Beverage Industry News
After 24 years of rapid growth, the beer industry has entered a period of consolidation under China's 'new normal.' If before 2014 the focus was on grabbing market share, after 2015 it has shifted from volume to profitability—the tactics of the 'post-5000 era.' According to data from the National Bureau of Statistics, in 2013, national beer production exceeded 50 million tons for the first time, reaching 50.62 million tons; in 2014, it saw its first negative growth in 24 years, falling to 49.22 million tons. The first quarter of 2015 was also not ideal: from January to March, national beer production was 10.5291 million kiloliters, a year-on-year decrease of 2.18%, with the downward trend becoming increasingly evident. While the overall decline can be partly attributed to unfavorable weather in 2014, the deeper reason is structural adjustment in the overall market. In the 'post-5000 era' of the beer industry, every giant needs to strengthen its internal capabilities. Trend of China's Beer Industry Production, 2009-2014 Source: National Bureau of Statistics 'Painful Transition Period': Industry Sees First Negative Growth In recent years, the beer industry has experienced channel competition akin to staking out territory, as well as brand competition that sacrificed profits for volume. Mergers and acquisitions, trading price for territory, and increasing industry concentration have come at a high cost for the major players. But with high industry concentration, the nature of future competition is quietly shifting. Deep competition at the brand and quality level will become more prominent, gradually replacing competition based on capital strength. Comparison of Key Indicators for China's Big Four Beer Giants in 2014 The deep transformation of the beer industry has forced companies to adjust their market and product structures, making sales pain inevitable. Currently, the 'Big Four' with the largest production—China Resources Snow Breweries, Tsingtao Brewery, Anheuser-Busch InBev, and Yanjing Beer—hold 70% of the market share, and their data may be somewhat representative. In 2014, the four brands together achieved sales revenue of 93.456 billion yuan, a year-on-year increase of only 4.4%, a significant drop from the 13.1% growth in 2013. Similarly, in 2014, the Big Four's sales volume only rose slightly by 2.4% to 33.458 million kiloliters, compared to 9.1% growth the previous year. Optimizing product structure and increasing profit contribution per unit are the general trends for mid-to-high-end products in the future beer industry. In 2014, China Resources Snow, the first in the industry to reach 'double ten million tons,' continued to lead with sales of 11.842 million kiloliters, a mere 1.02% increase over 2013, achieving sales revenue of 27.203 billion yuan, up 4.5% year-on-year. In April 2015, China Resources Enterprise (00291.HK), the listed arm of China Resources Snow, announced it would sell its non-beer businesses to parent company China Resources Group for approximately HK$28 billion, with the latter paying in cash and acceptance notes, including HK$13.6 billion in cash. In the future, China Resources Enterprise will focus on enhancing the competitive position of its beer business, striving to balance market share growth and operational leverage benefits. Tsingtao Brewery's 'dual-wheel drive' strategy achieved good results in 2014, with sales revenue ranking first in the industry at 29.049 billion yuan, an increase of 2.68%. Its sales volume growth also continued to outpace other giants, reaching 5.2%. However, it is worth noting that Tsingtao, which was the first to raise product prices, is encountering development bottlenecks. In 2014, its sales price per kiloliter fell by 2.4%, and its recently released first-quarter 2015 report showed revenue and net profit declines of 3.1% and 11.1%, respectively. After Budweiser launched Budweiser Supreme and introduced the Belgian 'Three Musketeers' in 2013 to strengthen its high-end market, its overall profit margins have maintained a good growth trend. Through overall product structure improvement, Budweiser effectively avoided getting bogged down in regional price wars for market share. Coupled with tighter cost control, its sales price per kiloliter continued to rise by 4% in 2014, driving overall sales up 11.6% to 23.7 billion yuan. Yanjing Beer was the only one of the Big Four to see declining performance. In 2014, Yanjing achieved sales of 13.504 billion yuan, down 1.79% year-on-year, with sales volume down 6.88%. However, it is worth noting that Yanjing's sales price per kiloliter increased by 5.5%. Facing the new competitive landscape, Yanjing's Li Fucheng stated that adjusting product structure is an inevitable strategy. It is reported that since last year, Yanjing has deliberately and systematically reduced low-price products, expanded the proportion of mid-to-high-end products, and enhanced the Yanjing brand image and product competitiveness. The next step is to further promote and refine the product structure, quickly recover specific regional markets, and ensure that market share is not lost during structural adjustment, with products transitioning steadily. Seizing High-End Niche Markets 'High-end' is nothing new in the beer industry. In 2015, the focus of the giants is to carve out niche segments within the high-end that suit their brand characteristics for deep cultivation. For example, imported beer currently holds 70% of the high-end beer consumption market, and Anheuser-Busch InBev, which enjoys numerous global premium brands, certainly won't let go of this 'fat meat.' After introducing the Belgian 'Three Musketeers'—Stella, Hoegaarden, and Leffe—in 2013 to target the expatriate consumer market, in August 2014, Budweiser regained the China operating rights for the high-end brand Corona, adding another strong player to the domestic imported beer market. A Budweiser executive told FMCG: In 2014, sales in Shanghai grew by double digits, with the Belgian 'Three Musketeers' seeing sales growth exceeding 300%. Introducing the Corona brand and helping it develop will be one of Budweiser's main tasks in 2015. Unlike Budweiser's direct introduction of international brands, Suntory prefers to bring international technology to China. In 2015, Suntory continued to adjust its product structure, promoting Suntory Draft Beer in traditional channels and focusing on fresh delivery in the foodservice channel. Chen Qigang, Deputy General Manager of Tsingtao Suntory (Shanghai) Sales Co., Ltd., told FMCG: 'In 2015, Suntory's main Zunniang series inherits European Pilsner brewing techniques. It is currently being rolled out in foodservice and e-commerce, available in 580ml and 620ml sizes, with a retail price of about 15 yuan.' Meanwhile, consumer segmentation is also deepening in beer brands in terms of taste, appearance, and positioning. In 2014, pre-mixed drinks represented by RIO (Ruiao) became quite popular among young people. Their colorful and fashionable appearance drew consumers to the brand's connotation, while also making the low-alcohol market more diversified. Of course, the beer giants are not far behind. Budweiser's MIXXTAIL pre-mixed drink, launched first in Shenzhen, will soon hit Shanghai, with a total of 6 SKUs. Fan Wei, Vice President of Tsingtao Brewery Co., Ltd., stated that the beer industry has entered the 'post-5000 era.' Besides maintaining product differentiation, it is also essential to better capture consumer preferences and refine brand positioning. In 2015, Tsingtao will launch multiple differentiated products to seize niche markets, including Xuanqi fruit beer, jujube-flavored dark beer, and whole-wheat white beer. Yu Hui, General Manager of Tsingtao Brewery Shanghai, told FMCG: 'I think the overall market capacity in Shanghai has changed little in recent years, growth has slowed, and competition is fierce. However, there is still great room for development, and differentiated products and niche markets will achieve rapid growth.' Additionally, female consumers have been a neglected segment in the beer market. Xie Guangjun, Deputy General Manager of Beijing Yanjing Brewery Co., Ltd., stated that Yanjing has been targeting this market in recent years, launching fruit beers that better suit women's tastes and have lower alcohol content. Whether it's a concept or differentiation, craft beer from the United States has developed rapidly in recent years. It has not only swept overseas markets but also directly influenced well-known beer brands such as Budweiser, Miller, and Coors. In 2014, handcrafted craft beer sales in the U.S. accounted for 11% of the beer market, with a continuing upward trend. This year, Budweiser brought the craft concept to the Chinese market. The BrewMaster craft series has entered distribution, mainly promoting CLUB, with retail prices ranging from 160-200 yuan per 750ml. Shanghai Laobao Brewing Co., Ltd. is also one of the earliest craft breweries in China. Its unique 'small steel bottle' design has made it a new favorite at Shanghai's fashion parties. Chairman Cao Hui told FMCG: 'The 2015 new product—the Black Rabbit series—will take a national route, laying out both online and offline channels. Through cooperation with distributors, we will enter chain supermarkets, and we have also established a dedicated e-commerce department to handle online operations.' 'Addition and Subtraction' in Channel Transformation The coexistence of multiple channels in the beer industry is due to market complexity and is an inevitable choice for enterprises after high industry concentration. However, the proportions among channels are changing somewhat. On-premise consumption, which has always been proud of high profits, large sales volume, and broad consumer exposure, has traditionally been a battleground for beer manufacturers. But in 2015, 'neither high nor low' became the awkward position for on-premise, especially the foodservice channel. Chen Qigang, Deputy General Manager of Tsingtao Suntory (Shanghai) Sales Co., Ltd., told FMCG: 'Low-end foodservice has declined due to reduced infrastructure construction and the return of migrant workers to their hometowns, while high-end foodservice has been hit by the anti-corruption campaign, and sales are not as good as before. Currently, mid-end foodservice, mainly driven by family consumption, is showing good development momentum. Suntory will focus on mid-end foodservice in 2015.' An executive from China Resources Snow in East China also stated: In 2015, China Resources Snow will strengthen sales efforts in the foodservice channel, especially mid-end foodservice. Additionally, the nightlife channel, which has long been dominated by imported beer, has also become a new profit point. Yu Hui, General Manager of Tsingtao Brewery Shanghai, told FMCG: 'Currently, the proportion of foodservice is less than 30%, while KA and nightlife combined exceed 30%. I believe that in 2015, nightlife and KA will see significant growth. Nightlife consumers are less price-sensitive, and beer profit margins are higher.' Tsingtao has also laid out plans for Partyworld, Shanghai Ge City, and other KTV chains, as well as bars like Noah's Ark. With the upgrading of domestic beer consumption structure, the rapid development of e-commerce has brought new choices for household beer consumption growth. The results of the 2014 'Double 11' shopping festival may demonstrate this trend. On that day, Tsingtao sold about 500,000 cans, an increase of 218% over 2013. Budweiser InBev's Tmall flagship store saw 'Double 11' sales match its monthly sales, with e-commerce platform sales up 321% year-on-year. Tsingtao is also testing O2O. Dai Guoshun, Deputy General Manager of Tsingtao Brewery Logistics Management Headquarters, stated: Tsingtao plans to officially launch its own O2O platform in the second half of 2015. After users purchase Tsingtao beer on the O2O platform, the generated order will be automatically sent to the convenience store nearest to the user, which will then deliver the beer to the user's home, allowing users to enjoy Tsingtao beer without leaving home. However, e-commerce is still just the 'overture' to beer channel transformation. According to industry statistics, annual sales of beer products through internet channels are less than 500 million yuan, accounting for 0.26% of the beer industry's annual sales revenue, or even lower at about 0.09% if calculated at retail prices. Such a low proportion also indicates the huge potential space for the beer industry under the 'Internet+' trend. Channels have additions and subtractions. Intensified market competition, especially at the terminal level, has placed higher demands on beer companies' logistics speed and terminal control. To more accurately promote product distribution, many first-tier and second-tier distributors are gradually being replaced by 'short channels.' Tsingtao began channel flattening three years ago. Yu Hui, General Manager of Tsingtao Brewery Shanghai, told FMCG: 'Currently, distributors in Shanghai have already been sorted out, and we have established more than 10 key account distributors who help Tsingtao promote the market.' Budweiser also began reducing distributors in 2014, sorting and cultivating its core distributors at a rate of 20% per year. A Budweiser executive stated: Budweiser will choose distributors with ideas, drive, and stronger direct supply capabilities to cooperate, and will give them more market resources to accelerate mutual development. Through close cooperation with distributors, Budweiser's distribution rate in high-end foodservice, including bars, has reached 38%. Diversified Marketing with Various Forms In terms of marketing, the 2014 World Cup marketing campaign gave the entire industry a wild ride. This year, the marketing creativity of the Big Four beer giants has also been used across sports, music, internet, micro-films, and other fields. Although their tactics differ, the goal is the same—to get infinitely close to consumers' lives and preferences, and to communicate with consumers through brand added value. China Resources Snow, targeting the convenient, fashionable, and modern needs of beer consumption, has taken a different path in marketing models since 10 years ago. Avoiding traditional marketing elements such as joy, family, and friendship, it chose to bring consumers a 'young lifestyle' perspective. Over 10 years, it has turned 'Brave the Journey' into the largest-scale, most extensive national brand promotion activity in the domestic beer industry. If 'Brave the Journey' can still be somewhat related to sports, then in 2008, China Resources Snow joined hands with Tsinghua University to launch the 'Snow Draft Beer · Chinese Ancient Architecture Photography Competition' public welfare project, which absolutely integrates Chinese culture with beer. In 2013, Snow began its 'opera career'—ingeniously using facial makeup as a logo and innovatively launching the 'Painted Face + Dan' combination pack to enter the high-end beer market. Under such a brand strategy, Snow's high-end new product, Facial Makeup, has gained strong momentum. In 2014, from the WPT China Tournament to the National Day of the South African Embassy in China and the Tianjin Summer Davos Forum, Snow Facial Makeup's social network extended to top gatherings in diplomacy, fashion, entertainment, and business. Of course, in the 'Internet+' era, first-class beer companies must know how to effectively communicate and interact with users in the mobile internet era, which means paying more attention to distinctive and differentiated brand building. On June 28, 2014, Tsingtao announced the official opening of the 'Tsingtao Official Mall' on WeChat, becoming the first beer company to enter the WeChat mall. Previously, selling on JD.com and Taobao did not allow interaction with consumers; the WeChat mall solved this problem. They launched a game product called 'Everyone Brews Beer,' integrating shopping, entertainment, gaming, and social interaction. Budweiser extended its online marketing to offline. In December 2014, Budweiser held a responsible drinking public welfare event, inviting Yao Ming and Lu Yi to star in the third season of the 'Designated Driver of Love' public welfare micro-film. In addition to celebrities and micro-films, Budweiser cooperated with Yidao Yongche to launch 300 Budweiser Supreme cars in Beijing, Shanghai, and Guangzhou. They hope to use the power of new media to drive offline through online. Suntory, whose 2013 micro-film 'Love in the Heart' was quite successful, added more sports elements this year. Suntory's slogan this year is 'Cheers for Golden, Strive for Excellence.' Offline, it held multiple themed activities such as extreme skateboarding competitions, 'Stand Out, Push Limits.' 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