Recently, reporters from Beijing Business Today conducted a survey of the high-end beer market in Beijing through offline visits. The findings indicate that the trend toward premiumization in the beer market has become evident, and market channels are aligning with this trend to support sales.

Beer companies have been releasing their 2020 annual reports and 2021 first-quarter results. These reports show that companies such as China Resources Beer and Tsingtao Brewery focused on the high-end market in 2020, with significant increases in both the proportion of premium product sales and revenue.

Yuan Yue, Secretary-General of the Beer Branch of the China Alcoholic Drinks Association, believes that premiumization is not just about price increases; the rise of premium products is an important reflection of high-quality development in the beer industry. Premium products must offer high quality,极致化的产品表达, and meet some personalized needs. The industry still has a long way to go in its premiumization journey.

-01- Sales Move Upmarket

As summer approaches, beer enters its peak consumption season. Both in supermarket channels and on e-commerce platforms, this year's beer sales show a trend favoring high-end products.

Beijing Business Today reporters found that the Carrefour Shuangjing store in Beijing launched a "Wine Festival" event in May. In the beer section, Carrefour designed the display as a beer house, with sections for regular beer, craft beer, and fruit wine/sparkling wine. A beverage area manager explained that this arrangement aims to cater to consumers' diverse needs. Additionally, this year the supermarket introduced some imported high-end beer products to adapt to the premiumization trend.

According to the "2021 Online Alcohol Consumption White Paper" released by JD Super in April, in beer sales, dark beer and original pulp (unfiltered) beer have seen significant market growth, with consumers tending toward "deep tasting." Furthermore, female users and Generation Z users have become new growth points in the alcohol market. Another set of data shows that during JD Super's "Double 11" event in 2020, craft beer transaction volume on the day increased 20-fold year-on-year.

Beyond market performance, the trend of good high-end beer sales is also evident in the 2020 annual reports and 2021 first-quarter results released by beer companies.

Beijing Business Today reporters reviewed these financial reports and found that Chongqing Brewery's high-end products generated revenue of 1.108 billion yuan in the first quarter of 2021, a year-on-year increase of 98.91%. Budweiser's craft beer revenue doubled in the first quarter of 2021. Zhujiang Brewery saw its high-end beer sales proportion increase by over 3% in the first quarter of 2021, with high-end craft beer sales growing 34% year-on-year. China Resources Beer's sales of second-highest-end and above products increased 11.1% year-on-year in 2020.

Additionally, several beer companies highlighted their efforts in premiumization in their annual reports. It is understood that last year, Tsingtao Brewery, China Resources Beer, and others launched high-end and ultra-high-end products, forming a matrix of premium products. Zhujiang Brewery disclosed during investor research in March and April that it will continue product upgrades this year, and product premiumization is ongoing.

-02- Seeking Profit Growth Points

The reasons behind brewers' "high" ambitions are diverse, including the backdrop of consumption upgrades and consumers' diversified needs. However, for beer companies, with sales volumes hitting a ceiling, seeking new profit growth points has become a key driver for premiumization.

Yang Ke (Jan Craps), CEO of Budweiser APAC, stated at a recent earnings meeting with analysts that Budweiser's exclusive distribution agreements with Austrian Red Bull and Fireball Cinnamon Whisky in mainland China will take effect next month. These two categories offer greater profit margins and are conducive to promoting the premiumization transformation.

Beer marketing expert Fang Gang said that since 2011, the beer industry has gradually entered a new normal where volume declines, prices rise, and profits increase. Because beer production scale has reached its peak, the growth of product quality and sales profit has become the industry's pursuit. Additionally, the wave of consumption upgrades has also led brewers to continuously seek profit growth points.

Under the situation of declining volume and rising prices, premiumization has become an important lever for brewers to pursue profit growth. After beer companies released their financial reports, multiple institutions in their research reports also cited beer premiumization as an important basis for optimistic earnings growth, stating that with the changing product mix in the beer industry, high-end beer brands may continue to benefit. CITIC Securities noted in a research report that in the medium to long term, various beer companies have further clarified their tactics under premiumization, and they are optimistic about the accelerated realization of profit improvements for leaders under this trend.

-03- Premiumization Is Not Just About Price Increases

Just after the May Day holiday, Yang Ke stated at Budweiser's earnings meeting with analysts that several brands under Budweiser have raised prices, with different brands seeing different increases. Notably, Budweiser APAC's prospectus shows that in the Chinese market, Budweiser is positioned as a high-end brand.

This is the first beer company to officially announce price increases in the beer market this year, but in the view of some industry insiders, Budweiser will not be the only one. The increased proportion of high-end products and price hikes are strong supports for performance. As profit elasticity faces pressure in the second quarter, leading companies may consider price increases.

The premiumization transformation of beer companies is lively, but it is intriguing whether "premiumization" simply means occupying a high price point.

Fang Gang stated that beer premiumization is not just about price increases; it can be manifested in three main actions. Price increases are only one aspect; it also requires optimizing production capacity, reducing costs, and adjusting product structure. Price increases are not a continuous action; for brewers, each price increase has a window of three to five years. Optimizing production capacity is also a phased task, not all capacity needs optimization. However, product structure adjustment is a continuous action, reflected in the next three to five years, where the industry's focus will shift to product structure adjustment, and profit levels will double.

Yuan Yue believes that the premiumization of the beer industry is a long-term process, not a short-term industry goal. Especially at a time when per capita consumption is not showing a significant upward trend, in addition to channel upgrades, more efforts should extend to consumers and brand cultivation, establishing connections with consumers and consolidating the loyalty and identity of the consumer base.

"This process is costly, but it is worth the industry and companies to invest and explore," Yuan Yue said.

Source: Beijing Business Today, Authors: Zhao Shuping, Zhao Dan

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