Click the image above for details Currently, the domestic beer industry is entering a new era. The pace of market expansion has slowed, institutional reform has accelerated, corporate pricing power has strengthened, and channel structures have become increasingly flat. In particular, the comprehensive premiumization of products has become a common battleground for the beer industry in the past two years. Now, the domestic beer industry has entered a period of accelerated high-end structural upgrading and development opportunities. Since 2017, the domestic beer industry has shown a trend of stable volume, rising prices, and structural optimization, with beer production stabilizing at around 38 million tons. The four major beer oligarchs—China Resources Beer, Tsingtao Brewery, Budweiser APAC, and Yanjing Beer—are not only increasing the R&D and launch frequency of high-end products but also laying out the high-end craft beer market. Product structure upgrades and channel model optimization have become core drivers of performance growth. -01- Domestic high-end beer faces an awkward situation; building unique, high-quality high-end channels is urgent Unfortunately, domestic high-end beer is currently in an awkward position: High-end beer has a generally low shelf presence across channels, and the products that are on shelves lag behind imported beer in both sales volume and price. When faced with high-end beer at the same price, consumers are more willing to pay for foreign beer. In 2019, the premiumization rate of domestic beer was 16%. Budweiser had the highest proportion of high-end products at 46.6%, Carlsberg's high-end products accounted for over 25%, while Chongqing Brewery and Tsingtao Brewery were representatives of domestic brands with higher premiumization rates, but they were only 23% and 22%, respectively. China Resources Snow and Yanjing, due to their large total volume and higher number of low-end products, had the lowest proportion of high-end products, at less than 20%. The main reason domestic beer companies have not been successful in entering the high-end beer market is that in recent years, most domestic beer companies have focused on expanding production scale and market expansion, and many have not settled down to build their brands, resulting in a brand image that is too low-end. For a long time, "cheap price" has been the old impression domestic beer companies have given consumers, which directly leads to the slow progress of premiumization for domestic beer companies. To further advance in the high-end beer market, domestic beer cannot rely solely on high-quality products and strong brands; the urgent task is to optimize channel construction and reflect "high-end, precision, and sophistication." After a period of market expansion and two rounds of mergers and acquisitions, leading domestic beer companies have established their base markets, and the market structure is largely stable. With the accelerated launch of more Chinese high-end beers, the core competitiveness of domestic beer companies in the future will not only lie in the strong layout of high-end product portfolios but also in the corresponding high-quality and distinctive channels. The relationship between the two is like that of a spear and a shield; only by working together can they break the industry balance and seize the industry's commanding heights. High-end beer is different from ordinary beer; it cannot enter all channels like supermarkets, convenience stores, and small shops. It is mainly active in specific consumer markets such as high-end nightclubs, KTVs, bars, and clubs. Therefore, for domestic beer companies, to surpass the high-end beer market position monopolized by foreign beer, building unique and high-quality sales channels is a necessary guarantee for expanding new space for high-end beer. After multiple rounds of capacity expansion and market competition, the domestic beer industry has been in a certain "balance." The pattern of "two superpowers and three strong players" among domestic beer giants is basically established, and each company has its own "sphere of influence," making it difficult for competitors to break through in the short term. Due to intense competition, the domestic beer industry's extension to high-end structures has been constrained to a certain extent. In the future, constructing an effective high-end channel strategy is the key point of contention to break the industry balance. Whoever can break this balance early will stand at the forefront of the high-end market. -02- Online e-commerce becomes a new sharp tool for domestic beer to break through the high-end market With the rapid development of mobile internet and constant changes, people's work and lifestyle consumption patterns are also undergoing rapid changes. Consumption scenarios have shifted from offline to online, from PC to mobile, and from apps to communities, WeChat to live streaming, which has forced various industries to reconstruct their business models. Analyzing and summarizing the high-end channel construction and exploration directions of the three major beer giants—Budweiser, Tsingtao, and Snow—it can be seen that their online channels are continuously strengthening. The shift from offline channels such as supermarkets, catering, and nightlife to online channels has become a major hotspot in the transformation of high-end beer channels. From the current operation of online channels, Budweiser has achieved great success by building a direct-operated e-commerce system focused on high-end products. After extensive market research, Budweiser began to fully enter the e-commerce market in 2014, opening online beer flagship stores; in 2015, it established an e-commerce business unit, mainly operating flagship stores on Tmall and JD.com, with Budweiser, Corona, Hoegaarden, and Harbin Beer each opening independent online flagship stores. In the future, it will continue to increase investment in new e-commerce platforms. Image below: Budweiser builds a direct-sales e-commerce system focused on high-end products China Resources Beer is also actively developing online channels, turning the advantages of online channels into a source of growth for high-end beer. In 2018, China Resources Snow and JD.com signed a comprehensive strategic cooperation framework: 1) The two parties will cooperate through brand co-building, resource sharing, channel expansion, and JD logistics to create a China Resources Snow JD flagship store, elevating the borderless retail of China Resources Snow Beer to a new height and entering the fast track of consumption upgrading; 2) Based on JD's big data and artificial intelligence technology platform, JD will fully open its big data to China Resources Snow Beer for online high-end beer marketing transformation, new high-end product development, and future consumption trend research. Tsingtao Beer is also actively exploring online channels, giving it a significant advantage over other domestic beer manufacturers in online channels. It has accelerated marketing innovation and high-end channel innovation, increased digital marketing efforts, and continuously improved the three-dimensional e-commerce channel system of "online supermarket + official flagship store + authorized distribution specialty store + WeChat mall" aimed at building high-end flagship stores. This multi-channel approach meets the purchase needs and consumption experience of consumers in the internet era, and the proportion of high-end products is increasing, reaching 23% by 2019. Image below: Tsingtao's three-dimensional e-commerce channel system Now, let's explore the history of high-end channel changes for Budweiser, China Resources, and Tsingtao to find commonalities and lessons that can be learned, and to provide reference ideas for future industry channel development. As shown below: According to balData data, Budweiser's market share in China's high-end and super-premium beer market is as high as 46.6%, far ahead of Tsingtao's 22% and China Resources' 16%. The high-end channel mix is: catering 30%, nightlife 25%, traditional 20%, KA 15%, and e-commerce 10%. Why is Budweiser's market share in China's high-end and super-premium beer market much higher than that of Tsingtao, China Resources, and Yanjing? On the one hand, Budweiser promotes the sinking of traditional channels through refined management, subdividing the target market into more refined and higher-level regions, and strengthening headquarters management to ensure that distributors and retailers are closer to consumers; On the other hand, it has increasingly built a direct-sales e-commerce system focused on high-end products through e-commerce channels, which is different from traditional channels. In the past year or two, while traditional channel transformation has been strengthened, domestic beer giants such as Tsingtao, China Resources, and Yanjing have fully recognized that the application of "Internet+" in the beer industry will become increasingly strong. Online-assisted beer channel transformation and optimization are being widely promoted in China and have become a hotspot in beer channel reform. Wine merchants communicate and sell beer with consumers through Weibo, WeChat (official accounts), and this has become more widespread; in addition, platforms such as social networks, games, video websites, and live streaming have also become "experimental fields" for more beer companies to promote high-end beer. It is expected that in the next year or two, domestic beer will further deploy heavy forces to e-commerce channels to compete with foreign beer for high-end positions. In 2018, China Resources Snow announced the launch of a nationwide "second channel reform," with the core of the "second transformation" being the CDDS model. On the one hand, through the "second transformation" of channels, it aims to form a distribution channel model with strong capabilities and competitiveness, and an efficient, competitive, controlled, and standardized distribution service control management system from manufacturer to terminal. On the other hand, it is a channel transformation that combines modernization, internetization, and informatization more deeply, to meet the needs of Snow Beer's high-quality growth, development of mid-to-high-end products, participation in international competition, and seizing competitive advantage market share. The CDDS model further strengthens Snow's control over terminals, continuously consolidates the high-end channel barrier advantages, and promotes the transformation of the corporate structure to a "pyramid shape." In 2018, Tsingtao Beer, on the one hand, carried out flat reform of offline channels to promote high-quality improvement of market sales and marketing efficiency, positioning itself as an "international beer company" and launching an impact on international beer brands; On the other hand, it actively explored online channels, taking the lead in the industry to build an e-commerce channel system of "online retailers + official flagship stores + distribution specialty stores + official mall," launched the mobile "Tsingtao Beer WeChat Mall" and "APP Tsingtao Express Purchase," and established a three-dimensional sales platform of "e-commerce + stores + factory direct sales," thereby building a new support for high-end channels and international beer brands. Taking Tsingtao's WeChat mall as an example, it creates a new high-end brand channel through the WeChat official account mall. Customers can directly purchase online and have products delivered offline, which can achieve more customer retention and higher conversion rates. At the same time, the WeChat mall operates in a direct-operated manner, reducing channel or platform commissions, making store operations efficient and low-cost, and providing users with more reliable and cheaper products. The WeChat mall has gradually become one of Tsingtao's important marketing channels. Drawing on the high-end channel construction of Budweiser, China Resources, and Tsingtao, we can know that compared with the neglect of traditional channels, domestic beer has a much greater opportunity to compete for high-end space through various e-commerce channels. As post-80s, post-90s, and even post-00s generations become the main force of online shopping, and they have a strong ability to accept new things and are less influenced by foreign beer, and in the construction of e-commerce channels, foreign beer and domestic beer are on the same starting line, e-commerce will become an important opportunity for domestic beer to break through the high-end market. Currently, traditional channels are not suitable for the better expansion of domestic high-end beer. Mass consumption is mostly low-priced beer or high-priced imported beer, while venues such as nightclubs are excluded due to the psychology of worshiping foreign things. In addition, from a cost accounting perspective, e-commerce channels are also more suitable for the development of domestic high-end beer. High-end beer sold through e-commerce channels can achieve price differentiation, effectively protect original products, and save marketing costs. At the same time, through various online interactive activities such as check-ins, lucky draws, and points redemption, member activity can be increased, thereby forming word-of-mouth benefits and effectively promoting the establishment of high-end brands. Currently, on Yanjing's Tmall flagship store, the monthly purchase volume of Yanjing's high-end beer white beer is considerable, and the sales and review numbers of Snow Beer's black beer sold on Snow Beer's Tmall flagship store are also considerable. Pearl River Beer's high-end products also chose e-commerce platforms as the first launch channel, and sales have been relatively ideal. -03- Besides e-commerce channels, what other models can domestic beer construct to break through the bottleneck of high-end upward movement? It can be said that e-commerce has become a new sharp tool for domestic beer to break through the high-end matrix. Besides e-commerce channels, what other ways and models can domestic beer construct to break through the bottleneck of high-end upward movement? 1. By opening high-end bars, etc., deep distribution enhances brand experience Budweiser's main high-end beer construction strategy is "Outside-In." Outside mainly refers to the company's focus on high-end consumption channels in the target market (including craft beer consumption channels); In mainly refers to the company's operations being mainly responsible by specialized teams and structures. In terms of external marketing channels, Budweiser lays out the highest-end POCs in the world's top city centers, such as craft beer bars, nightclubs, and fine dining restaurants. At the same time, as craft beer gains momentum and competes for high-end seats, leading manufacturers have also launched craft beers and created markets by opening terminal bars. Taking AB InBev as an example, in 2017, Budweiser's (ZX Ventures) acquired Shanghai craft beer bar Kaiba and Shanghai craft beer restaurant Boxing Cat; in 2018, it established an advanced craft beer brewery in Wuhan. Tsingtao Beer also adheres to a consumer-centric approach, creating a "second living room" at consumers' doorsteps—TSINGTAO1903 Vitality Bar—through fashionable and personalized design, happy beer culture, warm and harmonious atmosphere, and high-quality lifestyle. It is reported that Tsingtao will establish 100 1903 bars nationwide in the future. 2. Circle marketing, seeking to contact core consumers to create a super-premium brand image Like other high-end luxury goods, the channel construction of high-end beer also requires unique and efficient communication methods—letting high-end beer enter the life circle of high-end consumers, which is commonly known as "circle marketing." Data shows that the current new affluent class places great emphasis on networks and is willing to join high-end social circles of "same temperature layer." Members of high-end social circles have similar good social status, property income, hobbies, and consumption views, and influence each other. If a brand can be recognized and favored by one member and recommended, it will easily be widely accepted by the entire circle. Therefore, when conducting high-end beer marketing, it is necessary to accurately find the key opinions of high-end consumer groups, making them feel that only such beer is more in line with their identity, and that drinking high-end, super-premium beer can show their prestige and wealth, thereby highlighting the value of high-end beer. For high-end beer, the occasion is a very important factor, so in circle marketing, attention should be paid to cultivating a high-end and decent consumption venue that can gather popularity and influence opinions. At Hartsfield-Jackson Atlanta International Airport in the United States, even at midnight, Boston Beer still insists on operating through the "Adams Beer House." "Adams Beer House"—similar to a beer education center—is always full of travelers who like high-quality beer and share and exchange ideas. It is reported that Adams beer produces only 150,000 bottles per year, each bottle sells for $200, and selected vintage beers are more expensive. Similar examples include tasting sessions, dinner parties, club activities, etc., to establish a same-level consumption circle, conduct circle marketing, and improve high-end brand recognition. 3. The successful operation of high-end products requires high-end companies or independent teams to take the lead Compared with mass beer, cultivating and building the high-end beer market cannot be separated from innovative organizational structure support, high-value teams to "nourish," and even "missionary" teams to promote devoutly. This can learn from Budweiser's high-end company framework model. For example, Budweiser's high-end beer has dedicated independent market, sales, and logistics departments in the world's top cities, establishing a special structure for high-end companies. The product portfolio strategy conforms to the market maturity model, maximizing the satisfaction of high-end consumption needs through the synergy of high-end brand matrices such as Budweiser, Corona, Modelo, Hoegaarden, and Goose Island. Image below: Budweiser's special structure for high-end companies Tsingtao Beer currently also maintains high-end sub-brands through one-on-one professional teams, conducts refined channel management, and key high-end brand project departments can directly apply for headquarters resource support. Tsingtao has also established a dedicated innovation marketing business unit, new special products business unit, and modern channel business unit, focusing on "high-end, precision, and sophistication," "new special" product R&D, and new channel exploration, exploring new market space and business models, to differentiate from Tsingtao's ordinary mainstream products. It is foreseeable that in the future, with the increasing trend of premiumization, the high-end beer operation model urgently needs special and independent organizational structures for operational support, to highlight its importance and unique status in every link of promotion, and to quickly break through the bottleneck of high-end upward movement. 4. Through high investment in expenses, establish a high-end brand image From a financial perspective, Budweiser's sales expense investment in high-end beer has always been at the industry's top level. In terms of sales expense ratio, Budweiser APAC's average sales expense ratio from 2017 to 2019 was 29.62%, significantly higher than Tsingtao Beer's 19.50%, China Resources Beer's 17.09%, and Yanjing Beer's 12.95%. Under the high-expense investment model, Budweiser's overall profitability is also at the industry's leading level. In terms of net profit margin, Budweiser APAC's average net profit margin from 2017 to 2019 was 12.44%, significantly higher than China Resources Beer's 3.61%, Tsingtao Beer's 6.01%, and Yanjing Beer's 1.94%. In short, Budweiser has established a brand image through high investment and occupied the global commanding heights of high-end beer, which is worth learning from for domestic beer. "You can't catch a wolf without risking a child." Only with persistent high investment will there be good returns and great achievements in high-end beer. -04- Conclusion Foreign beer has been relatively successful in shaping and operating high-end beer. In contrast, this requires that the growth model of domestic beer urgently needs to transform from quantitative expansion to connotative improvement and high-quality development. This is also the foundation for cultivating and nourishing high-end beer. Only with time can domestic beer reverse its backward and passive position in the high-end field and stand at the pinnacle of world high-end beer.