2021 was a bumper year, The volume king aims to become the profit king On March 24, China Resources Beer (Holdings) Company Limited (00291.HK, hereinafter referred to as China Resources Beer) released its 2021 annual report. Image source: China Resources Beer official website Data shows that 2021 was the most profitable year for China Resources Beer. According to the financial report, in 2021, China Resources Beer achieved a consolidated turnover of RMB 33.38 billion, a year-on-year increase of about 6%; profit attributable to shareholders was RMB 4.59 billion, a year-on-year increase of 119%, with net profit reaching a historic high. The improvement in product mix became the main engine for China Resources Beer's net profit growth in 2021. In 2021, the sales volume of sub-premium and above products under China Resources Beer reached 1.866 million kiloliters, a year-on-year increase of 27.8% compared to 2020, and an increase of 42.1% compared to 2019. With the accelerating growth of high-end sales, China Resources Beer is becoming one of the most profitable beer companies in the Chinese market. After two consecutive years of rapid profit growth, China Resources Beer is getting closer to Budweiser APAC, which it defines as its "true competitor." Data from consecutive years proves that Snow Beer's high-end strategy has generated significant momentum, and it is highly likely to strengthen further in the coming years. For Chinese brands, this holds unusual significance. For a long time, not only in beer, Chinese brands have had no advantage in the high-end market of most consumer goods. Snow Beer's campaign into the high-end market, with its strategies, tactics, and lessons learned, holds significant research and reference value for the Chinese liquor industry and even the broader Chinese consumer goods sector. How likely is a mass-market brand to succeed in charging into the high-end market? What products and markets have driven China Resources Beer's high-end growth over the past two years? What did China Resources Beer do in the preceding years to prepare for this "high-end decisive battle," and what will it do next? For Chinese brands, what value and insights does the case of China Resources Snow's high-end battle offer? 'Decisive Battle for High-End': China Resources Snow's Three Years of Internal Strengthening No one would argue that extending from a mass-market brand to a high-end brand is an easy task. At the media conference on March 24, Hou Xiaohai also admitted that Snow Beer had long focused on mainstream and mid-range beers, which might lead to a perception of weak high-end attributes, but this situation is undergoing a tremendous change. Since 2017, Snow Beer has launched high-end Snow Beer products such as Mars Green, Craftsmanship, Brave the World SuperX, and Facial Makeup; in 2021, Snow Beer also launched "Li," a high-end product representing the ceiling of beer. These high-end products have been growing rapidly in recent years. In 2021, Mars Green maintained double-digit growth, and Brave the World SuperX also achieved mid-double-digit growth, with a growth rate exceeding 40%. Snow Pure has seen high-speed growth for three consecutive years and is entering the ranks of million-ton mega-brands. Hou Xiaohai introduced that to prepare for this "high-end battle," China Resources Snow Beer implemented three major strategic initiatives during 2017 to 2019, the first three-year phase of its "3+3+3" plan: capacity optimization, organizational restructuring, and brand revitalization. In fact, these three initiatives are also the necessary path for any Chinese brand aiming to develop the high-end market. In 2017, China Resources Snow had 91 factories, which was reduced to 65 by the end of 2021. "Capacity optimization brought historic improvements in cost, efficiency, and quality for Snow Beer. It transformed Snow Beer from a situation of excessive capacity, outdated capacity, mismatched, unbalanced, and insufficient capacity planning, with high costs and low efficiency, to a capacity layout with controllable costs, higher efficiency, and continuously improving quality," Hou Xiaohai believes that "capacity optimization was completed ahead of schedule, exceeding the management team's expectations." In terms of brand revitalization, through "brand revitalization" and cooperation with Heineken, Snow Beer formally formed a high-end brand portfolio of 'Chinese brands + international brands' by the end of 2019. At the high-end product level, it established a "4+4" high-end brand product matrix. In terms of organizational restructuring, focusing on "premiumization," it built high-end sales teams, developed high-end sales capabilities, and established a high-end key account model, promoting the implementation of the combined brand portfolio of 'Chinese brands + international brands.' "With these three strategic goals basically achieved, or even completed ahead of schedule, at the beginning of our second three-year phase, that is, at the end of 2019, we proposed the main strategic goal for the second three-year phase as 'Decisive Battle for High-End'." Hou Xiaohai stated, "During the pandemic in 2020 and 2021, through a desperate counterattack and overtaking on the curve, the speed, quality, and scale of Snow Beer's premiumization exceeded our expectations and also exceeded external expectations. We previously estimated that by 2024 or 2025, high-end sales might reach 2 million tons; now it is proven that we will exceed 2 million tons soon this year. And our goal for the next three years is to move from 'decisive battle' to 'decisive victory' in the high-end segment, with high-end product sales ultimately reaching over 4 million tons." China Resources Snow's High-End Products: In Which Markets Are They Selling Well? Growth in the high-end market is certainly not uniform across the country. In 2021, New Distribution conducted in-depth research in multiple markets including Zhejiang, Guangdong, Fujian, Sichuan, Guizhou, and Hubei, systematically observing and summarizing the performance of Snow Beer's high-end products in different markets. We found that China Resources Snow Beer's high-end growth mainly comes from two types of markets: high-end developed markets and markets where Snow Beer holds a high share. Hou Xiaohai once divided the high-end market into "high-end developed markets," "high-end developing markets," and "high-end potential markets" based on consumers' consumption habits and capacity for high-end beer. China's high-end developed beer markets are currently mainly in Guangdong, Fujian, and Zhejiang. In these markets, higher-priced 330ML small bottles have become the mainstream consumption choice, and even smaller 270ML bottles have become the main consumption variety in some parts of Fujian and Zhejiang. Snow Beer's high-end products, including the Heineken brand, have grown very rapidly in Zhejiang and Guangdong, achieving scale growth of tens of thousands of tons. In the Fujian market, although the absolute volume of high-end sales is not large enough, the momentum of ultra-high growth rates has already emerged. In markets where Snow Beer holds a high share, the sales situation of high-end products can be divided into two categories. One category includes base markets such as Sichuan and Guizhou, where Snow Beer's "self-led" high-end product promotion plan has achieved great success. High-end product sales in the Sichuan and Guizhou markets are both around the scale of 100,000 tons. In traditional strong markets for Snow Beer such as Anhui and Hubei, market competition is relatively more intense, but the growth rate of high-end products is also high, and they are expected to become the main source of high-end growth in the next phase. In regional markets north of the Yangtze River, Snow Beer's high-end products are still in the market education and introduction stage. As the market develops, they may become potential markets for high-end growth in the next three years. From the implementation of Snow Beer's high-end strategy, it is evident that when a company's brand strategy aims to charge into the high-end market, first quickly and effectively implementing it in base and strong markets, then attempting introduction in competitive and weak markets, is an effective approach with a higher success rate. Snow Beer's High-End Campaign: Implications for Chinese Brands With population growth stagnating and consumer goods production capacity almost absolutely oversupplied, China's FMCG market has clearly entered a new era of "quality growth" and "high-end development." The topic of "premiumization" is now a mandatory question that all consumer goods companies must face. Although Snow Beer's high-end battle is only halfway through, as a pioneer in the premiumization strategy of Chinese brands, its recent strategies, tactics, methods, implementation rhythm, and path choices have provided significant exemplary and inspirational value for Chinese brands. 1) A consumer goods company's premiumization strategy is by no means just about premiumizing the brand and price; it encompasses various dimensions including organizational restructuring, capacity optimization, operational transformation, brand revitalization, and channel upgrading. In fact, without the successful implementation of the three major initiatives of "capacity optimization," "organizational restructuring," and "brand revitalization" from 2017 to 2019, Snow Beer would not have been qualified to launch this vigorous premiumization campaign. If Chinese brands want to attack the high-end market, they must first ask themselves: how many years will it take? How can we consolidate or even rebuild these three foundations? The war of premiumization has always been a protracted war. Looking at classic brand cases worldwide, it is almost impossible to find support for any "theory of quick victory." The successful establishment of any high-end brand requires long-term, sustained, and arduous efforts, requiring the construction of one generation or even several generations. 2) A brand's premiumization strategy is by no means superficial; it must be practically implemented from the perspectives of consumers, channels, and sales. Snow Beer's premiumization strategy implementation has designed a complete high-end combat system covering everything from brand to sales, from team capabilities to channel construction. In terms of brand, as mentioned earlier, Snow's brand revitalization and partnership with Heineken have built a uniquely competitive high-end brand system for Snow. In terms of talent, the approach is twofold: poaching and cultivation. Strategic actions on brand, sales, and channel talent have rapidly accumulated a large amount of high-end talent resources for Snow Beer. Without the dividends released by capacity optimization, Snow Beer would not be able to implement its highly competitive compensation system in the industry today, and its talent strategy would not be effective. In terms of cultivation, Snow Beer has carried out training programs such as "Fire Lance," "Three-Level Top Leaders," and "Two Wind Fire Wheels," involving key positions in marketing organizations, distributor teams, brand teams, and key business personnel, to instill premiumization awareness and skills into those accustomed to mainstream beer operation models. Build and cultivate the high-end operational capabilities of the channel system. In the high-end market, the coverage capability of traditional channels is often no longer the core competency. How can channels be equipped with the ability to promote high-end products? In recent years, Snow Beer has launched the "Sword Casting Action" to introduce mature high-end beer distributors, and in 2020 initiated a three-tier "Key Account Platform" model—"Huading Club," "Huazun Club," and "Huajue Club"—to continuously help Snow Beer's key accounts improve their regional operational capabilities for high-end products. At the same time, Snow Beer has summarized and promoted a series of effective tactics for high-end products in regional markets, such as "Five Points One Line," "Smart Channel Marketing," and "Key Person Promotion." After three years of high-end combat, Snow Beer has achieved staged victories and significant results. Its summarized experiences, tactics, and even setbacks and lessons are invaluable demonstrations and the most vivid samples for Chinese brands in the direction of high-end strategy. Are you "watching" me?