--- title: "Does Tsingtao Brewery, After Eight Years of Slump, Still Have a Future?" description: "Tsingtao Brewery, a globally recognized brand with a value exceeding 100 billion RMB, has failed to deliver returns to shareholders over the past eight years, with its stock price declining from 2010 to 2017. This article analyzes the reasons behind Tsingtao's downturn, including industry competition, overcapacity, price wars, and strategic issues, and explores its future prospects." author: "Zliya" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2017-10-15" language: "en" canonical: "https://xinjignxiao.com/en/articles/does-tsingtao-brewery-after-eight-years-of-slump-still-have-a-future-83e404da/" markdown: "https://xinjignxiao.com/en/articles/does-tsingtao-brewery-after-eight-years-of-slump-still-have-a-future-83e404da.md" original_source: "https://mp.weixin.qq.com/s/fHedKhBWdjQpqoCP7F-DVA" translation: "https://xinjignxiao.com/zh/articles/%E4%BD%8E%E8%BF%B7%E5%85%AB%E5%B9%B4%E7%9A%84%E9%9D%92%E5%B2%9B%E5%95%A4%E9%85%92%E8%BF%98%E6%9C%89%E6%9C%AA%E6%9D%A5%E5%90%97-83e404da.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/does-tsingtao-brewery-after-eight-years-of-slump-still-have-a-future-83e404da/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # Does Tsingtao Brewery, After Eight Years of Slump, Still Have a Future? > Tsingtao Brewery, a globally recognized brand with a value exceeding 100 billion RMB, has failed to deliver returns to shareholders over the past eight years, with its stock price declining from 2010 to 2017. This article analyzes the reasons behind Tsingtao's downturn, including industry competition, overcapacity, price wars, and strategic issues, and explores its future prospects. Tsingtao Brewery is a household name. As a world-renowned brand, its brand value has consistently exceeded 100 billion RMB. In the eyes of foreigners, the most famous Chinese alcoholic beverage is not Moutai but Tsingtao Beer (in overseas surveys of food, beverages, alcoholic drinks, and dining products, Tsingtao Beer ranks first). Yet, despite its fame, the company has not delivered returns to shareholders over the past eight years. Looking at the K-line chart, the company's stock price did not rise but fell from 2010 to 2017 (causing distress for long-term shareholders). The reason is that Tsingtao Brewery's revenue grew from 19.61 billion RMB (RMB, same below) in 2010 with a profit of 1.52 billion, to 26.106 billion in 2016 with a profit of only 1.043 billion—volume increased but prices fell. The company's net profit margin also declined from a peak of 7.64% in 2010 to 4% in 2016, transforming it from a once-beloved white horse stock to an ignored ugly duckling. **What happened to Tsingtao Brewery? Does the struggling Tsingtao Brewery still have a future? This article attempts to analyze the reasons for Tsingtao's downturn and explore where the century-old brewery is headed.** Beer is one of the oldest alcoholic beverages in human history and the third most consumed drink worldwide after water and tea. China is the world's largest beer consumer, accounting for nearly 25% of global beer production and sales (in 2016, global beer output was 186.2 million kiloliters, with China producing 45.06 million kiloliters). However, the total market value of listed beer companies in China is less than 150 billion RMB (China Resources 59 billion + Tsingtao 38.5 billion + Yanjing 18 billion + Zhujiang 13 billion + Chongqing 10.6 billion + Huiquan 2.6 billion + Lanzhou Yellow River 2.4 billion + Tibet Development 3.8 billion). **In contrast, the world's number one brewer, Anheuser-Busch InBev, has a market value of $200 billion, meaning all listed Chinese beer companies combined are worth less than one-eighth of AB InBev.** We all know that a company's market value is proportional to its profits, and low market value is certainly due to low profits. Profits are related to sales volume and price. Over the years, beer sales volume has remained relatively unchanged. Therefore, the decline in company profits must be due to falling selling prices or rising costs, indicating poor competitive dynamics in the beer industry. Global Beer Industry Competitive Landscape From the chart, four major brewers hold 47% of the global market share (2014). AB InBev holds 20%, SABMiller 12%, Heineken 9%, Carlsberg 6%, followed by CRE (China Resources Enterprise, with the Snow brand) at 6%, Tsingtao Brewery at 5%, Molson Coors at 3%, Yanjing Brewery at 3%, Japan's Kirin at 2%, and Japan's Asahi at 1%. Notably, three Chinese beer companies are on the list. In October 2015, AB InBev announced the acquisition of SABMiller, the industry's second-largest, for $104.5 billion. After the merger, the new company would hold about 30% of the market, becoming a true industry giant. Of the nearly $33 billion in global beer manufacturing profits, the aforementioned four companies captured 74%, as shown below: Among them, AB InBev accounts for 39.9%, SABMiller 17.9%, Heineken 11.6%, Carlsberg 4.6%, Asahi 3.1%, Molson Coors 2.9%, and others 20%. Major Chinese Beer Manufacturers and Competitive Landscape **In 2016, the top five beer companies were China Resources Snow, Tsingtao Brewery, AB InBev, Yanjing Brewery, and Carlsberg, with market shares of 25.6%, 17.2%, 16.2%, 9.3%, and 5% respectively by sales volume.** Latest data shows that in 2017, Tsingtao's market share increased to 19%, and Snow's to 28% (together accounting for 47%). Among major manufacturers, national leaders (China Resources, Tsingtao, AB InBev) have nationwide layouts; first-tier players (Yanjing, Carlsberg) focus on advantageous regions and seek expansion; regional players (like Zhujiang) deepen their presence in provincial markets. China Resources (00291) has the widest market distribution, with production bases in 25 markets nationwide. Its Snow beer series has broad influence across the country, with strongholds in Liaoning, Sichuan, Tianjin, Shanxi, Anhui, Guizhou, Zhejiang, and Jiangsu. Tsingtao Brewery adopts a dual-brand strategy with Tsingtao and Laoshan to capture the national market; its strongholds are Shandong and Shaanxi (Hans Beer), with significant shares in Shanghai, Guangdong, Hebei, Jiangsu, and Fujian. AB InBev has rich brand resources, leveraging international brands to build a product matrix of global brands (e.g., Budweiser), international brands (e.g., Beck's), national brands (e.g., Harbin), and local brands; its strongholds are Heilongjiang, Jilin, Fujian, and Hubei. Yanjing Brewery uses a 1 (Yanjing) + 3 (Liquan, Huiquan, Xuelu) brand strategy to deepen its presence in North China, Guangxi, and Inner Mongolia, holding 85% market share in Beijing and Guangxi, and over 75% in Inner Mongolia. Carlsberg focuses on the western market, ranking first there, with strongholds in Chongqing and Tibet in the southwest, and Qinghai, Ningxia, Xinjiang, and Gansu in the northwest; it uses Carlsberg and Tuborg for mid-to-high-end segments, and regional brands like Chongqing Beer, Fenghuaxueyue, Xixia, Wusu, Dali, Yellow River, and Shancheng for regional markets. Regional brands like Zhujiang Beer focus on one or two provinces, achieving high shares in key regions. Besides these, there are over 400 small breweries in China. As beer consumption growth slows and the industry consolidates, these small and medium breweries will be eliminated or acquired. Problems Facing China's Beer Industry **1. Insufficient industry concentration (poor competitive landscape).** In 2016, the top five beer companies—China Resources Snow, Tsingtao, AB InBev, Yanjing, and Carlsberg—had market shares of 25.6%, 17.2%, 16.2%, 9.3%, and 5% by sales volume. Thus, the CR5 reached 73.3%, with concentration steadily rising. That looks decent, but the top four have similar market sizes, still in a "Warring States" era (fighting for share), with intense price wars. For example, in the U.S., the CR5 is 84.4%, with AB InBev alone holding 45.3% of the U.S. market, achieving a gross margin of 60.2% and a net margin of 15.2% in 2014. In contrast, China's beer leaders are relatively balanced, constraining each other, with net margins of only 5%-7%. Latest data shows Tsingtao's share rose to 19% and Snow's to 28% this year (together 47%), but overall concentration is still insufficient. **2. Overcapacity.** Due to insufficient concentration, companies aggressively compete for market share (each trying to eliminate others), expanding production. The result is severe overcapacity. Since 2010, a new round of capacity expansion began; from 2010 to 2016, capacity increased by 19.3 million kiloliters, but beer production and sales in 2016 only increased by 3.1 million kiloliters compared to 2010, showing a serious mismatch. According to a research report from Huatai Securities, the comprehensive capacity utilization rate in the beer industry was only 59% in 2016. By international standards, a rate below 79% indicates overcapacity, and below 75% indicates severe overcapacity. **3. Price wars.** Because of insufficient concentration and overcapacity, companies resort to price wars to gain market share (the beer industry relies on scale). As a result, the average price per ton for domestic beer leaders is generally around 2,500-3,000 RMB; Tsingtao's is slightly higher at 3,260 RMB; Chongqing Brewery, after being acquired by Carlsberg, quickly rose to 3,270 RMB; China Resources and Yanjing are both below 2,500 RMB. Compared to international giants, AB InBev's is 6,383 RMB and Carlsberg's is 5,254 RMB, showing a significant gap. Net margins tell a similar story: domestic beer companies' net margins hover around 5% (Snow at 2.5%), significantly lower than AB InBev's ~15%. To put this in perspective, beer in supermarkets is cheaper than mineral water (I found Snow Ice Pure 6-pack for 9.9 RMB, Snow's Kingway Beer 6-pack for 8.9 RMB, and Tsingtao Dayou 12-bottle case for 26 RMB). Selling beer like mineral water (and beer bottles are much more expensive than water bottles) suggests breweries are struggling. Moreover, reading company reports, Snow Beer has the lowest gross margin. It can be said that the price war in the beer industry was initiated by Snow, the market share leader (because Tsingtao sells at higher prices and doesn't want a price war; AB InBev is positioned high-end with only one product and won't participate; Yanjing is also passive). **4. Imported beer.** This should be a minor issue. Imported beer accounts for less than 2% of total beer sales, and its growth has slowed to under 10% this year. Problems Facing Tsingtao Brewery **1. Unclear positioning.** Personally, I feel there are many types of Tsingtao beer in supermarkets, such as Dayou, Ice Pure, Pure Draft, Classic 1903, Whole Wheat White Beer, Original, Old Tsingtao, Pilsner Craft, etc., with a wide range of prices from high to low. The can colors include green, white, blue, cyan, black, and multicolored, making it hard to choose. Unlike Budweiser, which sells only one type in supermarkets (bottled or canned), positioned high-end and easy to choose. I think Tsingtao should not use the Tsingtao brand for its low-end beers; Laoshan would be better. It's unrealistic for one brand to cover high, mid, and low ends. For example, if you go to a restaurant and say, "Boss, a bottle of Tsingtao," the boss asks, "Which one? Expensive, cheap, or mid-range? Pure Draft, Old Tsingtao, or Tsingtao Dayou?" Then you might say, "I'll have a Budweiser instead." **2. Management.** Tsingtao is a state-owned enterprise, so employee incentives are insufficient. I recently read "The 3G Way" (about how Lehman managed and integrated the world's largest brewer, AB InBev), which offers many lessons for China's beer industry. Future Trends in the Beer Industry As the saying goes, "Poverty gives rise to a desire for change." The beer industry is asset-heavy and has transportation radius constraints, meaning giants cannot easily eliminate each other. Engaging in price wars—a tactic that harms both sides—benefits no one. It's better to sit down and discuss how to solve the problem. The only solution is to raise prices, but how? **1. Restructuring and consolidation.** Changing the competitive landscape is the most effective way. The integration by AB InBev, the world's largest brewer, has shown the path for China's beer industry. As described in "The 3G Way," only monopolies yield excessive profits. Consolidation in China's beer industry is not impossible. For example, this year, Asahi may sell its 19.99% minority stake in Tsingtao Brewery, which has sparked interest. Since Snow and Yanjing no longer have foreign capital, if Tsingtao buys back its shares, consolidation expectations would strengthen—e.g., Tsingtao Group or the listed company itself repurchasing, or external industrial capital entering. If the stake is sold to Snow, a China Resources-Tsingtao alliance would change the competitive landscape (a near-monopoly with ~50% share). If the competitive landscape improves, domestic beer companies could achieve net margins of 10-15% in their regions (currently 4-5%), similar to AB InBev in the U.S. In that case, stock prices would likely rise significantly. If industry consolidation doesn't happen, there's a lesser alternative. **2. Capacity reduction + premiumization + defending strongholds.** Capacity reduction is underway across the industry (even industry leader China Resources Snow is limiting production, stabilizing at 22 million kiloliters). Premiumization is something Tsingtao has been doing (consumer demand for mid-to-high-end products is growing faster), and Tsingtao's brand reputation supports its move toward mid-to-high-end. For example, Tsingtao's high-end products like August, Hongyun Dangtou, and Classic 1903 account for 20% of total sales, but premiumization is slow to show results. With Budweiser attacking from above and Snow engaging in price wars from below, raising prices is not easy. Defending strongholds can reduce costs. The beer industry has a distinct feature: the transportation radius is typically 250-300 kilometers; beyond that, costs cannot be covered. If you have 70% market share in a city, your net margin can reach 10-15%. Additionally, defending strongholds reduces promotion and transportation costs. This approach can also improve profits and is now common practice among breweries, but it's slower than the first method. **The current state of the beer industry is that the civil war is not over; it's still in the Warring States era. No giant has emerged (40% share). If Snow doesn't raise prices, other companies will struggle.** On the other hand, we see competition has begun to ease. Tsingtao and China Resources are steadily increasing their market shares (Tsingtao 19%, China Resources 28%). If the competitive landscape changes (there has been some improvement this year, as companies have learned that price wars benefit no one and are shifting strategies to prioritize profits—perhaps a turning point for the beer industry), Tsingtao's upside is significant. The century-old Tsingtao Brewery remains a good company worth watching. This article is from Xueqiu.com, by Zliya. **The 2017 (3rd) FMCG + Internet Conference** will be held in Chongqing in November 2017. The conference will focus on the theme "New Forces, New Ecology," inviting **1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions** to explore new chapters of cross-industry integration! Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: [2016 "FMCG + Internet" Summit Forum]() -END- --- ## Copyright and AI use This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL. Contact: zhaobo258@gmail.com · +86 158 5481 7671