In the beer world, most have heard of the rich 'Deadly Dalu Wusu', the authentic Tsingtao No.1 Brewery, and the original Harbin Beer, but unfortunately, friends from other places can hardly get to taste them. Beer is inherently a regional product; apart from national giants like Snow, Tsingtao, and Yanjing, most other brands are only active in certain regions. In recent years, as the beer market has declined for three consecutive years, beer companies have had to try to escape the mire by 'rearranging the shelves'. Besides adjusting product lines to develop high-end new products and closing low-end idle capacity, the beer giants are quietly retrenching and returning to their core markets. Tsingtao Beer has increased its share in North China, especially in Shandong, and staged a 'Dunkirk evacuation' in the Southeast market; Yanjing's share in North China has been increasing; local small giants like Chongqing Beer, Zhujiang Beer, and Lanzhou Yellow River are all, without exception, betting more on their provincial markets. After all, in China's beer industry, which has passed its peak and returned to quality, strategic expansion is almost unnecessary; the focus is on maximizing profitability. Geographic limitations have never been the constraint; product, brand, and channel control are what matter. Beer giants retreat to core markets Tsingtao Beer had a good first half of 2017, with increases in sales volume, revenue, and net profit, and revenue growth in all major regions, except for the Southeast region, where revenue fell by 45.78%. This regional 'defeat' is not the first time, and it is not unique to Tsingtao's Southeast region. Perhaps the revenue share of the regions better illustrates the issue. In recent years, Tsingtao Beer's revenue share in Shandong has grown significantly, while its southern markets have shrunk, with the Southeast region's revenue share shrinking by two-thirds. Shandong is Tsingtao's most core market. Before the great expansion of China's beer industry, Tsingtao focused on Shandong and North China, but later its share was diluted by other national markets. Now there are signs of returning to core markets. Tsingtao is not the only one quietly implementing this policy. After analyzing Yanjing Beer's regional revenue shares, Zebra Consumption found a similar 'behavior pattern': Yanjing's share in North China is rising, while its share in Central China is falling, though the change is not as strong as Tsingtao's. Compared with the low-key retrenchment of Tsingtao and Yanjing, Chongqing Beer under Carlsberg has focused its high-profile plant closures on Anhui and Guizhou—with remaining capacity and markets concentrated in Chongqing, Sichuan, and Hunan. Tsingtao and Yanjing's spheres of influence have always been concentrated in North China and surrounding areas, but China Resources Snow was essentially built through expansion, so there is no core market effect from headquarters. However, among China Resources Beer's major regions, there is still a shift. Other local small giants—Chongqing Beer, Zhujiang Beer, Lanzhou Yellow River, and Huiquan Beer—have all seen their provincial business shares grow, without exception. Once the giants have retrenched to their core markets, the expansion era of China's beer industry can be declared over. All for profit During the great expansion of China's beer industry, in order to grab market share and suppress competitors, many giants actually did not make money in regional markets. For example, Snow in 2016 had revenue shares of 52%, 23%, and 25% in the East, Central, and South regions, respectively, but profit shares of 54%, 4%, and 42%. But now, market rankings and shares are basically stable, and profitability has become the primary demand for beer companies. Tsingtao's net margin fell from a peak of 7.64% in 2010 to 4.00% in 2016. Do you think Tsingtao is anxious? Therefore, Tsingtao's retrenchment in non-strong regions is natural, especially since the gross margin is almost double. By this estimate, Tsingtao actually makes little money in East China and Southeast China. Besides different pricing strategies and market investments in each region, an important cost in beer—transportation—cannot be ignored. For example, Tsingtao has no factory in Tibet, but as a national giant and a century-old beer brand, it cannot completely avoid selling there, so it has to rely on long-distance cross-regional transportation. In 2016, Tsingtao spent 1.2 billion yuan on loading and transportation, accounting for one-fifth of its annual selling expenses. The transportation radius for beer is generally 250-300 kilometers; beyond that, costs cannot be covered. But there is no choice; some markets must be sold even at a loss. In addition, promotional expenses and advertising in new markets are also necessary. These are the costs beer manufacturers incur in non-core markets. After cutting them, the picture becomes clearer. Source: Zebra Consumption The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in November 2017. The conference will closely focus on the theme 'New Forces, New Ecology' and invite 1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to jointly explore a new chapter of cross-border integration! Core topics of this conference:
How can the FMCG industry leverage B2B to achieve new growth opportunities?
How should the new supply chain behind new retail be built?
How can intra-city logistics help B2B achieve leapfrog development?
Highlights of this conference:
The industry's first '2017 China FMCG B2B Industry Competitiveness White Paper'
Case sharing of excellent transforming and upgrading distributors
Exhibition upgraded: Hall 6 Internet Technology Exhibition strengthens matchmaking
Alibaba Retail Link, GLPS Finance, EASIA Supply Chain, Best Store Plus, 91Pi, and Hisense—leaders from the most renowned companies in various fields will deliver speeches and share pioneering views.
Registration is now open. Long press the QR code below or click 'Read Original' to register. Add friend with note 'Conference Registration'. Click the link below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 'FMCG + Internet' Summit Forum -END-