We are now facing a major all-round transformation, which should focus on the supply side. It's not just about making good products, but more importantly, driving a series of changes in organizational structure, people's mindsets, sales channels, and business models.

——Sun Mingbo, Chairman of Tsingtao Brewery

Since July 2014, domestic beer sales have declined for 24 consecutive months, and the entire Chinese beer industry is facing deep adjustment. Within the industry downturn lies the dividend of supply-side reform. How to participate in this supply-side reform? As the world's sixth-largest beer manufacturer, years of international market experience have enabled Tsingtao to stand from an international perspective and begin this market-driven self-revolution.

The interview with Sun Mingbo unfolded along his thoughts on Tsingtao's supply-side reform. In his elaboration, he repeatedly emphasized the words "leading" and "creativity", which showcase the vision, path, resources, and energy of a transforming enterprise, and also interpret the connotation of entrepreneurship from another angle.

1. Rely on market forces to stimulate innovation vitality

"This is Pilsner." Sun Mingbo raised a can of beer in front of the reporter; the golden can was somewhat dazzling, reminding of its history—this Pilsner, originating from the Czech Republic, has a history of 174 years and is the world's earliest "golden beer."

This newly launched new-flavor beer was placed on the group's high-level meeting table for evaluation that day, and would be put on pre-sale on Tmall the next day. From market research to decision-making and launch, this craft beer took only eight months to create, whereas previously launching a product took two years.

The world's fastest beer production line is at Tsingtao—producing 60,000 bottles per hour, a hallmark of large-scale, standardized production in the industrial era. But now, Sun Mingbo has more than once defined the beer production process as "science plus art" in public, launching many craft beers like "Pilsner."

"You cannot satisfy all consumers with one product," Sun Mingbo told reporters. Beer worldwide is transforming, and Chinese consumers are upgrading. In the past, it was about drinking for social engagements; now it's about enjoying the pleasure beer brings. Diversified and personalized consumption demands are forcing enterprises to transform, and enterprises must rely on market forces to activate innovation vitality.

"You are not facing an industrial product; you must bring emotion to savor every subtle change in beer's taste." This is what Sun Mingbo has always emphasized. Since last year, Tsingtao has selected young brewers from within and sent them to study at Germany's most famous brewing academy, aiming to let young people settle down, trace the roots in the birthplace of beer, and think about brewing itself.

This is like Sun Mingbo's hobby of reading original foreign-language books. "Translated books dilute many things; only by reading original books can you deeply appreciate the author's intended meaning and get closer to the essence of things," Sun Mingbo said.

2. Implement comprehensive transformation with supply side as the main direction

In the eyes of Tsingtao's veteran brewers, in the 1980s, Tsingtao's production lines produced only three products; in the past few years, dozens; this year, 183 varieties, with each production line frequently switching products, bottle shapes, and packaging.

"In the past, switching a variety meant changing labels, varieties, and formulas, which was time-consuming. Now we require switching in the shortest possible time. Workers sometimes complain about constant changes, more work but less output, yet higher profits. In the future, we want flexible production, customer-customized production, and rapid-response production, which means the beer production method that has lasted for many years must change," Sun Mingbo said.

From the outside, this is Tsingtao's supply-side reform—Classic 1903, Hongyun Dangtou, Auguste... More than 20 flavors and over 1,500 product specifications, each cutting into a niche market to "drip-irrigate" consumers with different needs. Last year, when Xi Jinping visited the UK, Cameron invited him to drink IPA in a pub, and IPA became famous overnight. Coincidentally, Tsingtao's R&D center had IPA in reserve and immediately launched it to the market. Tsingtao has hundreds of such technical reserves like IPA.

"We are not just talking about supply side in isolation," Sun Mingbo told reporters. Tsingtao is now facing a major transformation, a comprehensive transformation with the supply side as the main direction and other aspects supporting it.

This is not just about making good products. "This change is profound, from products, production methods, sales channels, organizational structure, business models to people's mindsets, a series of changes must occur; you must transform fundamentally."

3. The depth and temperature of the internet: once you test the waters, you must know

Sun Mingbo likes running and reading; he always packs a few books in his suitcase when traveling. The book "American Military Command from World War II to Today" on his bookshelf was found at an airport bookstore in the US while waiting for a flight.

Sun Mingbo is fascinated by military generals and war strategies. He once sent some management team members to the US Military Academy at West Point to study leadership courses. He is interested in these because "the business environment of China's beer industry is the fastest-growing market globally, which has many similarities to the battlefield."

Now, Tsingtao has built the "Tsingtao Quick Purchase" e-commerce platform; uses big data analysis to formulate production plans and even variety conversions; uses fresh cold chain to deliver raw pulp beer from Qingdao to customers in Guangzhou within 24 hours; and synchronizes marketing with the latest Hollywood blockbusters. Organizationally, Tsingtao has created special forces like the "Blue Army" for R&D and innovative products, which compete internally with the "Red Army" representing mainstream products and channels, yet complement each other's development.

"You have already tested the waters of the internet, so you must know its depth and temperature, then find ways to discover new things and transform the traditional and backward," Sun Mingbo told reporters. The beer business model is still very traditional. If through the "Internet+" form, manufacturers and consumers could interact directly, that would be great, but no one in the world has achieved this yet. "No one in the world has done it, but we can't wait for others to do it first; we must be ahead."

4. You must be clear about what globalization really wants

This year's export situation faces huge challenges, but from January to September, Tsingtao's overseas market sales increased by 18%. "We have entered more than 90 countries and regions. Why does Tsingtao do globalization?" Sun Mingbo said that Tsingtao goes out not to sell beer but to build the brand; Tsingtao cannot do things with unclear purposes.

Now, Tsingtao sends New Year greetings to global consumers at Times Square every Spring Festival. "This is to ensure that Tsingtao's brand can be seen at the world's most famous landmarks," Sun Mingbo said. Some domestic brands dump products at low prices abroad, fooling around for a while and eventually retreating. This is also a supply-side reform: Chinese products are not for street stalls; we cannot look down on ourselves. We must be supported by high quality and must have high prices and high visibility. In the US, Germany, and some Western European countries, Tsingtao's prices are at the highest level. This is how Tsingtao establishes the international status of Chinese brands.

"The essence of internationalization is the optimal allocation of global resources, which is closely linked to Tsingtao's supply-side reform," Sun Mingbo said. Where production costs are low and labor costs are low, put production there; where the market is good, sell products there; where there are many talents, build R&D centers there.

Tsingtao's entry into the international market: the first step is Chinese restaurants, the second is supermarkets, and the third is bars. "Only by entering bars can we say we have entered the Western mainstream market, entered the heart, and entered their lifestyle. Tsingtao beer has gradually achieved this," Sun Mingbo said. Why do foreign consumers like Tsingtao beer? The taste is distinctive and the product quality is good; drinking only local beer doesn't give the same feeling. This is product competitiveness. Products with only basic quality have no value. I always emphasize that adding distinctive quality on top of basic quality makes good beer; that is the supply side.

Source: China International Beer Network - Qilu Evening News