Qi Minqian

When daytime is filled with work, nighttime becomes precious personal time. Walking to a restaurant or bar, ordering a beer, and chatting with friends or using alcohol to dispel work fatigue is the first stop for many 'workers' nightlife. Based on this demand, small pubs have sprung up everywhere in recent years, and the once-niche craft beer has also entered more people's视野. The so-called 'craft beer' actually has no clear definition in the Chinese context. Xiaobian'er, one of the founders of the craft brand NBeer, told the author that in 2012, he met Yin Hai (another founder of NBeer) and Gao Yan (founder of Master Gao) near Gulou in Beijing. Still hungover from the previous night, they agreed to meet again. When the three clinked glasses the next day, they decided to uniformly call the English 'craft beer' as '精酿啤酒' (jingniang pijiu), which is considered the formal origin of the term. Since then, 2012 has been called the first year of Chinese craft beer. Over the more than ten years since the unified name, craft beer has gradually developed, even becoming a hot spot for capital chasing in the consumer industry. However, multiple founders of craft beer brands told the author that the craft beer industry has been in a 'melee' in the past two years. A core reason is that the market size growth rate of craft beer is far behind the growth rate of companies entering the market. Data shows that from 2016 to 2021, China's craft beer consumption increased from 360 million liters to 1 billion liters, while the number of corresponding craft beer companies soared from 293 to more than 5,000. 'The current market size certainly cannot accommodate so many craft beer companies, so competition is becoming increasingly fierce, and it depends on who can persist to the end,' said a senior industry practitioner. According to the author's understanding, in this craft beer 'elimination round,' leading brands with established brand influence are more composed; newly joined small brands and tail-end brands are growing wildly through imitation and low prices; and more waist-level brands are anxious to find new growth for 'breaking the circle.'

Multi-party 'melee'

Compared with traditional industrial beer, craft beer is indeed a highly fragmented market. In 2021, CICC Research Department predicted the market concentration of craft beer, and their answer was: CR4 (the combined market share of the top four) is about 47%. In the same year, by sales volume, the CR5 of China's beer industry was 92.5%. The high fragmentation of the craft beer market is evident. According to CICC statistics, the current top four in the craft beer industry are Budweiser, Carlsberg, Chongqing Beer, and Tsingtao Beer. It should be pointed out here that whether the high-end beer produced by leading beer giants counts as craft beer has always been a highly controversial topic. The direct reason is that craft beer has no clear definition or standard. 'Even in the United States, where the concept of craft beer was first proposed, the Brewers Association has no specific standards for the craft product itself, only requirements for the brewery, and these requirements are more like protection for small breweries,' said a craft beer practitioner. Regarding what exactly craft beer is, a relatively 'universal' understanding is: better ingredients, longer fermentation time, and pursuit of better and richer beer flavors. 'The high-end beer made by big factories still follows the logic of industrial beer in production and sales, and they consider costs more, so I think those cannot be counted as craft beer,' said an industry insider. Setting aside the 'ambiguous' beer giants, independent craft brands and imported foreign craft beer by distributors are currently the mainstream in China's craft beer market. In recent years, both types of brands have been rapidly expanding. First, look at imported craft beer. A distributor told the author that dozens of craft beers are imported into China every month. Just ten years ago, imported craft beer was still a 'rarity.' Many beer enthusiasts have had the experience of carrying beer back from abroad. To taste more varieties, they would also 'pool drinks,' which is equivalent to going Dutch on drinking: one person buys from abroad, organizes a gathering, and everyone shares part of the cost to drink together,' said a founder of a craft brand. Independent craft beer brands are considered the 'sowers' of China's craft beer culture and industry pioneers, and they are also the field with the largest number of new entrants and the most intense competition in the past two years. According to the author's understanding, most of the leading and waist-level craft brands established more than five years ago in China were founded by craft beer enthusiasts. These brands mainly operate in three modes: the first is the chain 'craft beer + restaurant' model, which many leading craft brands adopt; the second is to only make craft beer, with no or only one or two offline stores; the third is to develop both own brands and OEM business. In recent years, besides enthusiasts, the entrants to craft brands have also diversified. For example, Lehui International, which originally made beer equipment, launched its own craft beer brand in 2021; retail channels such as Hema and Meituan also put their own private-label craft beers on shelves; in addition, there are various small brands. An industry insider who requested anonymity has seen the enthusiasm of capital for craft beer. Around 2018, an investor proposed to give him 10 million yuan to build a factory, 'The only requirement for me was to reach a certain production scale, and they didn't even care whether it could be sold.' He told the author that some people even thought that as long as they made a beer with a higher degree than Tsingtao, they could gain a foothold in the market. A few years ago, a second-generation factory owner took over his parents' beer OEM factory and began serving craft brands. His actual observation is that in recent years, more and more craft beer brands have emerged, 'Many are not even based on market demand considerations; they just think it's a trend that capital likes to invest in,' he said. Qichacha data shows that searching for enterprises with the keyword 'craft beer' alone, there are 7,998 enterprises still in existence/operating. Among them, the number of enterprises established in the past five years (2019-2023) is as high as 6,179, and the number established within the past year is 1,700, accounting for 77.26% and 21.26% respectively. This 'crowdedness' is more concretely manifested in beer festivals. [Image: Beijing Craft Beer Festival] Beer festivals are a regular channel for independent craft brands to showcase their products. A senior practitioner told the author that in the early days, there were very few beer festivals, and they were only held in first-tier cities like Beijing and Shanghai, but in the past two years, beer festivals have become more and more numerous. 'At the peak this year, there was a beer festival on average every week, and some have even been held in second- and third-tier cities.' According to him, the number of brands participating in beer festivals has also increased from twenty or thirty five or six years ago to more than a hundred now.

High growth + low threshold

In fact, domestic craft beer is still a niche industry. From a market size perspective, according to CICC estimates, the market size of China's craft beer in 2020 was about 41.5 billion yuan, accounting for less than 7% of the entire beer industry. Why can such a 'small' industry attract people from all walks of life to enter? For beer giants like Budweiser, craft beer is almost an inevitable choice. In 2013, after China's beer production reached a historical peak of 49.83 million tons, it began to decline continuously, and the entire industry entered a stage of stock competition, where it is difficult to drive industry development by 'volume' alone. In this situation, making high-end beer with higher gross margins became an industry consensus, and craft beer is the most determined direction. From a market growth perspective, craft beer indeed far leads the entire beer industry. According to Guanyan Research Network estimates, from 2013 to 2020, the compound growth rate of craft beer consumption in China was as high as 35.38%, far higher than the overall beer industry's -5.27%. In addition, the seemingly huge market potential of craft beer is also the main reason attracting big factories and many entrepreneurs to enter this industry. The development path of the American craft beer industry is the blueprint for people in the industry to imagine the 'bright future' of craft beer. In the 1970s, with the rapid development of the U.S. economy, the middle class rose rapidly. They were not satisfied with the monotonous taste of industrial beer and began to want to drink something 'good' and 'different.' Insight into the rise of this group, a batch of small breweries producing 'craft beer' came into being. To date, the market penetration rate of American craft beer (share in the beer market) has exceeded 10%. 'Before 2020, the market penetration rate of our craft beer was less than 2%. Research institutions and investors always like to compare with the U.S. market, thus believing that China's craft beer industry still has great development space,' said a senior practitioner. An industry with a fast growth rate and seemingly huge market potential is already attractive enough. But craft beer is not only that; its entry threshold is extremely low, which provides more possibilities for those who want to enter. From a cost perspective, the biggest investment in producing craft beer is actually equipment and raw materials. According to the author's understanding, most small craft brands on the market currently use OEM production, so they do not need to have production capacity. In terms of R&D and raw materials, some brands invest a lot of effort and money in developing their own formulas and using better hops, yeast, and other raw materials, but a considerable number of brands do not have their own formula design capabilities and use the cheapest substitutes. 'Even some products called craft beer are actually fake craft beer, still using industrial beer methods,' said an industry insider.

'Breaking the circle' is a long-term issue

When a niche industry adds a large number of players in a few years, the inevitable result is involution. Facing intensified competition, big factories have advantages in channels, capital, and brand, and old craft brands, as pioneers in this industry, have already made a name for themselves; both are relatively composed. Smaller, lower-end brands either imitate others or occupy the market through price advantages. Compared with the head and tail, independent craft brands in the waist are generally established a few years ago. When they were first established, because the craft beer industry was not yet in the spotlight, they experienced a period of 'natural, orderly' development and generally have a fixed fan base. But facing increasingly fierce competition, multiple founders of independent brands told the author that they are trying to 'break the circle.' In short, it means letting more people come into contact with and choose craft beer. Products with stronger palatability and easier acceptance by most people are regarded by many brands as a weapon to 'break the circle.' In fact, compared with industrial beer, most consumers have lower acceptance of certain craft beer flavors. For example, many IPA products (a type of mainstream craft beer) have stronger hop aroma but also higher bitterness, which not all consumers can accept. In the early days, many founders and consumer groups of craft brands were beer enthusiasts, so their products were mostly IPA. But to let more people come into contact with craft beer, they need to make products that are more acceptable to the public. 'Dajiu Brewing' is considered one of the earlier craft beer brands that adapted to public taste. Its founder told the author that his idea is to design products from the perspective of market demand, so he made fruit sour beers that most people can accept, hoping to subvert the general perception of fruit beer. As a result, Dajiu Brewing gradually moved to the head of independent brands and gained a younger consumer group than other craft brands. On this path, there are many who are more 'radical' than Dajiu Brewing. A craft beer distributor said that currently, 'sweet little water' beers with added sugar, milk, and other elements can account for half of the craft beer market share, and many craft brands keep an eye on new products from coffee and tea brands like Luckin and Heytea. 'As long as milk tea has a flavor, beer will definitely have it too.' In addition to products, craft brands also want to 'break the circle' in channels and marketing. However, these two dimensions are relatively difficult. In terms of channels, most craft brands currently focus on offline bars, but bars have limited consumption capacity. Online channels, catering channels, and convenience stores are the channels that most craft brands want to break through. [Image: Offline beer supermarket] The advantage of online channels is that they can reach more consumers outside the craft beer circle, but logistics and delivery, as well as the fact that most consumers are not accustomed to buying beer online, are constraints; the catering channel has a larger market, but there are not many stores willing to sell a cup of craft beer for dozens of yuan, and it is currently concentrated in high-tier cities; convenience stores are close to young people, but channel fees are a considerable burden for small craft brands. In terms of marketing, an industry insider believes that there are basically two types of marketing for craft beer brands: one is to learn from industrial beer; the other is to participate in activities like beer festivals to build influence within the craft beer circle. The latter is almost 'self-amusement' in the eyes of some practitioners and is not very useful for breaking the circle; the former is unaffordable for most craft brands. Therefore, many independent craft brands are now trying to break through their original user groups through newer marketing activities. Wang Xuekun, founder of the craft brand Fever, told the author that one direction he is exploring is participating in whiskey events. 'Because our users have something in common with whiskey users, both are people who pursue good taste, so I feel we can also find users in whiskey events.' In fact, as a 'flavor business,' many people's goal is to 'try something new,' trying to drink craft beers from different brands and formulas, so user stickiness is relatively low. From this perspective, perhaps the craft beer industry is destined to be a pattern of multiple brands blooming. 'Breaking the circle' will also be a long-term issue for these brands.