Source: Economic Observer, Author: Zheng Yuxin Facing the upcoming beer peak season, will beer companies' performance improve significantly? At 7 p.m. on April 27, during dinner time, Beijing's famous food street Guijie was not as bustling as before. The Huda main restaurant, which used to have queues of two to three hours, was closed. The Guijie Zaizai crayfish main restaurant had only a quarter of its seats occupied, and only two tables of customers ordered beer. As it got darker, the crowd dwindled further. Many stores were offering promotions and discounts. Chengdu Chuanchuanxiang had a sign saying "Buy three get one free on all beers," and Judian Chuanba had signs for "50% off garlic vermicelli scallops" and "Buy two get one free draft beer," yet only a few tables were occupied. Customers seemed to speak in hushed tones, lacking the usual lively atmosphere. The copper pot mutton hotpot restaurant had no diners, and the neighboring Baqi Beef Pot didn't even open. The entire street was quiet. Guijie, once bustling with traffic and customers, has fallen into an unusual stillness due to the pandemic. This reality has also affected the closely related beer industry. According to the National Bureau of Statistics, beer production in the first three months of 2020 reached 5.495 million kiloliters, a year-on-year decrease of 33.8%, with March production at 2.385 million kiloliters, down 21.5% year-on-year. Several listed beer companies also saw declines in their first-quarter performance. Will Guijie regain its former bustle in the coming summer? Will the beer peak season be as strong as before? -01- Impact "Currently, restaurant overall revenue has recovered to 70%, but consumers' ordering habits have changed, with fewer customers ordering beer," Gao Yong (pseudonym) told reporters. He is the CEO of a national chain of barbecue restaurants. During the pandemic, Gao focused on delivery to offset losses from dine-in, but delivery orders rarely included beer. Budweiser is Gao's partner, with an exclusive supply agreement where the barbecue restaurants only sell Budweiser beer. Budweiser also provides more support, such as lower purchase prices, cash rebates, and more marketing activities. Gao said they chose Budweiser because the customer base matches, and Budweiser offers a wide range of products with a long price band, meeting diverse consumer choices. According to the cooperation terms, Budweiser also sets certain beverage sales requirements for the barbecue restaurants. "During the pandemic, the sales targets set by Budweiser are definitely unattainable, but this falls under force majeure in the contract." This doesn't mean the barbecue restaurants aren't making efforts to sell beer. Gao introduced that they recently launched a promotion offering gift packages for stored-value cards, where consumers can choose between beverages or rice, flour, and oil. The promotion just started, and sales results will be evaluated later. During the pandemic, Budweiser also provided more support, such as joint marketing and higher rebates. Gao's feeling is that the standalone beer delivery scenario doesn't work. If beer isn't paired with dining scenarios, it becomes an optional consumer product. Beer manufacturers should focus on product bundling to meet new consumer needs. Beer is more about scenario consumption, often paired with gatherings, barbecue, and crayfish. However, pandemic control measures have restricted dining gatherings, severely impacting beer companies' performance. Lanzhou Huanghe's first-quarter report showed revenue of approximately 60.81 million yuan in Q1 2020, down about 49% year-on-year, with net profit turning to a loss of -23.12 million yuan, a decline of about 193%. China Resources Beer also announced that for the two months ending February 29, 2020, its unaudited consolidated turnover and profit before interest and tax decreased by approximately 26% and 42% respectively compared to the same period in 2019. Zhujiang Beer's first-quarter report showed revenue of 553 million yuan in Q1 2020, down 26.31% year-on-year, and net profit attributable to shareholders of 20 million yuan, down 31.06%. Industry insiders say that in the short term, major sporting events are typically beer consumption hotspots, but now the pandemic has entered a global outbreak phase, with many events being adjusted or postponed. The European Championship and Tokyo Olympics, originally planned for this year, have been postponed, requiring beer companies to adjust their marketing plans accordingly. On the other hand, consumer spending has been restricted during the pandemic, and there may be compensatory consumption afterward, but beer and other commodity consumption, as well as dining and other service consumption, are seasonal, so the compensatory share won't be too large. -02- Changes Despite the first-quarter performance declines, self-rescue and changes are underway. In terms of products, since canned beer is more suitable for home consumption, Chongqing Brewery told reporters that canned product sales performed outstandingly in Q1. Zhujiang Beer also said products mainly for home consumption sold well. Among single products, Zhujiang Pure Draft sold the best, with the newly launched 1997 easy-open lid Zhujiang Pure Draft generating sales revenue of 94.9386 million yuan since production. Zhujiang Special Pure Draft, 500ml specification, saw March sales increase 12% year-on-year. In Q1, on-premise channels like dining and nightlife were severely impacted. In terms of sales channels, many beer companies have made significant efforts. Tsingtao Beer's offline channels mainly rely on large chain supermarkets, small supermarkets, convenience stores, and hotels, as well as some self-operated community bars. Online channels include Tmall, JD.com, Miss Fresh, Ele.me, Meituan, Hema Fresh, and its own online platform. After the outbreak, Tsingtao accelerated the development of new community-based terminals. According to a Tsingtao Beer staff member, Tsingtao divides delivery areas into small grids on a map, assigning orders to salespeople and distributors based on these grids. This delivery system became more refined due to closed-off community management. First, goods delivered to community terminals are batch-delivered by Tsingtao distributors. Delivery to customers' homes or community gates is handled by terminal community staff, with Tsingtao marketing personnel and distributors assisting. Currently, Tsingtao Beer has connected tens of thousands of new community terminals across 414 cities nationwide. Chongqing Brewery also promoted sales model reforms in Q1, launching community partner contactless delivery and other home delivery services. All-staff marketing and livestreaming sales methods have also become popular during the pandemic. Zhujiang Beer also implemented "all-staff marketing" through community operation platforms, expanding core product distribution. Its e-commerce channel sales increased 34% in Q1, thanks to innovative sales models like short videos and livestreaming on JD and Tmall platforms. Tsingtao Beer's distributors include not only its own employees but also consumers, who can earn commissions based on sales. Additionally, Tsingtao Beer increased brand communication and sales through "influencer livestreams and store manager self-broadcasts." During the pandemic, a Wei Ya livestream in March sold over 20,000 boxes of white beer in 5 seconds, reaching over 28 million viewers. Company employees also actively participated in livestreaming, especially e-commerce store managers, who broadcast from home 2-3 times a week on average to drive sales. Many companies are also strengthening their capabilities during the pandemic. On March 10, Tsingtao Beer's smart manufacturing demonstration factory expansion and upgrade project started. This project will build an unattended intelligent production line, where the management system can automatically schedule production based on orders, determine materials in advance, and start the line according to the plan to complete production. This is a flexible production chain, allowing quick switching between products of the same bottle type but different categories on the same line. A bottle of beer will achieve full automation from filling, labeling, bottle washing, inspection, and packing. Zhujiang Beer's headquarters development and construction is also accelerating to catch up on delayed schedules, aiming to become an innovative urban complex integrating headquarters economy, office, leisure, entertainment, and tourism. -03- The Big Direction Remains Unchanged Will beer companies' performance improve significantly as the peak season approaches? Several companies have withdrawn their 2020 performance outlooks. Anheuser-Busch InBev announced that since February 27, 2020, the increasing impact of the health event has led to restrictions on many customers, and by mid-March 2020, many countries adopted quarantine measures. Considering the current impact and uncertainty in markets where the company operates, AB InBev will fully withdraw its 2020 performance guidance. Chongqing Brewery stated that since the beginning of this year, the COVID-19 pandemic has adversely affected consumer markets and the business environment, including dining. Although the situation in China has eased, given the global uncertainty, the company remains cautious about macroeconomic and industry recovery after the pandemic ends, making it difficult to estimate the full impact on 2020. However, some breweries are more optimistic. China Resources Snow told reporters that from the perspective of pandemic development and beer trends, it expects to basically return to normal by May and fully recover by June, with the impact diminishing over time. Moreover, China's consumption trends and logic have not changed; consumption upgrading and sustained growth still exist. China Resources Snow stated that the biggest beer peak season begins in June and July, and this logic will not change in 2020. Next, it will continue to attract quality distributors and help them grow stronger. Beer industry expert Fang Gang told reporters that the beer industry is highly monopolized, with the top five giants controlling over 83% of the market share, leaving small companies with little say. The pandemic will not change the overall landscape. Companies are still following their original plans, focusing on adjusting product structure and improving profitability. Fang Gang said that based on the market decline in January and February, the products with the largest sales decline are mainly concentrated in low-end products. Looking at community and e-commerce sales, relatively mid-to-high-end products dominate. In other words, low-end product sales will continue to decline as a normal trend, while high-end and ultra-high-end growth will also be normal. The industry's consumption pyramid will see a lengthened top and a narrowed base. Additionally, low-alcohol, health-focused beers will become increasingly popular categories. Due to the closure of dining channels and the increase in home consumption scenarios, the proportion of cans is expected to rise from around 26% to over 40%. Consumer demand diversification is already very evident, especially in high-end and ultra-high-end categories. It's difficult for companies to meet diverse consumer needs with a single taste, variety, or brand, inevitably leading to fragmentation of leading products. As the beer sales peak season approaches, Li Zhenjiang, senior partner at Hejun Consulting and director of the alcoholic beverages division, suggests that beer manufacturers increase brand promotion with dining establishments, strengthen online channels, and accelerate community-based precision marketing. He also notes the strong momentum of craft beer and advises companies to launch diversified products to meet consumer needs. Actions have already begun. On April 28, China Resources Snow Beer launched another high-end product, "Hualian Beer." In May, a new Heineken product will also be launched, further advancing China Resources Beer's high-end progress. In Zhujiang Beer's main sales region, Guangdong province, the overall resumption rate of enterprises reached 98.7%. Zhujiang Beer stated that based on recent market observations, non-draft beer consumption in Guangdong has basically returned to normal. This year, Zhujiang Beer will continue to optimize its product structure, focusing on Zhujiang Beer, Zhujiang Pure Draft, and Zhujiang 0, supplemented by differentiated products, broaden profit growth points, launch specialty craft beers, emphasize e-commerce delivery channels, and increase sales of canned products. Chongqing Brewery also stated it will continue to promote product premiumization. In the Chongqing region, it will promote Chongqing Pure Draft, Chongqing Guobin Chunmai, Carlsberg, and other products in on-premise channels through shelf placement, strengthen standards for canned products in off-premise channels, and launch new products to improve the product structure. In Sichuan and Hunan, it will continue to launch new products and packaging, expand all-channel development in major cities and surrounding towns, and improve distributor layouts in low-share markets. Additionally, Chongqing Brewery will further strengthen new sales models such as B2C, O2O, cross-border cooperation, and new retail. Li Zhenjiang told Economic Observer reporters that beer is highly correlated with the pandemic. The faster the pandemic ends, the better the dining recovery, and the faster beer sales will recover. Tips will be paid 400-2000 yuan once adopted.