Preface: Today's Snow Beer is a brand that must be recorded in the history of China's beer industry and even the world's beer industry. As a domestic brand, it completed national expansion in a very short time and quickly became China's No.1 in production and sales in 2005, subsequently achieving the No.1 position in single-brand and single-variety sales, a position it has maintained to this day. The "Snow Speed" continues, and Snow Beer has become one of the most noteworthy and studied live cases in modern Chinese commercial history. When it comes to Snow Beer, Hou Xiaohai, the current executive director and general manager, is an unavoidable figure. Hou Xiaohai joined Snow Beer as a professional manager in 2001, serving successively as sales development director, marketing director, general manager of the marketing center, and general manager of regional companies, before fully taking charge of Snow Beer in 2016. Hou Xiaohai not only created many classic cases for Snow Beer in the past, such as "Non-Olympic Marketing" and "Brave the World," but since 2016, he has also led Snow Beer to frequently make major moves, such as launching the Snow Beer Concept Series and SUPER X new products, and acquiring Heineken's China business. How did Snow Beer succeed in the past? Where are its future strategic direction and strategic goals? What changes has Hou Xiaohai made since taking charge of Snow Beer, and what is the logic behind them? On August 21, 2019, the "2019 China FMCG Conference" hosted by New Distribution specially invited Mr. Hou Xiaohai to deliver a keynote speech titled "The Brand Transformation Path of Snow Beer." The following is a compiled version of Mr. Hou's speech for readers. (The article has been slightly abridged.) Good morning, everyone. I am very glad to have the opportunity to attend the "2019 China FMCG Conference." I haven't participated before; this is my first time. I want to take this opportunity to share with you what Snow Beer has thought, done, and how we have done it over the past few years. I will cover three main topics: First, how Snow developed; Second, although Snow succeeded, what problems did it encounter; Third, what Snow should do, and what we have done in recent years. How did Snow develop? In the past, many studies said that Snow Beer was a miracle, as it went from a small single factory to the national No.1 in just over a decade. To this day, it has maintained this national No.1 position for 13 consecutive years. Why did Snow develop so fast? What is the reason behind this speed? I have summarized that the development of Snow Beer over the past two decades, unlike Tsingtao and Budweiser, is due to several factors. The first factor: encountering a good opportunity and seizing a major opportunity. Why do I say that? Since the 1990s, China's beer industry entered a stage of rapid development, with annual growth exceeding double digits, and China quickly became the world's largest beer market. Entering a rapidly developing industry is the best opportunity for a company. On a smooth highway, any car will drive more smoothly, so I believe Snow Beer encountered a good time. Why did it seize a good opportunity? What was the situation in the beer industry back then? There were many beer companies, and the whole industry was undergoing mergers and acquisitions. Snow Beer chose a path of development through M&A, using capital to leverage the industry's development, which allowed the company to become the national No.1 in just over a decade. I think this opportunity was also very good. Today, if someone says they will give me 20 billion yuan to make beer, I can responsibly say that even with 50 billion yuan, it would be a dead end. But back then, with 2 billion yuan, you might have built Snow Beer. Snow's success must be seen against the backdrop of national development, industry growth, and the power of capital. The development of enterprises and consumer goods is difficult without these factors; this is a very important principle for FMCG. The second factor: Snow Beer found a good backing, or "a big tree provides good shade." Snow had a better operating environment than its competitors, and this environment refers to our shareholders. A company's development is difficult without good shareholders. Why did Snow succeed and move so fast? Because Snow's shareholder at the time was China Resources Group, a central state-owned enterprise, now ranked in the top ten or so among central enterprises, and also in the Fortune Global 500, ranking 80th. Our shareholder is China Resources Group, which has a strong state-owned background, strong capital power, and good M&A experience. But would Snow have become what it is with just China Resources Group? We think that with only China Resources Group, Snow might not be what it is today. Without our other shareholder, SABMiller, without this foreign company, Snow would not have succeeded. It is precisely because we have a combination of Chinese and foreign, state-owned and foreign capital, that Snow was made. Good shareholders gave Snow a lot of operating space. Apart from providing some concepts and capital, they did not interfere much in Snow's overall development; they only supported, provided strategic protection, and gave funds for development. I think many companies would find it difficult without several good shareholders. The third factor: Snow's success is behind the efforts of a group of people; without this group, there would be no Snow. In fact, we have said many times that Snow's development comes from a team, and this team would be a good team in any enterprise. The people at Snow are neither from central enterprises nor appointed by the government; the entire Snow team comes from the market. Snow is the most market-oriented enterprise in China's beer industry, and its team has been forged in the market. When you come into contact with Snow, you will find that this team is different from many enterprises. In corporate management and market development, Snow has a strong wolf-like nature and competitive awareness. This is a highly competitive and combat-effective team, which is the third factor in Snow's success. The fourth factor: Snow underwent good integration and management, establishing a national brand. Snow's initial "mushroom strategy," followed by the strategy of developing along rivers and coasts and then nationwide, first involved acquisitions, using capital to acquire; without capital, there would be no Snow's development. Then came integration, being able to do well after acquisition, manage well, and integrate well. An important sign is that Snow has continuously improved in production, market, and sales. We have been able to build overall sales in most markets, and we have established the largest national Snow brand. We have been relatively good in integration and management within the industry. Good strategy, good marketing, plus a good team and experience—these are the fourth factors in Snow's success. What problems does Snow encounter today? I think Snow has encountered significant problems. A successful enterprise, in the process of a long race, must have successful elements, but it should also be recognized that it has accumulated many problems. What are Snow's good aspects? First, Snow has left us a brand; the world's largest single-brand sales volume is Snow. Second, it has left us nearly 100 factories; we manage nearly 100 factories in China. In the past, when we told foreigners, they thought we made a mistake in English; they said, "You manage a hundred factories?" They found it incredible. This can only be achieved in China; it is hard to imagine abroad. Third, it has also brought us many good regional markets, such as Sichuan, Anhui, Liaoning, Guizhou, Jiangsu, and Zhejiang, all of which are good markets. But the company has actually encountered significant problems. From 2012 to 2014, we were constantly thinking: What hurdles does our company have now? What setbacks will future development encounter? We gradually realized that the company had quite a few hurdles. An enterprise without a sense of crisis cannot continue to develop. So in 2016, we organized multiple seminars: Does Snow have problems? Has it encountered major problems? First, the external environment has undergone major changes; China's overall economic development is no longer as high-speed as before. According to the central government's judgment, it has entered a new normal, a stage of high-quality development and medium-to-high-speed growth, no longer high-speed development. That is to say, China is no longer a market simply dominated by scale, nor a market where money is everywhere for anything you do. China has entered a transformation from scale to quality, and the economy has begun to shift gears. This is a major change. Second, the industry has also undergone major changes. Industry capacity has begun to decline, and product structure has begun to upgrade. In the past, we were in a market with double-digit growth; now it has become single-digit growth, or even negative growth. With so many factories, such large production capacity, and so much mainstream beer, how can Snow develop in the future? This is a big problem. Third, other beer companies are growing rapidly. Especially foreign brands, such as Budweiser, which are developing very fast. In the past, we thought foreign beer in China was really poor; ten years ago, we thought this company was about to die. But unexpectedly, China's consumption upgrade has brought huge development opportunities for foreign brands, which puts considerable pressure on us. Fourth, the consumption situation has undergone major changes. Consumption is upgrading, and young people are gradually growing up. Those who used to drink beer are getting older, and new beer drinkers are younger; they are the new generation growing up with the internet, and their views on brands and beer are very different. We found that the drinkers have changed, the market we operate in has changed, and our external environment has changed. Overall, we think Snow Beer has several problems. First, there are too many factories. In the past, we proudly said Snow Beer had 96, 98, or 100 factories, but later we were embarrassed to say it. Why? Looking at the United States and Europe, a beer company with 10 million tons of sales has only 7 factories. Snow has 11 million tons and 98 factories. What a difference! We have fallen far behind. Second, we have many people, but wages are not high. Our company has over 60,000 people, but others have only 20,000 to 30,000. Our per capita indicators are not high. The key issue is that our salaries, due to the management system of central enterprises, are difficult to increase significantly, so Snow employees' income is relatively low in the industry. Third, Snow's main sales are in the mainstream and mid-range prices. Overall, Snow gives consumers the feeling of being a domestic brand, a big brand, but not a brand with high value. Fourth, looking at Snow's overall profitability, Snow Beer has 11 million tons, but past profits were only about 1 billion yuan, which is very little. The beer industry is highly profitable in any country; look at the PE valuations of global beer companies, which are all high. That is to say, Snow's brand is relatively weak, profitability is low, and there are too many factories. Compared with competitors, we have fallen behind, especially with consumption upgrading and the rapid development of mid-to-high-end beer. We feel that Snow cannot continue like this. These are the problems we encountered. Snow Beer's Three-Year Transformation and Results Starting in 2017, Snow has undergone three years of reform; this year is the third year. In the past, we did not dare to call it reform; we called it quality growth, transformation and upgrading, and innovative development. In two words, it is actually reform, or change. What are we changing? Over these three years, we have done several things. First, brand reshaping. Isn't it that our brand is not very good? That our brand is not so young? That our brand is mainly mainstream? So, in the past two years, we have successively launched several new products. Currently, the beers that Snow is reshaping are all for young people; our Snow brand must follow young people. So many of our products and brands are quite different from other beer companies; they are very young, targeting people aged 18 to 25, who are the future mainstream consumers. So that is the first thing. In brand promotion, we adopt new media and internet methods to promote the brand, combining Snow's traditional ground promotion advantages with new media advantages for promotion. We no longer go for the World Cup, sports, or traditional advertising; we have stopped doing that. This new path is difficult and tiring, but we are firm in this direction and always move toward it. In the past few years of brand reshaping, Snow Beer has quickly developed several major products, such as Super Brave, Mars Green, and Ingenuity Creation, with good market feedback and smooth progress. I think this is an important change for us. The products we launched in these three years are unprecedented. Our brand upgrade adheres to three sentences: a good product, a good glass of beer, and a good brand. Every product must meet these three requirements: the product must be good, the brand must be built, and the beer must taste good. Second, organizational restructuring. Focus on compressing management levels and strengthening national management. In the past, Snow had many companies, many people, and the overall management levels were deep and long. So, over these three years, we have compressed all levels and reorganized the national management structure. During organizational optimization, we also optimized positions and streamlined departments and personnel. Most importantly, we launched professional career development channels for employees and began to formulate salary system reforms, hoping to increase Snow employees' income. We are a central enterprise, so doing these organizational restructurings, position optimizations, and salary changes is very difficult, but we are determined to continue, just to give the enterprise a strong organizational and professional capability for development. Third, capacity optimization. We had nearly 100 factories in the past; now we have 78. In three years, we optimized and eliminated over 20 factories. Optimizing factories is something many local governments are unwilling to support, and employees are also unwilling. The difficulty is unprecedented; it is the hardest thing. But after two years, the industry's most resolute and extensive factory optimization is still Snow Beer, which has sharply increased our capacity utilization efficiency. Fourth, decisive battle for high-end. In recent years, we have begun to advance into the high-end market, and the new products we launch are all high-end. In fact, our gap with competitor Budweiser is still relatively large. We hope to catch up with Tsingtao Beer by the end of this year, and within five years, we hope to catch up with Budweiser. In the high-end market, we need to learn from Budweiser and Tsingtao Beer, and we hope to turn their advantages into Snow Beer's competitive strength. In recent years, we have started the decisive battle for high-end beer, and I personally think Snow's trend is very good. Currently, organizational capabilities and brand capabilities are developing rapidly. I believe that given time, Snow Beer's performance in the high-end market will not be like today; it will be either the national No.1 or No.2. Fifth, internationalization and going global. We think beer is a global industry and needs to connect with international standards without borders. We hope to cooperate with global beer brands, so we chose Heineken. After more than a year of contact and negotiation, we obtained the sales rights for Heineken and other international brands in China, and we acquired Heineken's entire China business. Now we are gradually integrating. I predict that in the future high-end beer market in China, a person will not only drink domestic brands or only international brands; it will definitely be a combination of international and domestic brands. This combination may be half and half. If Snow does not have international brands, it can only exist in half the market in the future; if we only have international brands, we will only have half the market to compete in. Snow hopes to develop in both the future international brand demand and domestic brand demand markets. The five actions mentioned above are only part of our three-year transformation. To date, we have basically completed most of our strategies. We still have some strategic measures currently underway, which are also relevant to many distributors present here, namely channel transformation. We call it secondary transformation or secondary construction. Snow's past channels were relatively strong, but with the development of high-end products, our channels are also gradually transforming. We are also slowly exploring and developing a large-customer business model. We hope our customers have their own teams and strong capabilities; this work may take another two to three years. We hope to learn and overlay the channel models and advantages of Budweiser and Tsingtao on Snow's past channel advantages. In two or three years, Snow's channel shortcomings will gradually be made up. To do the high-end market, we need customers who can do high-end; this is what we are currently doing. Finally, you can learn about the results of Snow Beer's three-year transformation. Snow Beer's profit has quadrupled compared to three years ago. Our high-end wine development is also relatively fast. By the end of this year, we have actually accumulated a large high-end sales volume. Our costs and efficiency have improved significantly compared to the past, and our organization and personnel are more streamlined and effective. So, I think Snow will embark on a new journey starting next year. Some past burdens will be gradually resolved by the end of this year. Starting next year, Snow will be lighter, more confident, and more capable of achieving greater success in this industry.