---
title: "With World Cup and Fosun as Two Good Cards, Can Tsingtao Beer Change Its Fate?"
description: "During the World Cup, Tsingtao Beer's advertising battles Budweiser on CCTV, reflecting the shift to mid-to-high-end competition in China's beer market. Fosun International acquires 17.99% of Tsingtao from Asahi, aiming to help Tsingtao go global, while Tsingtao's financials show a struggling industry with heavy reliance on government subsidies."
author: "令狐O"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2018-07-03"
language: "en"
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---

# With World Cup and Fosun as Two Good Cards, Can Tsingtao Beer Change Its Fate?

> During the World Cup, Tsingtao Beer's advertising battles Budweiser on CCTV, reflecting the shift to mid-to-high-end competition in China's beer market. Fosun International acquires 17.99% of Tsingtao from Asahi, aiming to help Tsingtao go global, while Tsingtao's financials show a struggling industry with heavy reliance on government subsidies.

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**No beer, no football. Happy World Cup month, everyone!**
True fans and fake fans alike have surely noticed that this year's CCTV World Cup broadcast features mainly Tsingtao Beer and Budweiser sponsorship ads going head-to-head, while last World Cup's ubiquitous "Together Harbin" (Harbin Beer, a subsidiary of AB InBev) has been much quieter.
The change in ad protagonists mirrors market developments. China's beer market has entered a stage of competition in mid-to-high-end products, where Tsingtao Beer, aspiring to challenge imported and premium beers, meets AB InBev, which holds the throne in the mid-to-high-end segment.
On June 15, Tsingtao Beer suddenly announced that a buyer group controlled by Fosun International, including Fosun Industrial Holdings and鼎睿再保险, would acquire 17.99% of Tsingtao Beer's shares from Asahi Group Holdings for HK$6.617 billion. After the transaction, Fosun International will become the second-largest shareholder of Tsingtao.
**Guo Guangchang subsequently published "My Story with Tsingtao Beer," stating that Fosun's globally efficient operating model will assist Tsingtao in going global.**
The beer market is undergoing dramatic changes, and China needs its own "AB InBev."
**Beer M&A History**
Beer's history dates back 8,000 years, with the earliest evidence being the beer bellies of ancient Babylonian nobles.
Compared to baijiu, beer production is simple, suitable for mass production, but has a short shelf life and is constrained by transportation radius. Based on these product characteristics, the basic business model for China's beer market over the past decades has been local M&A plus channel integration to increase coverage and shorten transportation radius.
In 1996, Tsingtao Beer faced impacts from foreign beers and domestic rivals, with market share shrinking sharply and corporate performance declining year after year. New leader Peng Zuoyi took over in a critical time, seizing the opportunity of poorly managed local breweries to launch a massive M&A wave, acquiring over 40 breweries at low cost.
**In just three years, Tsingtao regained the top spot in the beer industry.**
In 2001, Peng Zuoyi died of a heart attack while swimming, abruptly ending Tsingtao's acquisition spree. China Resources Snow took the opportunity to overtake, aggressively acquiring in the northeast, south, and southwest markets following a template, expanding capacity, and ultimately establishing today's top four pattern:
**No.1 Snow, No.2 Tsingtao, No.3 AB InBev, No.4 Yanjing.**
However, with the advent of consumption upgrading, China's beer market has gradually shifted from "volume competition" to "quality competition," and the old M&A model is no longer effective.
In 2017, China's beer industry cumulative output was 44.0105 million kiloliters, down 0.7% year-on-year, the fourth consecutive year of decline. Today's consumers prefer imported and craft beers, while the industrial beer market has stagnated for years.
▲The beer industry growth rate continues to decline; the fourth-largest beer company, Yanjing Beer, saw its performance affected as early as 2015.
From the financial reports of the domestic top three (China Resources Snow, Tsingtao Beer, Yanjing Beer), we indeed see some data reflecting the sluggish beer market:
**Operating Revenue**
All three are companies primarily engaged in beer, and every liter of beer produced ultimately aggregates into this figure. In other words, the trend in operating revenue roughly indicates the market trend.
**2015-2017 Revenue Data**
Unit: 100 million yuan
From the data, using 2015 as a comparison point, all three companies' operating revenues show a downward trend. Domestic market interest in the three giants' products is declining.
**Inventory Turnover Ratio**
Generally, an increase in inventory turnover indicates products are selling well; a decrease indicates poor sales or hoarding. In a market of consumption upgrading, inventory turnover can reflect product market performance to some extent.
**2015-2017 Inventory Turnover Ratio**
Comparing the data over the past three years, although No.1 China Resources sells well, Tsingtao Beer, which used to sell fastest, and regional strong player Yanjing Beer, both show an overall downward trend. In an era where everyone wants to run and exercise, industrially mass-produced beer and beer bellies are being abandoned by consumer groups.
**Advance Receipts**
Advance receipts from distributors mean the manufacturer requires payment before delivery, indicating an advantage in payment terms. For companies whose channel business model mainly relies on distributor structures, advance receipts can measure channel bargaining power; the higher the proportion, the greater the power.
**2015-2017 Advance Receipts Data**
Unit: 100 million yuan
Over the three years, in an overall declining industry, distributors who proactively paid deposits to Tsingtao and Yanjing have seen almost no growth. The scenes of pickups waiting at factory gates for goods are gone forever.
**Through the analysis of the first three data points, we can depict a declining domestic beer market, with the core background being that industrially mass-produced products cannot keep up with the consumption upgrading market.**
To adapt to new market demands, Tsingtao Beer has timely launched mid-to-high-end products such as Auguste, Hongyun Dangtou, Classic 1903, and Pure Draft, while Snow has also made high-end attempts like Facial Mask and Brave the World.
In the transition from "volume" to "quality," who is the real market potential stock? Who is most qualified to challenge AB InBev?
**Government Subsidies**
**Opening the annual reports, everyone is making money.**
**2015-2017 Net Profit Data**
Unit: 100 million yuan
Squeeze the water out of this data to know how the industry is really doing:
In 2017, Tsingtao Beer received subsidies included in current-period profit of 429 million yuan, and in 2015-2016, they were as high as 511 million yuan and 517 million yuan. Thus, from 2015 to 2017, Tsingtao Beer's government subsidies accounted for 29.83%, 49.57%, and 33.89% of its net profit, respectively.
No.1 China Resources Beer received government subsidies of 297 million yuan, 462 million yuan, and 433 million yuan in 2015-2017, accounting for 44.53%, 73.45%, and 36.69% of its net profit, respectively, even more dependent on subsidies than Tsingtao.
**Even Yanjing Beer, with less state-owned capital halo, relies on government subsidies, receiving 100 million yuan and 133 million yuan in 2015-2016, accounting for 17.01% and 42.63% of its net profit, respectively.**
The most extreme is Zhujiang Beer: in 2015-2017, it received government subsidies of 159 million yuan, 844 million yuan, and 85 million yuan, which were 1.91 times, 7.40 times, and 45.95% of its net profit in those years, respectively.
Comparing them, Tsingtao Beer is the first domestic brand to be self-reliant!
In an industry with weak growth and facing transformation, the data that truly highlights investment value is construction in progress.
**Construction in Progress**
Construction in progress refers to expenditures on new construction, renovation, expansion, or technological transformation, equipment renewal, and major repairs that are not yet completed.
Construction in progress can reflect a beer brand's upgrade intensity from traditional industrial beer to high-end craft beer. A high balance of construction in progress indicates strong confidence in the future, strong willingness to cooperate with consumption upgrading, and better adaptability to future market needs.
In Tsingtao Beer's 2017 annual report, we can find at least 19 construction in progress projects, most involving production line renovations.
▲Click to enlarge.
From 2014 to 2017, Tsingtao Beer's construction in progress balances were 1.052 billion yuan, 287 million yuan, 193 million yuan, and 200 million yuan, respectively.
**2014-2017 Construction in Progress**
Unit: 100 million yuan
In comparison, Tsingtao's investment scale, sustainability, and concentration on production line renovation in construction in progress lead the industry, representing both determination and a degree of preparation for mid-to-high-end products.
In its announcement of acquiring Tsingtao shares, Fosun International stated that Tsingtao Beer's unique brand value and excellent management team align with the trend of quality upgrading in China's beer consumption; Fosun is deeply cultivating health, happiness, and wealth sectors to support Chinese modern consumers' consumption upgrading.
**Translating the above announcement into Guo Guangchang's plain words is:**
**Take advantage of the low price during the transition period to bottom-fish Tsingtao; in this bleak beer market, good targets like Tsingtao are rare...**
While you're drinking and betting on football, others are bottom-fishing the beer you drink. That's how the gap in life emerges.
Source: Business Model Observer
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