Click the image for details With the arrival of the hottest days of summer, many parts of the country have been hit by successive heatwaves. As a refreshing drink, beer has entered its peak sales season. However, the beer industry is finding it hard to celebrate: by the end of 2016, domestic beer production had declined for three consecutive years. Meanwhile, beer imports have surged explosively. There are many reasons for this phenomenon, but the most fundamental is the watered-down marketing of domestic beer, which has essentially "dug its own grave." ■ Author | Wei Wei ■ Originally published in | Today's Topic (ID: todaytopic) Domestic beer sales are getting worse year by year, while imported beer is surging ahead In 2014, the Beer Branch of the China Alcoholic Drinks Industry Association reported that on average, each Chinese person consumed 57 bottles of beer per year, equivalent to 34.2 liters, slightly above the global average of 33 liters per capita per year. It was from this peak that the Chinese beer market began a continuous decline in sales: 2007-2016 China's beer production and growth rate, image source: Interface News From July 2014, beer sales began a 25-month decline; In 2015, beer sales fell by nearly 5%, the largest negative growth in 18 years; Although it turned to growth in August 2016, it saw negative growth for four consecutive months in 2017. Domestic beer manufacturers are also struggling. In 2016, only two listed beer companies in China saw year-on-year net profit growth. Giants like China Resources Beer, Chongqing Beer, Tsingtao Beer, and Yanjing Beer have started closing factories to shift towards asset-light operations. 2014-2016 China's beer imports, image source: Interface News In contrast to the bleak domestic beer market, the mid-to-high-end beer market, represented by imported beer, has grown rapidly since 2011. Between 2011 and 2016, beer imports surged from 64,203 kiloliters to 646,384 kiloliters, an increase of nearly ninefold. Although in absolute terms, imported beer accounts for less than 2% of total beer sales, the rapid growth suggests that imported beer has transitioned from a novelty to a daily choice for many urban consumers. When real estate is sluggish, beer doesn't sell There are many reasons why domestic beer isn't selling, such as consumption upgrades leading many to choose high-end beer or even wine; the concept of healthy eating is deeply rooted, and consumers control their alcohol intake. But beyond that, the slowdown in real estate investment growth is also a very important factor. Positive correlation between beer sales and real estate development investment This reason sounds a bit odd, but historically, there is indeed a positive correlation between beer sales and real estate development investment. Beer sales benefit from accelerated real estate investment but also suffer when it declines. The logic is not hard to understand: when real estate is sluggish, fewer construction workers are employed. As is well known, construction workers are one of the largest consumer groups for domestic beer, especially cheap beer. Formal business and government banquets rarely use beer; the main consumers are workers, ordinary residents, and young people Another important reason is the decline in the total consumer population. Beer consumption is still skewed towards younger people, with those aged 20 to 35 being the main consumers. However, due to the one-child policy and other factors, the number of people in this age group has been declining in recent years. In the 1980s, China had a birth population of 228 million, while in the 1990s, it was only 176 million. A recent report by Zhiyan Consulting, "2017 China Beer Industry Concentration and Profitability Analysis," also shows that in recent years, the proportion of beer consumption among people aged 20 to 24 has dropped from 9.48% to 7.3%. The reduction in young people is causing the beer consumer base to shrink. Watered-down marketing of domestic beer has destroyed quality and customers Of course, the above reasons are just external environmental changes. The real root cause is that domestic beer companies have "dug their own grave." Hubei's Xingyinge beer, which disappeared as a brand after being acquired Twenty years ago, many people traveling to other places would taste the local beer. Jilin's Snow Leopard Beer, Liaoning's Dalian Beer and Daxue Beer, Henan's Lanpai Beer, Zhejiang's Qianjiang Beer, Hubei's Xingyinge Beer, Sichuan's Lanjian Beer and Jinwei Beer... each local beer had its own characteristics. But now, even in a completely unfamiliar place, it's easy to find familiar beer brands. In the past years, the beer industry has undergone large-scale consolidation and mergers. By 2015, the market concentration of the five major players—China Resources Snow, Tsingtao, Yanjing, Budweiser, and Carlsberg—had reached 75%. The former local beer brands were either shelved after acquisition or failed in competition with the giants and closed down. Only a few lucky ones, though with new owners, retained their brands. After large-scale consolidation, have consumers been offered better products and services? It seems not. The drawbacks of industrialized production by the big breweries are gradually emerging: the uniform and poor taste can no longer satisfy consumers. The selection and application of hops is quite a knowledgeable matter Now, the flavors of China's major breweries are very uniform—they have bubbles and alcohol, and occasionally a hint of hops, but overall they present a bland style. Most people have only two comments about such beer: first, it doesn't taste good; second, it's no different from drinking water. The primary reason domestic beer doesn't taste good is insufficient original wort concentration. Original wort concentration refers to the sugar content of the malt wort at the beginning of fermentation, and it is a representative indicator of a beer's potential strength. The higher the original wort concentration, the stronger the malt aroma and the richer the flavor. Traditional beer has an original wort concentration of 12P (12P means 120 grams of sugar per liter of wort). Twenty years ago, many Chinese beers had an original wort concentration of 12P, but in recent years, many domestic beers have simply reduced it to 8P, which saves 50% of barley compared to 12P. To maintain the alcohol content, brewers add cheaper rice and starch as adjuncts. Naturally, the resulting beer doesn't taste good. Qingdao's local specialty bagged beer Finding ways to reduce costs in raw materials is closely related to the long-term focus of domestic beer on the low-end market. Data shows that the price per ton of domestic beer brands is mostly between 2,000 and 3,000 yuan, while Carlsberg's is 5,254 yuan per ton, and AB InBev's reaches 6,383 yuan per ton. Moreover, the retail price of low-end beer has not seen significant increases in recent years. Chinese beer companies are obsessed with expanding market share through cheap beer, but they ignore changes in consumer tastes and the beer-drinking population. Relying on bland, watery, inferior beer neither wins consumer favor nor cultivates new consumer groups. Pre-mixed drinks have also become a choice for many young people So, in many non-dining occasions where young people gather, such as bars, KTVs, and nightclubs, imported beer, spirits, cocktails, and even pre-mixed drinks have replaced the position of domestic beer. Moreover, as an FMCG, it is crucial for beer to keep up with changes in consumer groups. However, domestic beer manufacturers are still constantly airing unoriginal TV ads. In the eyes of many young people, drinking such beer is not cool or enjoyable; it's even a bit "outdated." Who would still drink it? Perhaps young people don't dislike beer; they just dislike inferior beer Since domestic beer doesn't taste good, what is truly good beer? According to fermentation methods, beer can be divided into lager and ale. The bottled industrial beer commonly consumed belongs to lager—beer fermented using bottom fermentation, which is the prototype of many industrial beers, popular in Germany, the Czech Republic, etc. Traditional German lager is brewed with water, malt, yeast, and hops. In 1847, Bavaria issued a decree stipulating that only these four ingredients could be used to brew beer, which gradually influenced all German regions. The roasting of malt, the selection of yeast and hops, and the fermentation time of the wort all determine a beer's flavor, and it must be possible to smell the malt and taste the hops. Craft beer, once rare, is now flourishing across China Another type is ale. This beer uses top fermentation, where the yeast floats to the top of the wort during fermentation, and the fermentation temperature is higher, so the varieties are more diverse and the flavors more complex. Generally, ales have a heavier taste and richer fruit aroma. Since many different elements can be added during brewing, they are highly variable. Most of the craft beers that have become popular in the past two years are ales. The reason domestic beer manufacturers have dared to fool consumers with inferior beer for so many years is that they bet on "the beer market is highly concentrated; if you don't drink this, there's nothing else to drink." But imported beer and outbound travel have given Chinese people, especially young people, a taste of what real beer is like, and they won't go back to accepting inferior beer. Imported beer has begun to seize the Chinese beer market The essence of this phenomenon is that in the context of consumption upgrades, Chinese consumers' tastes and spending power have begun a revolutionary change. As young people have more leisure time and higher tastes, their demands for beer are also increasing. Beer doesn't have to be paired with skewers at a street stall; it can also appear in social settings like cafes and pubs, becoming a social drink. Meeting this part of the demand is what companies should do.