My topic today is six words: new beer, new marketing. Of course, the keyword for today's forum is "craft beer." I didn't use "craft beer" in my title because the definition of this term is interesting. I've come across many media, including many consumers, and also employees of large companies, who all share a similar confusion: What is craft beer? What is craft beer? Why has the concept of craft beer surged in China in the past two years? More interestingly, during this year's Chengdu Spring Sugar Fair, I found that even baijiu (Chinese liquor) has adopted the concept of "craft." After deeper research, I found that even soy sauce and vinegar have used the word "craft." What exactly is "craft"? Just because I'm "craft," does that mean you're not "craft"? Another issue: now big brands, small companies, including bars and workshops, are all using the craft concept. Craft seems to have become a basket that can hold anything. To understand craft beer, Baidu explains it clearly. The American BA (Brewers Association) gives a clear definition of craft beer in terms of scale, ownership, and ingredients. Craft has become a common term. What is truly craft beer? If we really dig into it, we find that American craft beer history, the German Purity Law in Europe, and Belgian Trappist beers all seem to fall under the category of craft beer. In the United States, craft beer emerged from the post-WWII hippie culture. After the hippie culture arose, there were large anti-industrialization and urbanization movements. People became tired of the mainstream, went to the seaside and mountains to enjoy themselves and seek spiritual homes, but they needed to drink, because drinking is for the soul. Without industrialization, they had to brew by hand, so craft beer has a handcrafted meaning in it. Let's look at five topics for thought: 1 Today, craft beer accounts for over 10% of the US beer market. Will China's craft beer also exceed 10%? The premise to solve this problem is how to define what craft beer is, and what evolution path comes after craft beer. 2 Is China's craft beer a category segmentation or an overall upgrade? Most American hippies were rich second-generation. We are a generation behind American craft beer. This generation is the era of consumption upgrade. China is undergoing three major movements. First, urbanization. China's urbanization is 55%, while the US is 70%, driven by rapid urbanization. The past contradiction was between people's growing material and cultural needs and backward social production. Now it's between people's growing needs for a better life and unbalanced and inadequate development. From material and cultural needs to needs for a better life, from backward social production to unbalanced and inadequate development. Inequality is opportunity. Opportunity means high, medium, and low coexist. Beer is not a single price band, but a diversity in value and price. This is a unique Chinese characteristic! Second, internet information civilization. The internet has broken and reshaped the way interpersonal relationships connect, broken through information asymmetry, and restructured traditional channels and territories! Third, consumption upgrade. This is not just about price upgrades, but also upgrades in quality, appearance, and temperament. 3 Is craft beer Sinicized or Westernized? I visited a craft beer exhibition. Many craft beers have Chinese elements in their points and lines. Many craft beers, even Western-style craft beers, should Chinese craft beer have Chinese elements or follow Westernization? Currently, Eastern and Western styles coexist. Only time will tell which will prevail! 4 Can China's craft beer subvert the current beer landscape in China? "Subvert" is a bit strong, but change is possible. 5 Is China's beer an inventory transformation or an edge intervention of new forces? From the end of 2017 to the beginning of 2018, I visited companies with 50,000 to 300,000 tons of production. I can responsibly say that most companies with ideas are transforming into specialty beer companies, carrying out vigorous technical and process transformations to make specialty beer. What is specialty beer? Isn't it craft beer? At the same time, we find that many media report that many mainstream beer factories have closed. Carlsberg closed 17 domestic factories, and Snow closed 13 factories. But another issue: new large super factories will continue to be built. Budweiser is building a 3-million-ton factory in Fujian, and Snow is building a 1-million-ton factory in Wuhan. They are closing and building at the same time. And starting in 2018, many craft beer brands have built new factories. Budweiser's Wuhan factory has already been built! First, mainstream beer. If we talk about craft beer, we must open up the entire beer industry. In 2015, at the Spring Sugar Fair, I proposed a concept: one category (lager) has dominated Chinese beer for over 30 years. In the future, it will change from one category to three camps: mainstream beer, imported beer, and craft beer. Before, we couldn't drink anything else except industrial beer. I think the term "industrial beer" is not quite appropriate. Without industrialization, beer wouldn't be where it is today. Of course, over-reliance on industrialization won't lead to a future either! You can look back: in 30 years, we accomplished what took world beer 400 years. When world beer entered the industrial era, China had only been industrialized for a few decades. Of course, in 1900, Harbin built the first brewery, producing 200 tons in three years. But mainstream beer now holds 98% of the market share. Second, imported beer. From 2011 to 2017, it started at 67,000 tons in 2011 and reached 700,000 tons in 2017. Is that a lot? Not really. Shandong Province alone can drink 7 million tons of beer. But where is the 700,000 tons? In the high-end and ultra-high-end market. In this segment, imported beer takes the majority! The third camp is craft beer. Craft beer has developed for less than ten years. Now there's debate about who is craft beer and what is craft beer. I think this debate is meaningless. Only consumer recognition matters. But craft beer doesn't conquer all consumers; it conquers your own consumers. I have many friends in craft beer discussing a topic: my city has 10 million people and 300,000 tons of beer capacity. If I just take 10%... That's a nice wish, but it might be a bit big for craft beer. In the future, a 1990 structure would be great: craft beer 1%, imported beer competing for 9%, and mainstream beer holding 90%. Note: All three camps will have critical points. If you exceed them, you might not be the same as before! Craft beer competing with mainstream beer, which holds 90%, doesn't have much advantage. It's an elephant, at the top of the food chain. An ant can't survive using an elephant's way of living! Using new thinking, new tools, and new marketing to survive would be the best strategy! Two charts: world beer production distribution. Asia is first, China is first. Almost all beer in the world comes to China, especially in the era of crazy craft beer growth. If you win in China, it's almost a king's victory. The city in China that drinks the most beer is Harbin, second is Shenyang, and third is Qingdao. Speaking of Qingdao, Shandong Province has 7 million tons of flow, with per capita 70 liters. This is Chinese beer. Without counting craft and imported beer, we say mainstream beer accounts for 99% of the national beer total. At the same time, there's another question: Is Chinese beer like the American model, the Japanese model, or the German model? The current Chinese beer market structure is a hybrid. What is a hybrid? Look at Shandong or Sichuan. They are definitely the American model: single brand, absolute monopoly, one-country kill. But Henan, Hebei, and even some regions have a three-way, four-way, or five-way kill, with four or five brands existing. Regarding craft beer marketing, you'll find many craft beer people feel wronged. First, I can't get into stores. Second, if I get in, I don't sell well. Third, when I sell well, I get attacked. I want to do it but don't dare... This situation is like snatching food from a tiger's mouth. A rabbit trying to live like a tiger will get beaten or even destroyed, because you've invaded the tiger's territory! Even if you're a new product, if you're still using old channels and old organizations, your chances of winning are slim. Looking at our beer market sales trends, how much has Chinese beer declined in the past three to five years? Is this good for me? The decline is 80% in the ultra-low-end. Total volume is declining, but sales value is rising. Scale is shrinking, but value is growing. Chinese beer should thank imported beer. Imported beer helped us open the consumer ceiling. The decline in beer doesn't rule out erosion from other spirits, like baijiu and red wine. But beer's low-end category image over the years can't compete with baijiu and red wine! Only imported beer has opened the consumer price ceiling. Using personalization, diversification, and fragmentation, consumers perceive that happiness is colorful and diverse... Craft beer stands on the shoulders of imported beer to touch the top of the consumption pyramid. Together with imported beer, it initiates consumer awareness, gradually becoming a trend, and eroding the mainstream! Imported beer becomes a defensive position for the category. Baijiu and red wine are stealing our consumers. Imported beer provides a buffer in the high-end price band. Low-end beer can't compete with baijiu and red wine in the mid-to-high-end market. Fashion is lively. The relatively rigorous German beer once held 60% of imported beer, and 50% of that 60% was German-style wheat beer. Now it's changed. In 2017, German beer only accounted for 30% of imported beer. Belgian wheat beer, Mexican Corona, and other such category beers have seen explosive growth. Currently, imported beer, like the beer landscape back then, has seen scaling and replacement. Small importers exit, and large resources are held by big brands. For example, Budweiser brought over 20 brands to China. The route of imported beer into China is basically the same as imported red wine! The channel entry point is high, never starting from rural areas. It cultivates KA, CVS, and e-commerce, which are areas traditional beer doesn't value and where domestic brands have weak defenses. Traditional enterprises evolve slowly and change even slower. This is the dividend opportunity. In the past two years, mainstream beer has started to deploy defenses. Traditional beer is increasingly moving toward "water," while imported beer moves toward "alcohol." Now imported beer is breaking into the Chinese beer market with a high entry point and top-down principle, like Corona. Imported beer and traditional beer form a dislocation in product, price, and channel. E-commerce penetrates the channel barriers of the traditional beer industry. Importers deploy a large number of professional troops in narrow areas, quickly establishing advantages! So far, we don't lack brewery craft beer; we lack homebrew communities. How many homebrew enthusiasts are there in China? In the US, there are at least 2 million. They brew not to sell, but because they like it. Commercialization is very weak. We find that craft beer enthusiasts usually make craft beer out of passion and love. In China, we lack the cultivation of homebrew communities. Only when these communities rise will the market grow. But it's impossible to make another Budweiser and kill Budweiser. It must be a group. China's population is five times that of the US. It's not just craft breweries driving it; the key is the rise of the craft beer community. Bar craft beer format. In China, eating and drinking are integrated. In the south, they are separated. In the future, there will be a large number of restaurants or bars with craft beer's leisure attributes. Brewery craft beer format. This is the mature craft beer format. Only when your market is large enough can you exist in the form of a brewery. Homebrew is the seed round model, bar craft beer is about accumulating strength and trial and error, and brewery craft beer requires organizational support, brand operation, and marketing capabilities! These three formats are an evolutionary process. From millions of bar craft beer makers and enthusiasts to thousands of brewery craft beer operators will be a process. In the US, it took about 100 years. In China, it will be faster! Of course, I'm talking about the logic of the American craft beer evolution history. China doesn't rule out directly entering the bar craft beer or brewery craft beer state. Because in China, the utilitarianism and commercialization of craft beer have already surpassed passion and hobbies. The soil for beer geeks is very scarce! It's an unconventional evolution, which means craft beer enthusiasts must be all-capable Sun Wukongs: they must know how to brew and sell, understand production, marketing, and management... At this point, marketing seems even more important! Mainstream beer moves toward "water," imported beer moves toward "alcohol." Where does craft beer go? If craft beer moves toward "water," you can't beat mainstream beer. If it moves toward "alcohol," you might not outplay imported beer. A new category moving toward "flavor" has appeared. This is craft beer! Craft beer must be ever-changing, full of personality and imagination, even weird, niche, and without standards. It's the result of innovation. It's hard for one product to conquer the world. That's what mainstream beer does. In the beer industry: infantry is strong, air force is weak, and special forces don't exist. What does strong infantry mean? Mainstream beer has tens of thousands of market personnel. The frontline team is very strong, with so many distributors, but their marketing departments are weak. The air force is weak: they spend 10 billion a year, 9.9 billion on channels, and 100 million on brand and product R&D. Three spaces: offline space, online space, and community space. What is online space? Now online and offline are integrated, and the boundaries are very blurred. In the middle, communities are based on faith, hobbies, and trust, creating alliances. We find a large number of media, including WeChat businesses, and various business formats appearing, trying things in these formats. Consumption upgrade: value upgrade, price upgrade, aesthetic upgrade. Humanity is developing. Raw materials, services, beauty points. Consumer upgrade isn't about eating and drinking satisfaction, but about aesthetic changes. In the past 30 years, we had steamed buns and rice, one flavor. Now I need to switch to dumplings. What's the difference between dumplings and steamed buns? There's content, and the content is different. Content isn't just material; it might be culture! I'll still talk about Shandong. Tsingtao Beer has 4.8 million tons in Shandong, with a large team of thousands. How can individual craft brewers play? Big capital and heavy assets are the characteristics of giants: acquiring a company for 100 billion dollars is nothing. Compared to craft beer, it's like an elephant versus an ant. When one window closes, a door opens! Avoid where they are strong. Walking in the opposite direction of mainstream beer is the way out! Where mainstream beer is strong, I'm weak. Where mainstream beer is weak, I'm strong! Your beer is light, so mine is heavy. You're single, so I'm diversified. This is an era where the tall, big, and strong coexist with the small and beautiful. I'm small, but I exist! I can live freely and comfortably! Don't think the importance of brand is alluring. The starting point of the process must be the product. The old sales model emphasizes product promotion and brand, but neglects consumer insight. The new sales model is the opposite: it emphasizes consumer insight, discovery and reconstruction of new scenarios, and is willing to play with consumers. Thirty years ago, it was the era of sit-down sales. I experienced the era when beer wasn't enough to sell. As long as you had beer, you made money. You could just wholesale it directly, becoming a sit-down merchant. Then manufacturers directly controlled terminals, and sit-down merchants were killed by deep distribution. Today, mainstream beer still plays this game, with seamless terminal control. So, what should we do in the future? It's the era of connected sales. Who do we connect? You'll find that from controlling wholesalers to terminals, the future is controlling consumers and connecting with them. How to connect with consumers and what to do with that connection is the future dividend. Deep distribution 2.0 is digital marketing in the future. 2018 is the turning point for the beer industry: from drinking enough to drinking well, from tasting good to having fun! From offline to online, from channels to users! From territory to brand, from scale to value! It must be an era where the tall, big, and strong coexist with the small and beautiful. The above is a transcript of Mr. Fang Gang's speech at the Shanghai International Craft Beer Festival (CBCE). 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