Click to read the original article for details. In exploring the path of beer development, the understanding of the modern Chinese beer industry begins with the land grab for market share. And the fight for market share is nakedly driven by price. From the brutal growth phase of thin profits and high sales volume through price wars, during which price space became increasingly transparent, to the upcoming mature phase relying on premiumization and oligopoly, the upgrading of consumption structure has given rise to consumers' growing demand for mid-to-high-end products. The Chinese beer industry is increasingly converging on the demand for premiumization.

1 From 1988 to 1992, China's beer production ranked third in the world. From 1993 to 2001, China's beer production ranked second in the world for nine consecutive years. Since 2002, China has surpassed the United States, ranking first in the world in both beer production and consumption. According to Euromonitor's statistical classification, beer priced below 7 yuan per liter is defined as economy light beer (low-end); 7-14 yuan per liter as mid-end beer; and above 14 yuan per liter as high-end beer. In these 30 years, the market consumption structure dominated by economy light beer has persisted for too long, with economy light beer mainly being low- and mid-end. Price is the most direct manifestation of value. In 2015, low-end beer sales alone accounted for 78% of the national beer market. Low price and high volume have always been the strategy for domestic beer manufacturers to capture the market, ultimately defining beer as a low-end consumer product. In terms of category development, in recent years, low-end products have seen negative growth, while mid-to-high-end products have risen significantly. According to statistics, there are 460 beer manufacturers above designated size in China. The five major giants (CR5) - Snow, Tsingtao, Budweiser, Carlsberg, and Yanjing - occupy about 80% of the market share. Among them, Snow, Budweiser, and Tsingtao as CR3 have a market share of 59%. However, no single brewery has reached 30% market share, indicating that the competitive landscape is not consolidated, and no absolute oligopoly has emerged.

2 In contrast, the international landscape is characterized by big fish eating big fish in an oligopolistic pattern. In 2008, Belgium's InBev merged with the American Anheuser-Busch to form Anheuser-Busch InBev, ranking first globally in market share. In 2016, AB InBev acquired SABMiller, the world's second-largest, further consolidating its position as the industry leader. Foreign brands Budweiser and Carlsberg have spent 20 years conquering half of China's beer market on their path of advancement. Although their market share in China is only about 20%, they have captured the majority of the profitable high-end product share in multiple regional markets. AB InBev fully acquired Harbin Brewery in 2004. In the broader second-, third-, and fourth-tier markets in China, regional beer brands that naturally grew, such as Sedrin in Fujian, Hongshiliang, Xiling, and Qianpi in Zhejiang, Jinling in Jiangsu, Jinlongquan in Hubei, and Changsha in Hunan, also faced acquisition after AB InBev's entry. Since then, AB InBev's mergers and acquisitions in the Chinese market have never ceased: Henan Weixue and Dalian Daxue in 2011, Mudanjiang Brewery in 2012, Hebei Tangshan in 2013, Jilin Jinshibai in 2014, and increased stake in Zhujiang Brewery in 2015... In 2015, when AB InBev was preparing to acquire SABMiller, it even had designs on China Resources Snow. SABMiller held 49% of China Resources Snow. If not for the antitrust investigation, AB InBev would never have given up on the "leader" of Chinese beer. Looking at Carlsberg, it entered the Chinese market two years earlier than AB InBev. In 1995, Carlsberg acquired Huizhou Brewery to enter the Chinese market. In 2003, it adjusted its strategy and, when advancing regionally, first chose the less competitive western market, fully acquiring Yunnan's Huashi Brewery and Dali Brewery, and supporting local brands. In the following years, it focused on joint ventures, successively investing in Tibet's Lhasa Brewery, Xinjiang's Xinjiang Beer and Wusu Beer, Lanzhou Yellow River, Ningxia Beer, and finally taking control of Chongqing Brewery. Before 2016, with a serious mismatch between capacity increase and production/sales increase, the urgency of capacity reduction was evident. Carlsberg closed 17 factories in China; its subsidiary Chongqing Brewery, acquired at the end of 2013, closed or transferred 11 factories since 2015. Through closing low-end capacity, adjusting organizational structure, optimizing sales models, reducing costs, and premiumizing products, it successfully turned losses around in 2016.

3 Looking back at the transformation path of domestic beer brands, Snow, as the number one in production and sales, has always been seen as the industry's bellwether. Born in 1994, Snow is undoubtedly the youngest compared to Yanjing (founded in 1980) and Tsingtao (founded in 1903). Snow's approach to conquering markets was simple and crude: local brands were either acquired or crushed, and markets that could not be taken over through mergers were forcibly entered through "price wars." This has also been the development strategy consistently adopted by major Chinese beer groups such as Tsingtao and Yanjing. Because all energy was spent on competing for market share with national competitors, there was no energy left to improve profitability. You can't have your cake and eat it too. Among the major giants, "leader" Snow has the lowest gross margin. After the rapid development of the "golden decade" from 2004 to 2014, the Chinese beer industry entered a four-year downturn, with production declining. At the beginning of 2018, several beer companies including China Resources Snow, Tsingtao, and Yanjing adjusted their product prices. With market rankings and shares basically stable, improving profitability became the primary demand for beer companies. In the industry's view, this price increase campaign is seen as a self-rescue by the industry. Rising costs are only one reason for this round of price increases; the bigger reason is to pay off the debts from industry consolidation and price wars in previous years. Currently, mid-to-low-end beer products have razor-thin profits and cannot bear the pressure of rising costs. For a long time, beer has made money from market share; whoever has the higher market share will take the initiative in the market. Driven by this principle, the Chinese beer industry has experienced fierce competition and consolidation where big fish eat small fish, but the direct manifestation of industry competition is price wars. Since most beer is consumed on-premise, and with little product differentiation, the advantages of price wars are very obvious. In addition, beer consumption is also habitual, so manufacturers try every means to guide users to consume multiple times through pricing, creating brand loyalty. After the price increase, from January to May 2018, domestic beer production saw varying increases, but in June it began to decline again. This year's World Cup stimulus contributed to terminal sales, but channel stocking was done in advance. Judging from the June situation, the channel is in a destocking phase, which means beer sales may continue to decline in the second half of 2018.

4 At present, the beer industry is still in a state of intense competition. Domestic beer is now dominated by five leading companies: three state-owned and two foreign, with no one holding more than 30% market share. In this intense competition, price increases are not sustainable. But the beer industry has never lacked major moves. Just last week, Snow Beer sold 40% of its shares to Heineken, aiming to lay out the high-end product market. Like most consumer goods, beer is currently benefiting from the consumption upgrade trend of Chinese consumers. Consumers' demand for mid-to-high-end products is growing rapidly. The consumption structure upgrade in the Chinese beer market shows that beer demand in China has shifted from simple low-price products to high-end beer. As consumers become less price-sensitive, beer manufacturers are given an opportunity to transform from "quantitative change" to "qualitative change." Data shows that from 2011 to 2016, the sales share of mid-to-high-end beer increased from 15.9% to 25.3%, and market share increased from 38.4% to 57.4%. In 2016, high-end beer sales volume grew 16.1% year-on-year (2011-2016 CAGR 21.5%), and revenue grew 19.2% year-on-year (2011-2016 CAGR 28.7%). It can be seen that consumer demand is shifting from undifferentiated low-end beer to high-quality mid-to-high-end beer. Euromonitor predicts that in 2017, high-end light beer revenue share will exceed mid-end for the first time at 32%, and in 2018, high-end light beer revenue share will exceed low-end for the first time at 36%. By 2020, the revenue shares of high, mid, and low-end will be 44.2%, 28.3%, and 27.5% respectively. Overall, product structure upgrade is the future development trend of the beer industry. From 2011 to 2017, the sales share of mid-to-high-end beer continued to rise. Currently, young consumers in the Chinese market no longer choose beer based on price; personalization, premiumization, enjoyment, and experience have become new consumption points. From the growth stage of relying on price wars for thin profits and high sales volume, to the upcoming mature stage relying on premiumization and oligopoly. From China Resources' acquisition of Heineken China, to rumors of Carlsberg acquiring RIO, the beer industry will undergo further reshuffling. The era of big fish eating small fish is over, and the acquisition window has reopened, but this time it is big fish eating big fish, and the clarion call for the mid-to-high-end battle has sounded. China Resources Snow CEO Hou Xiaohai stated that with the premiumization transformation and the entry of international and personalized brands, the future decisive battle in the beer industry will further widen the gap among the top players. The state of several strong players will no longer exist, and premiumization is the key to winning this round of competition. Low-end beer is sluggish, while high-end and ultra-high-end beer are gaining momentum. Last week, Teacher Fang Gang in "Chinese Beer: The Decisive Battle for Mid-to-High-End" explained the formation of giant brands in the high-end layout, and also mentioned that new trends represented by craft beer will take shape. The current pattern in the ultra-high-end market is: 90% of the share is occupied by imported (foreign) brands, and ultra-high-end currently accounts for 2% of the total share. Budweiser's ultra-high-end layout is almost all top-tier brands with sales over one billion. Tsingtao, Snow, Yanjing... in the ultra-high-end market, they are just product categories, almost empty-handed. How can they fight? The future of Chinese beer is bright, but the road is bound to be tortuous. Finally, to quote Teacher Fang Gang's interpretation of the last battle of Chinese beer: it must be premiumization + internationalization, with the goal of becoming the leader in both scale and profit. -END-