The King of Fresh Beer Growing Beside Giants If a history of China's beer industry were written, Tianhu Beer would certainly be a brand and case worth highlighting with vivid detail. Tianhu Beer is a local beer brand in Fushun City, Liaoning Province, with a history of over 40 years. The past 20 years in the beer industry have been characterized by scale wars, capital wars, and promotional wars. In the face of giants' advertising and promotions costing tens of billions, M&A scales exceeding ten billion, and sales volumes reaching millions or even tens of millions of tons, Tianhu, with annual sales of around 100,000 tons, can only be considered a "featherweight" player. More critically, Fushun, where Tianhu is located, is only 35 kilometers from Shenyang, the stronghold of Snow Beer! Beside Snow Beer, China's top-selling beer, Tianhu Beer seemed destined to have fallen in the beer capital wars a decade ago, no matter how you look at it. But the fact is that Tianhu Beer still holds over 90% market share in Fushun, with annual profits nearing 100 million yuan. In the last decade or so, Tianhu Beer has consistently ranked in the first tier of China's beer industry in terms of profit per kiloliter. Even in 2014, when the beer industry was in downturn, Tianhu Beer won the championship for profit per kiloliter in China's beer industry. What does Tianhu Beer rely on to survive and develop beside giants? It relies on a differentiated "fresh beer" product positioning, along with matching marketing and channel models. In Tianhu Beer's sales structure, the "fresh beer" segment accounts for over 80%, the highest proportion among all Chinese beer companies. Tianhu has also become the undisputed "King of Fresh Beer" in China's beer industry. Why Has Tianhu Beer Been Victorious in Fushun? Since 2000, China's beer industry has entered a brutal capital war, advertising war, and promotional war. By 2015, several major beer giants, relying on capital strength and technological advantages, were conquering markets nationwide. In the promotional wars, local beer brands, lacking resources, were powerless and could only become prey for the giants. After several rounds of reshuffling, the number of beer producers in China decreased from over 3,000 to fewer than 300 by 2015. While the national beer market was fiercely contested, Tianhu Beer's management team realized that competing under the same logic as the giants, with Tianhu only 35 kilometers from Snow's stronghold, they had no chance of winning. Porter, in his competitive strategy, pointed out that overall cost leadership, differentiation strategy, and focus strategy are the three main effective strategies in market competition. Looking back at Tianhu Beer's survival and development over the past fifteen years, it is almost a perfect interpretation and implementation of Porter's competitive strategy in the Chinese market. First, in terms of industry Tianhu Beer adheres to a focus strategy, only making beer To date, Tianhu Beer's sole main business is beer, unlike other local brands that might invest in real estate or other fields once they have some money. During factory visits, it was learned that Tianhu Beer has been continuously investing several hundred million yuan annually in production equipment and technology. Tianhu Beer was among the first in China to introduce a complete German beer production line, and its technical backbone continues to study at the highest institution in the beer field—the Berlin Beer Brewing Institute. Long-term focus and investment in the beer industry are important supports for the Tianhu brand to become synonymous with the beer category in the Fushun market. Second, in terms of product and marketing model Implementing a differentiation strategy completely different from mainstream beer brands In China's beer market, nearly 90% of the capacity is pasteurized beer. Therefore, based on long-shelf-life pasteurized beer, a comprehensive deep distribution model has formed in the Chinese market. The core of this model is to distribute beer through multiple channels to the widest range of outlets, making it available everywhere. However, the core driving force of the deep distribution model is sales volume targets, so pushing inventory layer by layer into the channel is the most mainstream sales method in the beer market. Based on deep distribution and inventory pushing, China's FMCG industry has built a complete set of channel systems, sales models, and management models. If Tianhu Beer used the same sales model as the giants, it would have no power to fight back. So what differentiated approach could crack the giants' sales model? Tianhu's answer: fresh beer! Fresh beer, because it is not pasteurized, retains more beneficial components and has a very fresh taste. Twenty years ago, wherever there was a brewery, fresh beer was sold, but this variety declined in competition with the capital-dominated pasteurized beer. After research and analysis, the Tianhu team believed that fresh beer, due to its freshness, has excellent taste and can win consumer loyalty. However, because its shelf life is too short, only 7 days, the inventory-pushing model of pasteurized beer simply wouldn't work. Therefore, if they could build an effective marketing model and production-sales system in Fushun, they could definitely resist the giants and secure a place to survive. Thus, over the past 15 years, Tianhu Beer has built an operating system centered on "Tianhu Fresh Beer" with a 7-day short shelf life. Not only has it firmly controlled the Fushun beer market, but it has also achieved ultra-high industry profit margins. Tianhu Beer's operating system is a completely zero-inventory system. Every bottle of Tianhu Fresh Beer is ordered by the terminal from the distributor the previous afternoon, then the factory produces it that night, and the next morning the distributor picks it up from the factory and delivers it directly to the terminal. When Fushun consumers can always drink fresh beer produced within 3 days or even the same day, they show incredible product loyalty. Over the past 15 years, Tianhu Beer has firmly held the absolute number one market share in the Fushun beer market, nearly 90%. Any giant that enters the Fushun market finds it difficult to operate because consumers do not drink pasteurized beer. Although there are other beer factories around Fushun, without a complete marketing model and operating system based on fresh beer, no one can make fresh beer work. Third, implementing an overall cost leadership strategy Spending every penny on good products Around 2010, when a giant attempted to enter the Fushun market, investing tens of millions in promotional activities like "buy one get one free" and "Hong Kong/Macau tour" lotteries, Tianhu Beer was extremely stingy in market promotion and sales promotion. How stingy? At that time, beer giants spent over 800 yuan per ton on promotions, but Tianhu spent less than 60 yuan per ton. Where did the savings go? Tianhu Beer invested them all in products. Although its scale cannot match the giants, Tianhu has its own hop planting base. Even today, few companies can achieve this. Beer production mainly relies on hops and barley. Tianhu Beer's hops are imported from the Czech Republic and grown in Xinjiang, and it uses the most expensive Australian and Canadian barley. "From a pure product cost perspective, we are almost the highest in the industry. At the same time, Tianhu Beer's product quality is also the most stable in the industry," said a senior executive of Tianhu Beer with pride. "Not impetuous, not blindly following, not fearful. " Over the past 20 years, Tianhu Beer has adhered to its unique differentiation strategy, effectively resisting attacks from giants, making its base in Fushun as solid as an iron barrel, achieving a most unconventional success in China's beer industry. New Changes in China's Beer Market Since 2014, after six years of stagnant consumption volume, China's beer market has finally seen new competitive changes. 1) A stable 80/20 pattern has formed, and premiumization is the only way out The pattern of the top 5 brands dominating the market will not change for a long time. Among the T5 brands, no one can do anything to the others; they have formed a kind of terrifying balance in the market. The market share of T5 brands may increase to some extent, but not significantly. Against the backdrop of the 80/20 pattern, premiumization is the most important strategic issue for the current T5 brands and the only inevitable path for the industry. Today's Chinese beer market is very similar to the U.S. beer market in 1980: there is no longer an opportunity for major expansion, and leading brands can only develop toward premiumization. Today, premiumization has become the main strategy of the three giants: Snow, Budweiser, and Tsingtao. Beer giants will strive to upgrade their product structure, strategically abandon low-end products, strengthen mid-range products, and enhance high-end products. Take Snow Beer as an example: in its "4+4" core product matrix, even the entry-level Super Yongchuang has entered the sub-premium price band. 2) The industry ceiling has risen, and the beer industry is experiencing a second boom Giants upgrading their product structure and breaking through the industry ceiling upward has opened new space for the industry, revitalizing China's beer market. According to data, the number of newly registered beer companies has exceeded 5,000 in recent years. Of course, these 5,000 new beer companies almost all survive on differentiated positioning. The premiumization of giants has left many market gaps, and consumers' diversified demands are increasingly strong. These are important reasons for the second boom in China's beer industry. Another important trend is that while the number of beer companies is increasing, the number of beer factories may continue to decrease. The era of land grabbing is over, high market growth has ended, and industry capacity optimization is an inevitable result. Snow Beer, for example, has reduced its factories by about one-third in the past few years, but due to improved production technology, its overall capacity has not decreased but increased. 3) Freshness is one of the biggest opportunity points in the future The overall upgrade of the beer industry brings two huge opportunities for market players. One is freshness, and the other is specialty. Specialty beer products are hard to become mainstream, but fresh beer products are liked by the vast majority of consumers. As long as the constraints of fulfillment capability are overcome, they can become mainstream. Hema data shows that in the first half of 2021, sales of fresh beer and raw pulp beer surged by 600%, becoming the fastest-growing segment in the beer category. From the market perspective, Taishan Raw Pulp's specialty stores and Uberlau's "fresh draft flash delivery" have spread their store networks across most of China; Suntory's "fresh direct delivery" fresh beer has also been successfully tested in Shanghai. This proves that the limitations of cold chain and distribution capabilities for fresh beer are becoming increasingly smaller. For Tianhu Beer, based in Fushun, focusing on the "fresh beer" differentiation strategy has brought success over the past 20 years. But the next decade is a brand new decade for Chinese beer. What opportunities and challenges will Tianhu face? Where is the way out for Tianhu Beer and other regional specialty beer brands? Can Tianhu catch this wave of freshness? Tianhu's Hidden Worries: How Long Can the Flag Fly? Although profits hit new highs every year, there are hidden worries beneath the prosperity. Tianhu Beer is actually facing huge challenges. If it overcomes them, Tianhu will win the next decade; if it fails, its fate may turn from prosperity to decline. Worry One: The base market is losing population, and market capacity is shrinking severely Liaoning Province is a province with significant population outflow, and Fushun is one of the cities with the most severe population loss in the province. Over the past decade, Fushun's population has decreased by 276,700 people, with the highest negative population growth rate in the country. The beer market is a typical population economy, and its size is absolutely positively correlated with population. With Fushun's population decreasing significantly year by year, the market capacity is shrinking. Even if Tianhu Beer has made the Fushun market as solid as an iron barrel, can it change the general trend? The continuous population loss in Fushun truly affects the foundation of Tianhu Beer. The only solution is to successfully expand outward. But the question is: in which direction and which cities should it attack? How should it attack to achieve victory? Worry Two: Outside the base, there is a lack of successful model markets Although Tianhu Beer has some channel networks throughout Liaoning Province and even the entire Northeast, there is no external market that can serve as a model. When developing external markets, Tianhu Beer did not strategically design a second battlefield; it just did it if someone did it, gaining some sales, but the proportion is not large. In this situation, the price of Tianhu Beer in external markets is much lower than in Fushun. It cannot enter external city markets, so it sells entirely to rural areas, and the low-end brand image cannot be reversed. The negative marginal sales result is that external market sales have not increased, there is no profit, and the brand image is damaged. Without successful peripheral markets, there is no strategic depth. Without strategic depth, and with the base population declining, the entire management team of Tianhu Beer will face tremendous growth pressure in the future. Tianhu Beer's current external market strategy is clearly wrong. But the question is: how should Tianhu Beer design its second battlefield strategy, goals, and implementation strategies? Worry Three: Long-term insufficient brand investment, no brand influence outside the base Tianhu Beer is willing to spend money on products, but in recent years, it has done very little brand promotion, especially almost zero promotion outside Fushun. If in the Fushun base, Tianhu Beer has conquered consumers with its products and become synonymous with beer, what about outside Fushun? In today's market competition, without brand investment, relying only on the product dimension to fight the market is extremely challenging. If Tianhu Beer wants to expand outward, how should it promote its brand? How should promotion be implemented? How can promotion, channels, sales, and consumer awareness form a virtuous cycle? Worry Four: How long can the secret advantage of the King of Fresh Beer last? It must be said that the entire operating system based on fresh beer that Tianhu Beer has built is indeed unique in the world, and it has contributed to Tianhu's excellent performance over the past 20 years. But the question is: how long can this advantage in experience and model last? In China's beer market, pasteurized beer has dominated in the past, and all major brands' talent and energy were focused on pasteurized beer research. But in today's wave of freshness, there must already be countless brands and talents conducting in-depth research and practice. For example, Suntory's fresh direct delivery has been relatively successful in Shanghai, where consumers can already drink fresh beer produced in the early morning of the same day in stores. So, in the near future, perhaps next year or the year after, major brands will also develop a successful operating system for fresh beer. At that time, will Tianhu's experience and model advantage still hold? Can the base remain worry-free? The above four hidden worries are the four major challenges Tianhu Beer currently faces. How to respond scientifically? How to succeed in overcoming them? This is a question of fate concerning how long Tianhu's flag can fly. Having Won the Past Two Decades, Can Tianhu Win the Next Decade? More than a decade ago, the differentiation strategy focused on fresh beer brought Tianhu Beer over a decade of stable development and considerable profit returns. That time, Tianhu was right and won twenty years. Today, more than a decade later, Tianhu Beer once again stands at a crossroads of fate. If Tianhu gets it right this time, it will at least win the next decade. From Tianhu Beer's perspective, we try to raise some important thoughts and questions. These thoughts are not only for Tianhu but may also have reference significance for all regional brands. 1) How can Tianhu Beer break out of Fushun? How to open up its second battlefield? Military experts say that without the Normandy landings, the Allies would have needed at least three more years to win the European theater in World War II. The significance of the Normandy landings lies in the fact that they successfully opened a second front through a surprise attack. Tianhu Beer currently faces the problem of population loss in its base market, and even potential future attacks on the base, which makes it necessary for management to consider two major issues: How can Tianhu Beer break out of Fushun? How should it open up its second battlefield? Opening a second battlefield is very difficult, even more difficult than imagined. But behind huge challenges often lie huge strategic opportunities. 2) Where should the second battlefield be chosen? Which product should be used to attack? What is the goal for the campaign to succeed? Where should the second battlefield be? There are certainly many cities to choose from, but what are our criteria? Is it the degree of difficulty, the amount of resources, or channel capability? Which product should be used to open the second battlefield? How long will it take, and what results are targeted? How to enter the second battlefield? How to achieve staged victories? Each of these questions needs urgent consideration and resolution by the current Tianhu team. But we believe that since they have won in seemingly desperate situations in the past, as long as they still have wisdom and patience, and maintain this courage, Tianhu can certainly win the future again. We firmly believe that the future of China's beer industry will be more colorful because there are many excellent brands like Tianhu Beer that are always thinking, always acting, and always innovating in change. Are you "watching" me?