The 2023 annual reports of beer giants reveal a common trait: sales volumes are slightly up or down, generally stable, while performance, especially profit growth, is largely driven by higher per-ton prices. This allowed the four major players—China Resources Beer, Tsingtao Brewery, Chongqing Brewery, and Yanjing Brewery—to see their combined revenue exceed 100 billion yuan for the first time last year, reaching 101.9 billion yuan, with net profits growing rapidly. China Resources Beer remains the absolute leader. Since forming China Resources Snow Breweries in a joint venture with Shenyang Brewery in 1993, the China Resources Group has, through a series of mergers and acquisitions over three decades, assembled a vast "beer game." The core of this game is China Resources Beer. As the largest beer seller in China, China Resources Beer has been the industry's top player for years. When growth became difficult, China Resources Beer resumed its acquisition spree, first acquiring Heineken China to gain a foothold in the premium segment, then entering the baijiu market through acquisitions, starting to "drink both beer and baijiu." In the baijiu industry, China Resources Group, through its subsidiaries, has taken stakes in Shanxi Fenjiu, Shandong Jingzhi, Golden Seed Wine, and Jinsha Wine. Among these, the listed company China Resources Beer indirectly holds stakes in two: Shandong Jingzhi and Jinsha Wine. However, China Resources Beer, accustomed to beer and with a successful track record, seems not yet to have found its footing in baijiu operations. In early 2023, China Resources Beer announced the establishment of two business divisions: beer and baijiu. 2023 was the first year China Resources Beer consolidated its baijiu business in its annual results. However, baijiu has not yet become a major growth driver. Growth is urgent for China Resources Beer. Over the past year, China Resources Beer's board chairman Hou Xiaohai has repeatedly emphasized that "growth is the first strategy."

Heineken Drives Revenue to 39 Billion Yuan

2023 was hailed by China Resources Beer as a milestone year. It marked the 30th anniversary of China Resources Beer, the first year it formally entered the baijiu market from a financial reporting perspective, the 150th anniversary of Heineken, and the conclusion of the first five-year partnership between China Resources Beer and Heineken. Beer companies are caught in intense competition for market share, making performance growth increasingly difficult. After a slight revenue increase but a net profit decline in 2022, all eyes were on China Resources Beer's results for the crucial year of 2023. According to the annual results announcement released on March 18, China Resources Beer's consolidated turnover for 2023 was 38.932 billion yuan, up 10.4% year-on-year; profit attributable to shareholders was 5.153 billion yuan, up 18.6%. Compared to the previous year, this growth was decent. However, at the results conference, Hou Xiaohai stated, "In 2023, there were areas where we fell short," noting that overall beer sales volume grew only 0.5%, which he was "not entirely satisfied with." Hou Xiaohai said that in 2023, the overall consumer market performed well in Q1, but pressure emerged in Q2, declined in Q3, and faced headwinds in Q4, with the year trending from hot to cold, putting significant pressure on consumer goods. In 2023, China Resources Beer's total beer sales volume was approximately 11.15 million kiloliters, up 0.5% year-on-year. According to the National Bureau of Statistics, in 2023, beer production by enterprises above designated size in China grew only 0.3% to 35.555 million kiloliters. Clearly, China Resources Beer did not escape the industry cycle, but its sales volume still accounted for nearly one-third of the production of enterprises above designated size. So where did China Resources Beer's performance growth, especially net profit growth far outpacing revenue growth, come from? In fact, the beer industry has long bid farewell to volume growth. China Resources Beer's 2023 sales volume was almost flat year-on-year, so revenue growth naturally came from prices—the overall per-ton price increase driven by premiumization. In 2023, China Resources Beer's average selling price was 3,306 yuan per kiloliter, up 4% from the previous year. Among these, sales of premium and above beers were approximately 2.5 million kiloliters, up 18.9% year-on-year, with Heineken, Snow Pure, Old Snow, and Red爵 all achieving double-digit sales growth. However, the premium product Brave the World SuperX, endorsed by Wang Yibo, sold only 400,000 tons in 2023. In Hou Xiaohai's view, this growth was small and below expectations. In regional markets like Shandong, sales of Brave the World SuperX fluctuated due to price increases and intensified competition. Shandong is the home turf of another major domestic beer giant—Tsingtao Brewery. If we attribute the biggest driver of performance, it likely goes to Heineken. The acquisition of Heineken China was a key move in China Resources Beer's premiumization journey. In its early years, China Resources Beer relied on low-priced products and did not gain an early advantage in the premium market. It wasn't until April 2019 that China Resources Beer completed the acquisition and integration of Heineken China, securing a trump card in its premiumization process. In the international premium beer market, Heineken is one of the giants. At that time, in China's premium and above beer market, AB InBev, an international beer powerhouse that had entered early, dominated with a market share far exceeding other beer giants. Although China Resources Beer had the highest overall beer sales volume for years, its market share in the premium and above segment ranked third, behind AB InBev and Tsingtao Brewery. After securing the Heineken premium card, China Resources Beer accelerated its premiumization. Hou Xiaohai also issued the slogan "Decisive Victory in Premium." 2023 marked the conclusion of the first five-year plan of cooperation between China Resources Beer and Heineken. In the financial report, Heineken was frequently highlighted by China Resources Beer. In 2023, as the strongest driver of China Resources Beer's premiumization, Heineken brand sales volume grew nearly 60% year-on-year. China Resources Beer stated in its performance announcement: "The first five-year plan of our cooperation—the goal of Heineken brand beer sales reaching 600,000 kiloliters in China—was successfully achieved, and China has become Heineken's second-largest market globally." With the change in product mix, Choice data shows that in 2023, China Resources Beer's gross sales margin rose to 41.36%, a new high in over a decade.

Baijiu Business Needs Time

Among China's top five beer giants—China Resources Beer, Tsingtao Brewery, AB InBev, Chongqing Brewery, and Yanjing Brewery—China Resources Beer is the only one that has entered the baijiu industry. In December 2020, China Resources Beer established a wholly-owned subsidiary, China Resources Wine, marking its formal entry into baijiu. In August 2021, China Resources Beer acquired a 40% stake in Shandong Jingzhi Baijiu Co., Ltd. through China Resources Wine. In the acquisition announcement, China Resources Beer mentioned that the company had been reviewing its business strategies and exploring opportunities for further development. "The investment is a significant milestone, signifying the Group's entry into the Chinese baijiu market, which will be beneficial to the Group's potential future business development and diversification of product portfolio and revenue sources." A year later, in October 2022, China Resources Beer announced that China Resources Wine planned to invest 12.3 billion yuan to acquire a controlling stake in Guizhou Jinsha Cellar Wine Co., Ltd. ("Jinsha Wine") through capital increases and share purchases. In January 2023, the share transfer was completed. After the transfer, China Resources Wine held 55.19% of Jinsha Wine. This created the largest merger and acquisition case in China's baijiu industry. In 2023, China Resources Beer consolidated its baijiu business for the first time. In the same year, China Resources Beer's baijiu business turnover was 2.067 billion yuan, with profit before interest and tax of 130 million yuan; excluding the impact of amortization of intangible assets arising from the acquisition of Jinsha Wine, profit before interest and tax was 797 million yuan. According to China Resources Beer's previous announcements, from 2019 to 2021, Jinsha Wine achieved revenues of 878 million yuan, 1.767 billion yuan, and 3.641 billion yuan, respectively; net profits after tax were 156 million yuan, 615 million yuan, and 1.315 billion yuan. China Resources Beer aims to promote a "beer + baijiu" dual empowerment and a "baijiu + baijiu" co-growth business model. However, judging from the first consolidated results, China Resources Beer's successful experience in beer operations has not yet translated into significant progress in baijiu. Or, this beer giant is still not "used to drinking" baijiu for now. Jinsha Wine is located in Jinsha County, Guizhou Province, in the Jinsha production area on the upper reaches of the Chishui River. According to its official website, Jinsha Wine is one of the earliest state-owned baijiu producers in Guizhou. In 2007, the state-owned Guizhou Jinsha Cellar Distillery was restructured into Jinsha Wine. "Jinsha Huisha" and "Zhaiyao" are the two major brands under Jinsha Wine. Among them, Zhaiyao is positioned as "high-end sauce-flavor baijiu from Jinsha, Guizhou"; Jinsha Huisha is positioned as "famous sauce-flavor baijiu from Jinsha, Guizhou." In 2023, the baijiu industry was in a new adjustment period, with widespread high inventory and price inversions. Moreover, the baijiu industry is experiencing squeezed growth, where strong players like Moutai, Wuliangye, Luzhou Laojiao, Yanghe, and Gujing Gongjiu continue to strengthen, while small and medium-sized distilleries face increasing difficulty, such as Golden Seed Wine, which was invested in by China Resources Group through China Resources Strategic Investment. Jinsha Wine is no exception. Hou Xiaohai stated frankly at the 2023 results briefing that Jinsha Wine's inventory and price issues exceeded expectations. Wei Qiang, Vice President of China Resources Beer, General Manager of China Resources Wine, and Chairman of Jinsha Wine, said that after China Resources took over Jinsha, it faced significant challenges: first, high inventory caused by the original management's blind stocking and product promotion; second, severe price inversion. Therefore, reducing inventory and stabilizing prices were the primary measures after China Resources took control. In response to external doubts about whether China Resources Beer can do well in baijiu, Hou Xiaohai said, "No matter if others say your performance has been halved, slashed, or cut off at the knees, these are not important. Doing the right thing is the most important content for China Resources Wine." Hou Xiaohai, a native of Shandong, is a veteran of the beer industry. He joined China Resources Snow in 2002 and has been associated with the beer industry ever since. While peers focused on selling points like freshness, crispness, and purity, he orchestrated a series of marketing campaigns for Snow, such as "Brave the World," achieving great success and helping China Resources Snow become the national beer sales champion. The growth and expansion of China Resources Beer can be said to be closely linked to Hou Xiaohai. However, baijiu is a different battlefield.

Beer Will Get Pricier

While the baijiu division is still resolving historical issues, the burden of growth remains on the beer division. Future growth in beer will continue to depend on premiumization, product mix upgrades, and price increases. Hou Xiaohai also mentioned at the results conference that China Resources Beer has no plans to cut prices or engage in price wars in 2024, and currently has no overall price increase plan, but it will maintain price flexibility in certain markets and for certain products, while also seeking opportunities to further raise prices. In other words, beer will get pricier in the future. In fact, this is already an industry trend. In 2023, Tsingtao Brewery achieved operating revenue of 33.937 billion yuan, up 5.49% year-on-year; net profit attributable to shareholders was 4.268 billion yuan, up 15.02%. This performance growth was mainly driven by premiumization and product mix optimization. In 2023, Tsingtao Brewery achieved product sales of 8.007 million kiloliters, down 0.82% year-on-year. However, sales of mid-to-high-end and above products reached 3.24 million kiloliters, up 10.5% year-on-year. Yanjing Brewery's 2023 operating revenue was 14.213 billion yuan, up 7.66% year-on-year; net profit attributable to shareholders was 645 million yuan, up 83.02%. A large part of this growth was due to the push for premium products like Yanjing U8. The other two giants, Budweiser APAC and Chongqing Brewery, are similar. The 2023 annual reports of beer giants reveal a common trait: sales volumes are slightly up or down, generally stable, while performance, especially profit growth, is basically not driven by volume increases but by higher per-ton prices. "Flat volume, higher prices, and profit growth will be the norm," Fang Gang, a beer industry expert, analyzed to "Market Insights." The total volume growth space in the beer industry is very limited, and may even see negative growth, but the profit growth space is still large. Companies can achieve per-ton price and profit growth through means such as optimizing product mix, optimizing outdated capacity, strengthening brand building, and localized price increases. The CEO of Budweiser APAC also mentioned at the results conference that in China's beer market, low-end sales have declined, but the premium and super-premium beer market continues to grow "very well." Looking ahead to 2024, Budweiser APAC stated it will continue its premiumization strategy. The beer industry experienced extensive growth in its early stages, and after production peaked in 2013, it bid farewell to volume-driven growth and began competing in a stock market. According to Founder Securities, from 2014 to 2017, the beer industry went through an adjustment period. In the early phase, companies continued extensive competition under inertia, grabbing share through low-price competition at the expense of profits. In the later phase, companies gradually realized the importance of high-quality development and successively initiated premiumization reforms, marking a turning point in profitability. At the end of 2017, with the competitive landscape stabilizing and external cost pressures, the industry collectively raised prices, reaching a consensus on premiumization and high-quality development. Since 2018, the beer industry has fully entered a new stage of premiumization. Companies used three strategies to reduce costs and increase efficiency—enhancing efficiency through premiumization, reducing costs by closing inefficient plants, and optimizing through layoffs and incentives—leading to continuous improvement in gross margins and profitability. Since then, the industry has fully entered a new stage of premiumization, price wars have eased, and the accumulated momentum of consumption upgrades has been released. Additionally, listed companies have actively pushed premium products and scaled back low-end products, accelerating industry structure upgrades. Premiumization and product mix upgrades are still ongoing, and the performance growth in 2023 is the result of earlier layouts beginning to pay off. According to Huachuang Securities, among the top five beer giants in China in 2023, Tsingtao Brewery had the largest share in the 8-10 yuan price band, at 30%; Budweiser APAC had the largest share in the 10-15 yuan and above 15 yuan price bands, at 36% and 52%, respectively; China Resources Beer is accelerating its capture of the 10-15 yuan price band through Heineken. China Resources Beer stated that in 2024, "growth remains the first strategy," and it will continue to strive for "balanced" growth in both scale and quality.

Recommended Reading