Image source: Sina Finance In China's five-thousand-year civilization, alcohol culture has always been a significant part, with countless stories related to alcohol. Among the people, there has always been the saying "No feast is complete without alcohol." Whether it's weddings, funerals, or friend gatherings, even when a man and woman are alone and want to ignite a spark, they usually use alcohol to cover their shyness and half-heartedly give in. If there were no alcohol on the table, how much joy would Chinese people lose? In Chinese alcohol culture, baijiu has always been the mainstream, while red wine and beer are imported products that only became popular after the reform and opening up. If we pay a little attention to the alcohol companies on the A-share market, we can find an interesting phenomenon: the red wine leader Changyu, and the beer leaders China Resources and Tsingtao, can never match the baijiu leader Moutai. Their profitability and market value are basically similar to a second-tier baijiu company. So sometimes when investing in stocks, you have to look at culture. Only by conforming to mainstream culture can you produce super white horses. Today, Fengyun Jun will talk with you about the beer industry. Compared to the baijiu industry, which has many strong competitors and numerous sects, the beer industry has fewer listed companies and higher industry concentration, already entering the stage of feudal lords vying for supremacy, making comparative analysis relatively easier. Image source: wikiHow I. The Five Major Legions Beer is a low-alcohol beverage rich in carbon dioxide, brewed mainly from barley malt, hops, and water, fermented by yeast. It is one of the oldest beverages in the world. It was brought to Europe by Germanic and Celtic tribes around 3000 BC, and large-scale industrial production began in the 19th century. At the end of the 19th century, as the great powers knocked on China's door, beer entered China. The first brewery in China was established by Russians in Harbin. In 1903, the Anglo-German Brewery Company, established by British and Germans in Qingdao, was the predecessor of Tsingtao Beer. After the reform and opening up, China's beer industry developed rapidly, with breweries springing up everywhere. After fierce competition, especially with the intervention of multinational companies and consortia, a series of large-scale mergers and acquisitions took place at the end of the last century and the beginning of this century. Currently, China's beer market is basically controlled by five major legions, occupying over 80% of the market share. Below, Fengyun Jun will focus on introducing these five major legions. Image source: Brand Advertising Creativity 1. First Legion: China Resources Snow Its main ace force is the Snow brand, which became famous nationwide with the slogan "Brave the World." In addition to its strong capital operations, the China Resources Legion's most commendable strategy is focusing on a single brand. Currently, Snow's sales account for about 90% of China Resources Beer's total sales. It is not only the largest beer brand in China by sales volume but also the largest single-product beer brand globally, making it the undisputed "King of Beer" in China. The China Resources Legion was established in 1994, starting in Shenyang, Liaoning, which is its strategic base. It then implemented its Yangtze River strategy, advancing to Sichuan in the upper reaches of the Yangtze in 1997, establishing a factory in Mianyang, Sichuan, and beginning its expansion. Subsequently, it successively entered Anhui, Hubei, Jiangsu, Tibet, and Shanghai, completing its strategic layout along the Yangtze River. While laying out along the Yangtze River, China Resources split into two routes, investing in factories in coastal cities such as Dalian, Tianjin, Yantai, Dongguan, and Qinhuangdao to seize territory. Currently, the China Resources Legion holds a leading position in markets such as Liaoning, Sichuan, Guizhou, Jiangsu, Anhui, and Tianjin, occupying about 28% of China's beer market share, making it the leading player in the industry. 2. Second Legion: Tsingtao Beer Image source: Sina Shaanxi Tsingtao Beer is a beer company with a long history. It was listed on the Hong Kong Stock Exchange in July 1993 and on the A-share market in August of the same year. It was the first mainland enterprise to list overseas and the first Chinese company to list on both the Hong Kong Stock Exchange and the Shanghai Stock Exchange. However, after listing, Tsingtao Beer had a period of poor development until Li Guirong and Peng Zuoyi took over in 1996, ushering in a period of explosive growth. From 1997 to 2001, Tsingtao Beer rapidly expanded through 36 mergers and acquisitions, especially in August 2000 when it acquired three foreign-invested beer companies—Shanghai Carlsberg, Beijing Wuxing, and Beijing Sanhuan—within 10 days, causing a sensation in the industry. But the frequent mergers and acquisitions also put enormous financial pressure on Tsingtao Beer. Subsequently, Jin Zhiguo took over and adjusted the strategy from external expansion to internal development, stabilizing and gradually improving profitability. Tsingtao Beer currently has two main forces: Tsingtao Beer (mid-to-high-end) and Laoshan Beer (low-end). Its sphere of influence mainly covers Shandong, Shaanxi, and Shanghai. Currently, its market share in the beer industry is about 19%, making it the second largest player in the beer world. 3. Third Legion: Anheuser-Busch InBev Image source: Kennis Travel Agency It is the global leader in the beer industry and also a significant player in the Chinese beer market. This company is powerful and resourceful, so ranking it third is somewhat unfair. The Budweiser Legion began testing the Chinese market in 1995, initially suffering from a lack of adaptation and quickly failing, with no significant achievements. In 2004, it began to make efforts in the Chinese market. Budweiser's parent company, Anheuser-Busch (AB), acquired Harbin Beer, making a name for itself in one battle. That year, Budweiser also acquired the beer business of Malaysia's Lion Group, obtaining regional beer brands such as Hunan Baisha, Hubei Jinlongquan, and Zhejiang KK. Subsequently, it continued its aggressive expansion: in 2005, it acquired Hongshiliang, the largest high-end beer brand in Zhejiang; in 2006, it spent 5.8 billion yuan to acquire Xuejin, the leading beer company in Fujian, achieving great prominence. The main forces of the Budweiser Legion include Shidai (ultra-high-end), Budweiser (high-end), Harbin Beer (national brand, mid-to-low-end), and Xuejin (strong regional brand, mid-to-low-end). Its sphere of influence mainly covers Heilongjiang, Jilin, Fujian, Zhejiang, and Hubei, with a current market share of about 17%. Additionally, it is worth mentioning that Budweiser has done well in the high-end market. 4. Fourth Legion: Yanjing Image source: Shunyi Net City This is a national brand beer group from Beijing. Yanjing performed mediocrely before 1995. After 1995, it seized the opportunity of industry consolidation and, through rapid mergers and acquisitions, carved out a place in the fiercely competitive beer market. In particular, acquiring Guangxi Liquan Beer was the most significant move in its development history, and to this day, the Guangxi market is Yanjing's main source of profit. The Yanjing Legion implements a "1+3" brand strategy, with "Yanjing" as the main brand, and "Liquan," "Huiquan," and "Xuelu" as regional brands. Among the three regional brands, "Liquan" is the strongest, almost dominating the Guangxi market. The Yanjing Legion's sphere of influence is the most concentrated, mainly covering Beijing, Inner Mongolia, and Guangxi. Its current market share is about 11%. 5. Fifth Legion: Carlsberg Image source: Brand Advertising Creativity This is an international beer giant that started its business in China as early as 1978, but it got up early but arrived late, gaining no first-mover advantage. In the late 1990s, it made a major push into Shanghai but was strongly countered by the Chinese legions led by Tsingtao Beer, suffering a crushing defeat. Shanghai Carlsberg was acquired by Tsingtao Beer in 2000. Afterwards, it learned from its mistakes and quickly adjusted its route, focusing its firepower on the western region of China. In 2003, it acquired Yunnan Huashi and Dali Beer; in 2008, it acquired Xinjiang listed company Beer Flower; and it also established joint ventures with A-share beer companies Lanzhou Yellow River and Tibet Development. From the above introduction, it can be seen that Carlsberg mainly focuses on the western Chinese market, claiming to be the "King of the West" in China's beer industry, occupying half of the western market. Its sphere of influence includes Gansu, Xinjiang, Qinghai, Ningxia, Tibet, and Chongqing. Its main brands include "Carlsberg" (high-end), "Tuborg" (mid-end), "Chongqing Beer," "Fenghua Xueyue," and "Dali Beer." Currently, its market share in China's beer industry is about 7%. II. Alliances and Counter-Alliances Although each legion has its own sphere of influence, the battles between them have never ceased. For example, in the three northeastern provinces of China, after Budweiser acquired Harbin Beer, it dominated Heilongjiang and Jilin, but due to poor integration, China Resources, which was entrenched in Liaoning, took advantage and launched attacks, impacting Budweiser's northeastern market. At the same time, China Resources holds an advantage in Jiangsu and Zhejiang, but Budweiser, leveraging the opportunity of consumption upgrading, strongly counterattacks China Resources. Hubei has always been Budweiser's advantageous region, but it is under fierce attack from China Resources. After Budweiser took over Asia Pacific Breweries' business in China, it became the number one brand in Jiangxi, but Yanjing also has its eyes on the Jiangxi market. In the Hebei market, China Resources, Tsingtao, and Yanjing are currently engaged in a three-way battle, and it remains to be seen who will win. Economically developed Guangdong is a traditional major consumption province, where China Resources Snow, Tsingtao, and Zhujiang Beer currently form a tripartite balance. Budweiser, as the second largest shareholder of Zhujiang Beer, is also waiting for an opportunity to act. Currently, on a national scale, China Resources and Budweiser are on the offensive: China Resources itself is the largest beer brand in China, backed by the powerful China Resources Group, and with its unified "Snow" brand nationwide, it has strong brand effects and market appeal, and its forces are currently at their peak. Budweiser, as the global leader in the beer industry, is financially strong, with quite aggressive capital operations, mainly seizing markets by acquiring regional leaders, competing with China Resources for hegemony nationwide. After Tsingtao's national promotion strategy suffered setbacks, it mainly focuses on its strong regions of Shandong and Shaanxi. Yanjing and Carlsberg also mainly focus on their advantageous regions, defending their own bases. III. Financial Data Showdown Having introduced the five major legions and their respective territories in China's beer industry, we will now compare and analyze the financial conditions of the main listed companies in the industry. Fengyun Jun selected four industry leaders: China Resources Beer (H-shares), Tsingtao Beer (A+H-shares), Yanjing Beer (A-shares), and Chongqing Beer (A-shares, controlling shareholder Carlsberg). First, let's look at sales volume: Chongqing Beer did not disclose its mid-2017 sales volume. In terms of sales volume, China Resources is the only beer company with sales exceeding 10 million kiloliters, with sales close to 12 million kiloliters in the past two years, leading other competitors and ranking first in market share in China's beer market. Unit: million yuan Although China Resources' sales volume significantly leads Tsingtao (by about 30%), their revenue scales are very close. The main reason is that China Resources Snow mainly targets the mid-to-low-end market, using low-end products to capture market share and increase market share, so its average unit price is lower than Tsingtao (detailed comparison later). Tsingtao, on the other hand, has done well in the high-end market, with high-end products accounting for about 20% of total sales. However, Tsingtao's weakness is its over-reliance on the Shandong market. If something goes wrong in Shandong in the fierce beer war, it would seriously impact its performance. Additionally, Tsingtao faces strong counterattacks from international giants like Budweiser and Carlsberg in the high-end market, squeezing its market, and the situation is very unfavorable. Image source: Dragon Rouge Yanjing faces the same situation as Tsingtao. As one of the three domestic beer giants, Yanjing relies too heavily on the Guangxi market, with a large portion of its profits contributed by Guangxi. Although Guangxi's economy is not very developed, beer is sold at relatively high prices there, so Guangxi has always been Yanjing's cash cow. However, in a red ocean market like beer, over-reliance on a single market is not conducive to long-term development. In terms of average selling price, Tsingtao and Chongqing Beer are significantly higher than China Resources and Yanjing. Tsingtao's main brand "Tsingtao Beer" mainly targets the mid-to-high-end market, while its sub-brand "Laoshan" targets the low-end market. This shows that Tsingtao focuses on the mid-to-high-end market. China Resources' main brand "Snow" and Yanjing's main brand "Yanjing" and its strong regional brand "Liquan" all target the mid-to-low-end market, so among the three domestic giants, Tsingtao's average selling price is higher than China Resources and Yanjing. Chongqing Beer, as the local tyrant in the Chongqing market (with a local market share of about 85%), has been continuously upgrading its main product prices from 4 yuan to 6-8 yuan since Carlsberg took over, leading to higher average selling prices. Overall, in the past two years, the gross margin of the beer industry has rebounded. Currently, the gross margins of Tsingtao, Yanjing, and Chongqing Beer are all around 40%, while China Resources has the lowest gross margin, at less than 35%. There are two main reasons for this:
- First, China Resources mainly uses low-end products to capture market share, engaging in fierce price wars with competitors in multiple regional markets, so its product gross margin is naturally not high.
- Second, China Resources' production capacity is as high as 22 million kiloliters, but its sales volume is less than 12 million kiloliters, with a capacity utilization rate of less than 55%, which should be the lowest in the beer industry. This leads to high annual depreciation costs for China Resources Beer, thereby increasing overall product costs. As China Resources Beer's market share increases and outdated capacity is gradually eliminated, the company's gross margin is expected to improve further. Operating expenses include selling and administrative expenses. Overall, the operating expense ratios of several beer companies have shown a downward trend (the fourth quarter is the off-season, which raises the full-year operating expense ratio). Currently, China Resources has the highest operating expense ratio at about 25%, while Chongqing Beer has the lowest at less than 20%. The main reason is that China Resources' market is broader and more scattered, and it has been continuously expanding its market nationwide, so its operating expenses are high. In contrast, Tsingtao (mainly in Shandong and Shaanxi), Yanjing (mainly in Beijing, Inner Mongolia, and Guangxi), and Chongqing Beer (Chongqing) have concentrated sales regions, are absolute leaders in their regions, and have no intention or ability to participate in national hegemony battles, only defending their own bases, so their operating expenses are relatively low. It should be noted here that the fourth quarter is the off-season for the beer industry. Fengyun Jun looked at the data and found that the fourth quarter is basically a loss-making period, so the net profit margin in the second half of the year will be lower than in the first half, leading to a higher net profit margin in the first half compared to the full year. However, due to increasing industry concentration, the profitability of several major beer companies is recovering overall. We can see that Chongqing Beer's net profit margin has the most obvious upward trend. Everyone is familiar with this company's vaccine story; its stock price was once hyped to the sky, then fell flat on its face. In recent years, it has focused on beer and improved its performance. The loss in 2015 was mainly due to large asset impairment losses, but profitability has improved significantly in the past two years. Tsingtao and Yanjing's net profit margins in the first half of this year have both improved compared to the same period last year, while China Resources is still stagnant. The reasons have been analyzed above, and Fengyun Jun believes that as the industry leader, its profitability improvement is only a matter of time. Conclusion Currently, China's beer industry is still in a state of overcapacity, but after years of feudal wars, a large number of small and medium-sized beer companies have either gone bankrupt or been acquired. Industry concentration has significantly increased, with the five major legions occupying over 80% of the market share, greatly strengthening their market bargaining power. With the ongoing consumption upgrade and the elimination of outdated capacity, the profitability of the entire beer industry will improve significantly. From the perspective of industry competition, China Resources and Budweiser are in leading positions, and the future leader will emerge between the two. But these two also have their shortcomings. For example, China Resources has always had profitability issues, and its brand is too single, with insufficient performance in the high-end market. Budweiser has occupied a vast market through large-scale mergers and acquisitions, but market integration is a problem. Tsingtao, Yanjing, and Carlsberg, the three major feudal lords, are all battle-hardened and formidable, but their over-reliance on a single market is a major hidden danger. In the future, their bases will inevitably be fiercely attacked by the leaders. For example, China Resources has always had its eyes on Tsingtao's home turf in Shandong. From the history of ancient and modern times, those who are content with a corner of the land will not last long. The above are some of Fengyun Jun's humble opinions. Today, I throw a brick to attract jade, hoping that friends with a deep understanding of the beer industry can offer more guidance. In addition, the battles in the beer industry are quite exciting. Friends interested in this industry can research it on their own. Source: Market Value Fengyun Author: Winnie the Pooh