this is some liquor companies using "online + offline" methods to connect with C-end consumers. Ubrew, for example, has expanded thousands of stores by opening franchises and building beer stations, establishing a foothold nationwide. In terms of direct sales, there is also a "front store, back factory" sales model in the industry. In the United States, a bar is opened next to a brewery, with taps directly connected to the brewery, allowing customers to taste the freshest beer immediately. Domestic craft beer brands either cooperate with bars, restaurants, or fresh supermarkets, adopting a front store, back factory model where they purchase equipment for on-site brewing. Additionally, some enterprises combine the above methods. For example, Lancun Brewery adopts a "beer station + front warehouse + small pub" model, establishing craft beer warehouses in communities to provide consumers with fresh craft beer. At the same time, it also provides fresh craft beer to surrounding catering consumers.

It should be noted that whether it is the beer station model or the "front store, back factory" model, they are inseparable from supply chain construction. Good supply chain management will ensure the quality and stable supply of craft beer to meet growing market demand. Therefore, **in channel layout, enterprises need to closely integrate with supply chain construction to achieve better development.**

**Final Thoughts**
The craft beer industry is half gold mine, half trap. For leading beer companies transforming to high-end, they have sufficient funds and time to explore the craft beer track. But emerging small and medium-sized craft beer brands do not have much time. If they cannot build their own advantages as soon as possible, they are likely to be eliminated in the next round of industry reshuffle.

**Further Reading**


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