---
title: "How to View China's Beer Industry under the New Normal?"
description: "China is the world's largest beer consumer market, and the rapid growth of imported beer has drawn widespread attention. How to objectively analyze this phenomenon? What trends will the beer industry show in the future under the new normal? What implications does the beer industry's development have for other FMCG sectors in China?"
author: "New Distribution"
publisher: "New Distribution"
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published: "2016-11-29"
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# How to View China's Beer Industry under the New Normal?

> China is the world's largest beer consumer market, and the rapid growth of imported beer has drawn widespread attention. How to objectively analyze this phenomenon? What trends will the beer industry show in the future under the new normal? What implications does the beer industry's development have for other FMCG sectors in China?

> China is the world's largest beer consumer market. Recently, imported beer has been growing rapidly, attracting widespread attention both inside and outside the industry. How should we objectively analyze this phenomenon? Under the new normal, what development trends will the beer industry show in the future? What implications does the beer industry's development have for other FMCG sectors in China? The Economic Daily recently conducted an in-depth investigation of the beer industry and invited relevant experts to the studio to discuss these issues.

**Host:** Xiong Li, reporter from Economic Daily
**Guests:**
- Zhao Yu, Deputy Secretary-General of China Alcoholic Drinks Association
- Yang Yingjie, Deputy Editor-in-Chief of the Party School Newspaper
- Li Guangdou, renowned brand marketing strategy expert
- Fang Gang, beer industry expert

**The beer industry is shifting from quantitative change to qualitative change.**

**Host:** In 2014, China's beer production and sales experienced negative growth, breaking the growth momentum that had lasted for over 20 years. In 2015, the Chinese beer market saw negative growth for the second consecutive year, becoming the liquor category with the largest decline. What caused these market changes?

**Zhao Yu:** Changes in the macroeconomic environment directly affect sales of consumer goods. Not only beer, but also other liquor categories such as baijiu have seen declining growth rates. Although overall beer production has seen negative growth, the product structure is changing: low-end products are declining, while mid-to-high-end beers are on the rise. Additionally, over the past decade or two, the beer industry has been growing continuously through consolidation. After capital completes industry consolidation, a new round of adjustment is inevitable, and the industry decline is a manifestation of that adjustment.

**Fang Gang:** From the data, beer production declined by 0.9% in 2014 and 4.6% in 2015, after 24 consecutive years of growth. In 1949, China's beer sales were only 7,000 tons, but today they have reached 47 million tons. After such a long period of continuous growth, a slight adjustment is normal. I believe the beer industry is not yet in a position for major adjustments, and there will not be a cliff-like decline. We also see that in August 2016, beer production and sales increased by 4.1%, ending more than 20 consecutive months of decline, and September saw growth again, indicating that the adjustment period is nearing its end. Moreover, although beer production and sales declined, sales revenue actually increased. In 2014, beer industry sales revenue grew by 6%, and in 2015 by 1.9%. In terms of product structure, ultra-high-end product sales grew by 18%, high-end products by 9%, while low-end products, which form the base, declined by 11%. This shows that the domestic beer industry is shifting from quantitative change to qualitative change.

**Rational view of imported beer growth**

**Host:** Data shows that from 2010 to 2015, the total volume of imported beer grew at over 50% for five consecutive years. In the first nine months of this year, total imports reached 512,900 kiloliters, a year-on-year increase of 19.1%, continuing the upward trend. Why is imported beer growing so fast? Has this rapid growth already posed a threat to domestic brands?

**Fang Gang:** In fact, not only the beer industry, but also imported wine and imported food have seen explosive growth in recent years. In 2011, imported beer sales were only 6,700 tons, a small base, so a large increase is not surprising. By 2015, imported beer accounted for less than 1.2% of the total industry. Currently, the growth rate of imported beer has slowed to 17%, and customs data show that imported beer volumes have been declining in the last two months.

We find that most imported beer comes from Europe, and most of it is ale, while the mainstream domestic beer is mostly lager. Imported beer is characterized by higher prices, higher alcohol content, and higher malt concentration, while domestic beer has a lighter taste. As the economy improves, when consumers need personalized and distinctive beers, domestic beer companies have insufficient supply in this area, creating a gap. In addition, consumers' purchasing channels have changed; previously they mainly bought through catering and supermarkets, but now they can buy online and through cross-border e-commerce. These two factors together have contributed to the growth of imported beer.

**Li Guangdou:** As a mass consumer product, beer consumption is mainly concentrated among blue-collar workers and is a group consumption. Globally, fluctuations in beer sales are inevitably accompanied by related economic phenomena. For example, when the U.S. auto industry declined, beer sales dropped significantly; conversely, during the Olympics or major football events, beer sales rebound. The base of beer consumption is mid-to-low-end beer. Mass consumers are more price-sensitive, while business people and the middle class are less price-sensitive and seek niche brands with special flavors. Expensive beers are starting to have a market.

**Yang Yingjie:** As China's economy develops, the industrial structure is moving from low-end to mid-to-high-end. With the improvement of living standards, the base sales are declining. This is not scary; what is scary is that when consumer preferences shift, our mid-to-high-end products have not kept up. If we cannot meet this demand, foreign products will inevitably come in. This poses a challenge: how to develop mid-to-high-end products and how can the supply side keep up? This is also the key issue of the supply-side structural reform emphasized by the central government.

**Host:** Some people believe that imported beer is simply better than domestic beer. For example, they say imported beer has a richer taste, while domestic beer is too bland, even calling it "water beer." Does imported beer necessarily equal high quality?

**Zhao Yu:** Alcohol is a product whose spiritual attributes outweigh its material attributes; it is more about pleasure. Good or bad cannot be judged by blandness or richness; it is a matter of consumer preference. Just like Chinese baijiu, many consumers prefer strong aroma, while others prefer sauce aroma. In terms of drinking culture, European consumers like to drink slowly with a few friends, while Chinese people prefer group drinking and fast drinking, so the mainstream beer has relatively lower malt concentration and alcohol content. In fact, our food safety standards are becoming stricter, and beer is an industry where global technology and processes are quite similar. There is no essential difference, except that we are relatively behind in personalization.

Beer also has a freshness issue. Customs policies, taxes, logistics, and other factors will affect the volume growth of imported beer in the Chinese market. Personally, I believe that imported beer will not become a mainstream mass consumer product in the future, and its share of total beer consumption will not exceed 10%. Imported beer has played a significant role in promoting China's beer industry. The entire beer industry is now actively adjusting its product structure, such as Tsingtao Beer's August, Zhujiang's white beer, and Snow's face-painting series, which are also popular in the market. Of course, to make domestic mid-to-high-end beers accepted and loved by a broader consumer base, there still needs to be a process of consumer guidance.

**Actively respond to the new trend of globalized consumption**

**Host:** Some argue that international beer giants are increasingly acquiring local companies to control the Chinese market. How should we view the role of capital in the development of China's beer industry?

**Li Guangdou:** The era of globalized beer consumption has arrived. If you don't go out, others will come in. We must actively respond to this change. Previously, we relied on population size and total volume, but once blue-collar consumption falters and cannot contribute 50% to 60%, sales of beer, instant noodles, milk, ice cream, etc., all slow down. We need to pay more attention to the needs of mid-to-high-end consumers, the creation of personalized brands, and the consumption characteristics of the post-80s and post-90s generations. In the future, the beer industry will gradually move toward globalized consumption, just like the TV and automobile industries.

**Yang Yingjie:** I agree with Mr. Li's point. The biggest challenge of globalization is not directly importing foreign products, but that local brands are acquired and produced locally, and many of our brands disappear. Brand competition is capital competition. Capital globalization and trade globalization determine brand globalization. Many of our products are absolutely not inferior in quality to foreign famous brands. The key is how to do well in brand marketing and capital operation to make our brands bigger and stronger. In this regard, national policies should provide support, and enterprises should also have self-awareness and proactive consciousness to deal with the invasion of foreign brands on the capital battlefield.

**Fang Gang:** Looking at the global beer industry, there are two types: one is capital-driven global oligopolistic competition; the other is personalized beer represented by private forces, small and medium-sized enterprises, and even micro-enterprises. In the United States, Budweiser dominates the mainstream, but there are still over 4,000 craft beer companies, each with its own characteristics and very small scale. Similarly, German beer is mainly characterized by specialty small breweries, with over 1,800 companies and 8,000 varieties.

Capital is still the mainstream force in the beer industry. In China, from 7,000 tons in 1949 to 47 million tons today, it is largely the result of capital promotion. Currently, Budweiser and Carlsberg together hold less than 30% of the Chinese beer market share, with 70% still in the hands of domestic capital. In the process of capital promotion, some brands have disappeared, while others have thrived through capital operations. This is also a process of survival of the fittest. For example, Tsingtao Beer's Laoshan, Yanjing Beer's Liquan, Harbin Beer under Budweiser, and Snow Beer have all performed remarkably in regional and global layouts.

**Seize the opportunity of supply-side structural reform**

**Host:** In the future, what development trends will China's beer market show? How should beer companies build and enhance their core competitiveness through supply-side structural reform?

**Zhao Yu:** China's beer industry, as well as domestic baijiu and wine, has for many years been separated from consumers due to irrational competition. There are too many concepts imposed on consumers, too much "storytelling," and too few products that truly move consumers. For Chinese beer brands to gain more consumer recognition, they first need to enter a rational and healthy state. In the past, many domestic breweries produced personalized products like fruit beer that were very popular, but during industry consolidation, they were gradually phased out to adapt to competition. Now, we need to pick up personalization, differentiation, and mid-to-high-end products at the product level to meet real market needs and solve the supply-side problem. In recent years, various companies have recognized this. While adjusting product structure, they are also self-reinventing consumption channels, and the overall trend is more rational. I believe that in the future, our domestic mid-to-high-end beers will also be favored by consumers.

**Fang Gang:** I believe that the future structure of the entire beer product should transition from a pyramid shape to an olive shape: low-end shrinks, middle expands, and high-end continues to lengthen. Currently, for mainstream beer, domestic companies have extensive channels and consumption systems, so "defense" should not be a problem. However, there are still shortcomings in fragmented consumption, meeting the demand for trendy beers, and developing personalized products. High-end and ultra-high-end will be the opportunities and dividends for the beer industry, and domestic beer companies must keep up in a timely manner. This is not something that can be handled with just one "skill." Companies need not only ground combat capabilities but also modern thinking and means to connect with consumer needs and enhance R&D capabilities for high-end products.

**Host:** We see that not only in beer, but also in many other daily consumer goods, consumers often prefer foreign brands when choosing mid-to-high-end products. On the other hand, in areas like home appliances and smartphones, more and more domestic brands have occupied the mainstream position and even perform very well in the global market. What can the beer industry learn from this?

**Yang Yingjie:** Why are foreign brands of TVs, refrigerators, washing machines, and air conditioners rarely seen now? Because the quality of our domestic brands has improved, and at the same quality, the price-performance ratio is higher. Many people now use Huawei phones because they have core technology. In the final analysis, for enterprises to develop and grow, they still need to carry out supply-side structural reform, start from themselves, and solidly make good products. Once product quality is up, rational consumers will naturally choose domestic products. Currently, the state has also introduced a series of measures to support Made in China and promote supply-side structural reform. Following this trend, not only clothing and footwear, but more and more Chinese-made products and Chinese brands will go global. I hope beer companies can seize the opportunity of supply-side structural reform, truly improve product quality, and truly meet the needs of consumers.

**Li Guangdou:** Internationalization involves two levels. Reform and opening up solved the first problem: how to sell Chinese products to the world. But now we face the problem of how to sell Chinese brands to the world. Chinese brands are currently on the rise, so our smartphones sell well abroad. This shows that Chinese brands have cultural advantages and are beginning to penetrate. As the world's second-largest economy, China should have its own national brand strategy and a global vision. This is not only about beer, food, and light industry, but also a comprehensive brand revival plan.

**Host:** To promote the healthy development of China's beer industry, besides the active efforts of enterprises themselves, what other aspects need to be addressed?

**Yang Yingjie:** From the macro environment, the government should build a quality supervision system and legal environment to give consumers a reassuring consumption environment. In addition, through third-party authoritative certification, let the public see that the quality of domestic brands is not inferior to foreign similar products, correcting consumers' irrational preferences. The government has a lot of work to do, including market environment, legal environment, institutional construction, and supervision environment.

**Zhao Yu:** Many countries in the world have special regulations and strict market access conditions for alcoholic products. But in China, beer is still treated as ordinary food, and all alcoholic products are managed under the Food Safety Law, which is inappropriate. Because there are many types of alcohol, it is highly specialized, consumers lack the ability to distinguish, and it is a spiritual consumption. If the alcohol market is disorderly, it can bring serious social consequences. Therefore, from a policy perspective, we should strengthen market regulation and manage alcohol as a special commodity with professional management.

**Li Guangdou:** Consumers have upgraded. Can the manufacturing capacity of enterprises upgrade? Can laws and regulations keep up with regulatory requirements? These are issues to consider. Supply is a big concept, including capital supply, labor and product supply, institutional supply, technological supply, and brand supply. Especially in the Internet era, channels are increasingly developed. If consumer demand cannot be met domestically, they will naturally turn to the international market. The barriers formed by regions in the past no longer exist today.

**Fang Gang:** The worst of times may be the best of opportunities. Domestic mainstream beer should thank imported beer. Imported beer has helped us cultivate a personalized high-end consumer group and provided a good target for Chinese beer to catch up. I believe the catch-up time will not be too long, and I am full of confidence in the future of Chinese beer.

-END-

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