For beer lovers, Qingdao is a great place. Not for any other reason, but in Qingdao, with the same amount of money, you can drink more and purer beer. After all, in Qingdao, beer is carried in plastic bags, not glass bottles. Packaging accounts for more than 50% of the cost of a bottle of beer. Without this cost, you can naturally produce good beer. People always feel that beer is getting harder to drink. Besides factors like increasingly picky tastes, from an economic perspective, we found that beer companies are spending less and less on raw materials and manufacturing, so it's no wonder the beer tastes bad. Assuming a bottle of beer costs 2 yuan to produce, packaging alone exceeds 1 yuan. Electricity, water, and labor costs are fixed and rise every year, averaging over 0.5 yuan per bottle. After deducting these, beer companies spend less than 0.5 yuan per bottle on raw materials and production. Adding various sales expenses and profits for distributors at all levels, the final price to consumers exceeds 5 yuan per bottle. To control costs, beer companies often tamper with raw materials, the most common being replacing malt with rice. In China's beer industry, it's hard to find many beers that don't contain rice. Half of Beer's Cost Goes to Packaging Despite beer companies making a fuss about high-end beers, the real sales backbone is still the low-end products priced below 4 yuan per bottle. As China Resources Beer (00291.HK) stated in its 2016 annual report, the sales unit price of Snow is 2.5 yuan per liter, equivalent to 1.25 yuan per bottle. In recent years, beer companies' costs have been rising, with growth rates far exceeding beer price increases. Among them, labor costs bear the brunt. Taking Yanjing Beer (000729.SZ) as an example, from 2011 to 2015, the proportion of labor wages in operating costs rose from 12.11% to 16.31% year by year. In 2011, Yanjing Beer had 39,115 employees and spent 815 million yuan on wages; by 2015, the number of employees decreased by 110, but total wages rose to 1.151 billion yuan. Besides labor wages, there are fixed expenses that account for a similar proportion of operating costs each year, such as electricity, water, and beer manufacturing costs, which together account for 30%. Of course, the most important is beer packaging costs. Zebra Consumption reviewed Tsingtao Brewery's (600600.SH) annual reports since 2000 and found that in 2002, Tsingtao's packaging costs accounted for 57.6% of operating costs. Since then, due to beer price increases, premiumization, and improvements in packaging technology, the proportion of packaging costs in operating costs has shown a downward trend, but from 2006 to 2010, for which data is available, it remained around 50%. That is, making a bottle of beer, the bottle and other packaging materials cost half of the total cost. After 2011, Tsingtao Brewery no longer disclosed the composition of operating costs, so the proportion of packaging costs is unknown. As costs rise, beer companies have a strong need to control costs. What can they do? They can only start with raw materials. When Barley Malt Is Insufficient, Rice Makes Up the Difference Among beer raw materials, malt is the most important. Some so-called high-end beers in China claim to be brewed with imported malt, but the taste is not much different, yet the price is even higher than imported beers. The process requirements for beer malt are much higher than for ordinary malt, so high-quality beer malt is in short supply in the Chinese market. Since last year, AB InBev found a piece of land in Jiangsu to cooperate in growing beer barley, which conveys this "anxiety" in China's beer industry. With less beer barley and more beer, what to do? Chinese beer companies have long found the "perfect" solution: use rice. It is unknown who first came up with the idea of replacing beer barley with rice, nor which beer company first introduced rice into industrial beer production. All we know is that rice quietly appeared in beer ingredient lists. Tsingtao Brewery's 2003 annual report disclosed that in 2002, malt accounted for 12.6% of production costs, while rice accounted for 2.9%. Rice itself can be used for brewing. Using rice in beer maintains the alcohol content while significantly reducing malt usage and costs. However, the original wort concentration is affected, and the taste naturally suffers. The market price of beer barley varies greatly by grade, with the most expensive beer barley costing about ten times more than ordinary rice. As the former "leader" of China's beer industry, Tsingtao Brewery is relatively candid in information disclosure. Although using rice in beer is no longer an industry secret, and everyone nonchalantly lists rice on beer bottle ingredient labels, only Tsingtao Brewery has generously disclosed rice usage in financial reports for some years. After 2003, the proportion of rice used by Tsingtao increased year by year. By 2010, malt accounted for 12.4% of Tsingtao's production costs, while rice accounted for 8.1%. Not only has the proportion of rice increased several times, but based on the price ratio of malt to rice, the actual usage of rice may have approached or exceeded that of malt. If this continues, perhaps soon, China's beer industry might explore a new category among baijiu, beer, and water. Source: Zebra Consumption (ID: banmaxiaofei) -END-