After years of explosive growth, the domestic beer industry has seemingly hit a 'ceiling' in recent years, with not only sluggish growth but also widespread declines. Among the eight listed beer companies that have published annual reports, only one saw both revenue and net profit increase. Meanwhile, imported beer continues to grow, seizing the high-end market and reaping profits.

The World of 'Giants': More Than Just Gloomy

China Resources Beer 2015-2016 Revenue (100 million yuan) Time | Revenue | YoY | Net Profit | YoY 2016 | 286.94 | 2.6% | 6.29 | -5.7% 2015 | 279.59 | 2.4% | 6.67 | 15.4% (Note: China Resources data is for continuing operations)

Tsingtao Brewery 2015-2016 Revenue (100 million yuan) Time | Revenue | YoY | Net Profit | YoY 2016 | 261.06 | -5.53% | 10.43 | -39.09% 2015 | 276.35 | -4.87% | 17.13 | -13.92%

Yanjing Beer 2015-2016 Revenue (100 million yuan) Time | Revenue | YoY | Net Profit | YoY 2016 | 115.73 | -7.70% | 3.12 | -46.90% 2015 | 125.38 | -7.15% | 5.88 | -19.07%

China Resources, Tsingtao, and Yanjing are the three largest listed beer companies in China. Yanjing's annual revenue exceeds 10 billion yuan, while China Resources and Tsingtao both exceed 20 billion yuan, making them undisputed giants in the beer industry.

However, as shown in the table above, Yanjing and Tsingtao have seen their revenue decline by single digits each year over the past two years, while net profit has declined at a double-digit rate. In 2015 and 2016, the net profit of these two beer giants fell by more than 50%.

Although China Resources Beer's figures look slightly better, sluggish growth and weakening profitability are undeniable. While revenue increased, net profit declined, showing how fierce market competition has become.

The Kingdoms of 'Lords': No Worst, Only Worse

Hui泉 Beer 2015-2016 Revenue (100 million yuan) Time | Revenue | YoY | Net Profit | YoY 2016 | 6.18 | -17.83% | 0.02 | -92.70% 2015 | 7.52 | -9.34% | 0.23 | -29.08%

Tibet Development 2015-2016 Revenue (100 million yuan) Time | Revenue | YoY | Net Profit | YoY 2016 | 3.57 | -8.54% | 0.08 | -51.54% 2015 | 3.91 | -2.04% | 0.16 | -36.00%

Lanzhou Yellow River 2015-2016 Revenue (100 million yuan) Time | Revenue | YoY | Net Profit | YoY 2016 | 6.77 | -3.48% | -0.25 | -136.46% 2015 | 7.02 | -11.79% | 0.69 | -11.66%

After looking at the performance of the national 'giants', let's look at the performance of the regional 'lords'. If the 'giants' are gloomy, then the 'lords' are even gloomier. Among the three companies over two years, out of a total of twelve data points, none showed positive growth.

In terms of revenue, all three companies declined by about 10% over the two years. Looking at net profit, Tibet Development and Hui泉 Beer are only in the millions, but at least they are positive; Lanzhou Yellow River's net profit has turned negative.

A 'Clear Stream' in the Beer Industry: Zhujiang Beer

Zhujiang Beer 2015-2016 Revenue (100 million yuan) Time | Revenue | YoY | Net Profit | YoY 2016 | 35.43 | 0.74% | 1.14 | 36.96% 2015 | 35.17 | -0.19% | 0.83 | 37.69%

Zhujiang Beer can be described as a clear stream in the beer industry. While revenue fluctuated within 1%, net profit maintained nearly 40% growth for two consecutive years. So what exactly did Zhujiang Beer do?

First, it played the cultural card, focusing on tourism, leisure, and entertainment. The beer culture project has a total investment of 1.814 billion yuan, planning to transform the old factory area into a beer culture carnival complex, a premium beer experience center, and beer industry tourism attractions.

Second, it invested over 250 million yuan in a craft beer project, adding production lines to produce high-value-added craft beer. It took the lead in trying craft beer and accelerated product structure upgrades.

Third, Zhujiang Beer also took the lead in launching an employee stock ownership plan, with non-public issuance targets including directors, supervisors, senior management, and employees.

A 'Mudslide' in the Beer Industry: Chongqing Beer

Chongqing Beer 2015-2016 Revenue (100 million yuan) Time | Revenue | YoY | Net Profit | YoY 2016 | 31.96 | -3.85% | 1.81 | 375.57% 2015 | 33.24 | 4.90% | -0.66 | -189.44%

Chongqing Beer's data is very interesting. In 2015, revenue grew, but net profit was a loss, down nearly 200%; in 2016, revenue declined, but net profit grew nearly 400%.

The significant decline in net profit in 2015 was mainly due to the optimization of factories with weak radiation capabilities, high substitutability, and low operational efficiency. The company needed to pay employee placement costs and also made provisions for long-term asset impairment.

Thus, the significant growth in 2016 was logical, but Chongqing Beer's 'difficulties' are also undeniable. On the evening of February 21 this year, Chongqing Beer issued 10 announcements in a row, transferring all equity and creditor's rights of its two loss-making Anhui subsidiaries to Panshi Lvye Food Co., Ltd. Both companies transferred 100% equity, each at a transfer price of 10 yuan.

To Achieve Performance Breakthrough, Must Face Imported Beer Head-On

In 2014, national beer production and sales broke the 24-year consecutive growth trend for the first time, and China's beer industry entered the post-5000 era. The weakness of China's beer industry is not due to a decline in overall consumption capacity of the Chinese beer market, but more due to the impact of imported beer.

Data shows: in terms of growth, imported beer is exactly the opposite of domestic beer, rising in recent years. Since 2012, the imported beer market has maintained over 50% growth for four consecutive years. In 2016, total annual imported beer volume was 646,400 kiloliters, a year-on-year increase of about 20%, with a value of 4.4 billion yuan, an increase of 2.33 billion yuan year-on-year.

Analysts point out that the entire Chinese beer market currently presents a trapezoid shape. Domestic beer companies occupy the waist and base of the market, while the top is entirely occupied by imported beer. The decline in performance of domestic beer companies is mainly because the growth space for domestic beer has been eaten up by imported beer.

If domestic beer wants to improve performance and break through the market, it must focus on the high-end beer market, adjust product structure, and strive to stand at the top of the trapezoid. In the future, domestic beer companies will inevitably face a 'fierce battle' to boost performance and seize the high-end market.

Source: Tangjiu Kuaixun

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