Click to read the original article for details. Can Yanjing, squeezed into the hutong, turn around and fight, with the same spirit it had when it conquered the world from the hutong, to carve out a new path? In 2008, the Olympic flame entered Yanjing Beer Group in Shunyi, Beijing. As a sponsor of the Beijing Olympics, Yanjing Beer showcased the elegance of a renowned national brand to the world. To this day, Yanjing remains the only "pure-blooded" national brand among the top five companies in China's market share, with no foreign investment. In 2003, Mr. Gong Xide, president of Krones, the world's largest beverage equipment manufacturer from Germany, visited Yanjing. Upon seeing Yanjing's achievements, he exclaimed in shock: "Yanjing's development is a miracle. It took only 20 years to traverse the path that took beer companies in developed countries 100 years." Founded in 1980, Yanjing Beer grew from a small local group to a national cross-regional group in less than 20 years. In 1997, Yanjing Beer was listed on the Hong Kong and A-share markets, and the following year it achieved a net profit of 187 million yuan, leading China's beer industry for several years. However, another 20 years later, Yanjing Beer returned to its starting point: in 2017, Yanjing's net profit was only 161 million yuan. Some say Yanjing Beer started early, ran fast, but lacked staying power; others say Yanjing Beer is a hero in decline, and this former overlord is indeed no longer as glorious. But in 2018, the total value of Yanjing Beer and its sub-brands was 145.813 billion yuan, still a respectable national brand. For this national brand that conquered the world from the hutong, we are willing to look forward to the next 20 years with devout anticipation. Conquering the World from the Hutong In the early Beijing beer market, there were only two brands: Five Star and Beijing, and the daily production was only enough to sell for two or three hours, far from meeting demand. In 1980, under strong public demand, the predecessor of Yanjing Beer Factory, Shunyi Beer Factory, broke ground. At that time, the Shunyi county government not only reduced taxes to help Yanjing Beer Factory expand production but also implemented a flexible employment mechanism to invigorate production. This beer from rural Shunyi, which initially went unnoticed, reached an annual output of 20,000 tons within two years of production. After Yanjing Beer's rapid start, domestic beer consumption demand immediately surged. In 1984, the state issued a document to promote the "Beer Special Project," requiring beer output to increase by more than 15 times by 2000 compared to 1980. Riding the policy tailwind, more than 800 breweries sprang up across the country. In just four years, by 1988, beer was no longer a scarce commodity, and the market shifted from a seller's market to a buyer's market. In the early days, the public valued the product more than the brand, and beer adopted a planned economy monopoly sales model, with sales channels monopolized by local sugar and wine companies. In 1988, Yanjing Beer, recognizing the market change, took the lead in breaking away from the sugar and wine companies, breaking the monopoly. Yanjing Beer organized a fleet to deliver goods to dealers in Beijing city every day. At the same time, factory leaders and salespeople went into the streets and alleys, opening up individual wholesale outlets and signing supply contracts with thousands of small dealers. Yanjing even equipped 2,600 flatbed tricycles, allowing small vendors to pedal through the streets and alleys hawking the beer, delivering it to the hutong. "Every household drinks Yanjing" became the "Ninth Scenery of Beijing." This primitive deep distribution model not only established a solid market network but also accumulated experience for Yanjing in building channels, leading to rapid development. In 1993, Yanjing Beer's output reached 185,000 tons, ranking third nationally; two years later, Yanjing tied with Qingdao Beer, which had the "loudest brand," for first place; in 1996, Yanjing Beer was the first in the country to exceed 500,000 tons, winning its first single-item championship. In 1997, Beijing Yanjing Beer Group, Xidan Shopping Mall, and Niulanshan Distillery jointly initiated Beijing Yanjing Beer Co., Ltd., which was listed on the Hong Kong red-chip and Shenzhen A-share markets. In 1999, Yanjing became the first beer company in China to exceed 1 million tons in output. From 1996 to 2000, Yanjing Beer held the top position in the industry, leaping from a small brewery to a large beer group. Next, the beer industry entered a phase of land-grabbing acquisitions. Acquisitions not only quickly obtained production lines and resources, shortening the time cost of building factories, but also meant seizing vast regional markets. This acquisition war had already begun in 1994 when Qingdao Beer acquired Yangzhou Brewery. How could Yanjing fall behind? The 1.3 billion yuan raised by Yanjing after listing provided ample capital for mergers and acquisitions. Yanjing Beer chose the path of strong alliances. In 2000, it acquired Xuelu Brewery, capturing the Inner Mongolia beer market; in 2001, it used 295 million yuan to integrate 850,000 tons of beer production capacity and 500,000 tons of market share in Shandong, about a quarter of the Shandong market; in 2002, it acquired Guilin Liiquan, establishing a foothold in Guangxi; in 2003, Yanjing Beer took control of the listed company Huiquan Beer, opening a third financing channel. But Qingdao Beer, which moved first, gained a first-mover advantage and successfully overtook Yanjing Beer after 2000 to become the sales champion. A "Pure-Blooded" National Enterprise China's huge beer market not only spurred domestic companies to develop vigorously but also attracted many world beer companies. In the early 1990s, more than 60 foreign companies came to test the waters in China, but many failed due to the strong resistance of Qingdao and Yanjing, as well as factors such as acclimatization. Therefore, the international beer giants that lost in the first round changed their strategy: entering the domestic market through gentle, hidden joint ventures. Yanjing Beer, due to its excellent market performance at the time, attracted a large number of "persuaders." According to statistics, the then factory director Li Fucheng turned away more than 30 foreign investment groups, making Yanjing Beer the only listed beer giant that did not introduce foreign capital. However, whether this national identity, which it was proud of, promoted or hindered its development is a debatable question. In contrast, the original cooperative relationship between Snow Beer and SAB Miller, and the marriage between Qingdao and Anheuser-Busch (AB), were not simply capital injections; the inflow of technology and management also provided momentum for the companies' development. In contrast, Yanjing lacked internal vitality, which to a large extent constrained its development. In 2005, China Resources took the top spot, forming a five-strong pattern of China Resources, Budweiser, Tsingtao, Yanjing, and Carlsberg, with Yanjing Beer ranking fourth, a position it has maintained to this day. Subsequently, Yanjing's failure to acquire Kingway Beer should be a major turning point in its development history. On Valentine's Day 2012, Kingway Beer, listed in Hong Kong, announced that it had "begun negotiations with independent third parties." Yanjing Beer was determined to win this acquisition and had prepared 5 billion yuan in capital. In early 2013, a dramatic result emerged: the parent company of China Resources Snow acquired it for nearly 5.4 billion yuan, "cutting in line." With increasing industry concentration, no beer company has the opportunity to acquire small breweries on a large scale to expand its business territory. For the southern market, Kingway was an ideal position, and the climate conditions and huge market share in South China were not something anyone wanted to give up. Kingway Beer, which once monopolized 60-70% of the market in Shenzhen, was a rare big fish. Once swallowed, it would certainly add luster to the company's competitive landscape. Moreover, before announcing the sale of assets, Kingway had built six factories in Tianjin, Xi'an, Chengdu, and its home base in Guangdong. Advantageous locations, market share, and production lines were all what Yanjing needed. Due to the high price, Qingdao Beer gave up; Budweiser's high-end route prevented it from entering the competition; and Snow, already firmly holding the top spot in national production with twice Yanjing's size, would not have its market position threatened even if Yanjing acquired Kingway. Yet Snow still did not give Yanjing a chance. For years, Yanjing Beer has adopted a "1+3" brand strategy, with "Yanjing" as the main brand and "Liiquan," "Huiquan," and "Xuelu" as regional brands. Because Yanjing Beer has not made major integrations or acquisitions for many years, it remains positioned in regional markets such as Beijing, Inner Mongolia, Guangxi, and Fujian. As the beer market is fully divided, expanding against the trend becomes more difficult, and its own strong markets are being eroded by other giants, so its performance naturally declines. After this failed acquisition, Yanjing, with its accumulated momentum gradually exhausted, began to decline. Yanjing Beer Net Profit 2013-2017 2013 was the peak for Yanjing Beer, with revenue of 13.7 billion yuan and net profit of 680 million yuan. Since then, performance has been declining, and Yanjing now has a significant gap with the top three. The annual report shows that in 2016, the main brand Yanjing Beer sold 3.3303 million kiloliters, a year-on-year decrease of 6.2%; in 2017, the main brand sold 3.1293 million kiloliters, a year-on-year decrease of 6.0%. In 2016, the market share of the top five companies reached over 73%, but the differentiation was obvious. Among them, China Resources accounted for 25.6%, Qingdao 17.2%, Budweiser 16.2%, Yanjing 9.3%, and Carlsberg 5.0%. In 2017, Yanjing's net profit was 161 million yuan, lower than the 187 million yuan net profit in its first year of listing 20 years ago, setting a historical low. In 2018, among the five largest beer companies in China, Yanjing ranked fourth, but the industry believes this is actually a "3+2" lineup, with Yanjing having fallen behind the top three. High-End Strategy: The Second Half of the Beer Game Having a high market share is indeed a prerequisite for improving profit margins, but it is not the only way. As the market environment changes, the cultivation of high-end brands and market share in the future will, to a certain extent, determine a company's value and profitability. High-end and youth-oriented strategies provide unlimited imagination for creating greater profit space. This has also become the major trend in the beer industry, with domestic and foreign beer companies using acquisitions, price increases, and new product launches to build high-end product lines. Among the five giants, foreign brands naturally have high-end attributes; Qingdao Beer's high-end brands have formed a certain scale in market breadth; and China Resources Beer's acquisition of Heineken aims to make up for its high-end shortcomings. In comparison, Yanjing Beer still has much room for improvement in the high-end market. Qingdao, Snow, and others focus on creating specific consumption scenarios and high value-added product concepts, and have achieved certain results. In contrast, Yanjing Beer still mainly produces traditional light beer, focusing on the mid-to-low-end market. Yanjing Beer's price is 2,412 yuan per ton, while Qingdao Beer's ton price is 3,260 yuan, Carlsberg's is 5,254 yuan, and Budweiser's is 6,383 yuan. The low-end orientation greatly limits Yanjing's profit imagination. Product high-end and innovation upgrades are the best direction for Yanjing to break through, and Yanjing itself has this confidence. Yanjing has a rich product portfolio covering all levels of the beer field: from draft beer to pure draft, from white beer to non-alcoholic, including pioneering refreshing beer and original pulp white beer that pays tribute to German origin with the German "pure brewing method" process. In 2017, Yanjing draft beer, cans, and original pulp white beer were promoted smoothly, with Yanjing white beer, which inherits the German "pure brewing method," seeing a year-on-year sales increase of 37.8%. This former champion's pursuit of quality and quality is also the foundation for the company's breakthrough. From a grain of malt to a bottle of finished beer, Yanjing undergoes 6 major processes and over a hundred small-item tests. From raw material selection to beer output, from malt protein dissolution to microbial testing of each batch sample, the entire brewing process—wort, clear beer, fermentation liquid, finished product, and even water—must undergo strict physical and chemical inspections, as well as tasting by brewers. Yanjing selects a combination of high-quality hops from the Czech Republic and Germany to ensure beer stability, freshness, and a mellow bitterness and aroma. Saccharification and fermentation are two processes that determine beer quality. Yanjing uses low-temperature feeding and high-temperature saccharification to make the beer full-bodied and mellow. In fermentation, Yanjing uses a secondary yeast addition process to reduce the production of substances that cause headaches, thereby reducing the feeling of a hangover. Only after a fermentation age of more than 22 days is the beer filtered, ensuring a full and smooth taste. Since it is not filtered or pasteurized, it contains active yeast, maximizing the retention of active nutrients and being gentle on the stomach for easy absorption. In transportation, it is directly taken from the fermentation tank for aseptic filling, with cold chain transportation throughout to ensure the beer's nutrition and freshness. This is also the origin of Beijingers' memory of Yanjing's taste. The Former Accelerator Has Become Today's Burden Yanjing Beer itself has a brand foundation, and cultivating the high-end market is one path for Yanjing to break through. In addition, improving production and operation efficiency is also a way to enhance profitability. In terms of scientific research and innovation, Yanjing has a good foundation and has achieved good results. Due to its emphasis on research investment, Yanjing was the first in China to develop refreshing beer and led Yanjing to create many "industry firsts," such as new open-air fermentation tank technology, computer-controlled production process systems, and new enzymatic saccharification processes. It also established a national-level research center certified by four ministries, seizing market opportunities through technology. But the killer moves that once made Yanjing successful are now gradually hindering its development. As a company that values research, Yanjing's R&D investment from 2015 to 2017 was 299 million, 299 million, and 252 million yuan, with 1,221, 1,228, and 1,369 researchers, respectively. In contrast, Qingdao Beer's R&D investment in these three years was 12.879 million, 14.613 million, and 18.689 million yuan, with 49, 48, and 51 personnel, respectively. Comparing the research results of these three years, there is a dramatic reversal: Qingdao Beer obtained 45 patents, while Yanjing only had 19, indicating that the utilization efficiency of research funds needs improvement. In fact, for Yanjing, inefficiency is not only reflected in research but also in management. In 2017, Yanjing Beer's management expenses were 1.27 billion yuan, accounting for 11.33% of revenue, while Qingdao Beer's management expenses were 1.22 billion yuan, accounting for 4.74% of revenue. Yanjing Beer's per capita operating revenue in 2017 was less than half of Qingdao Beer's and less than one-third of Chongqing Beer's. The problems of bloated institutions and low efficiency in large enterprises do exist in Yanjing, but they also indirectly indicate the space for improving profitability. 2018 was a World Cup year, which should have been a hot sales season for beer, but Yanjing's sales did not achieve a breakthrough. Yanjing Beer's third-quarter financial report showed operating revenue of 3.858 billion yuan, a slight year-on-year increase of 0.10%; net profit attributable to shareholders of the listed company was 104 million yuan, a year-on-year decrease of 12.21%. In contrast, China Resources Snow's revenue growth in the first half of the year reached 11.4%, and Qingdao's revenue in the first three quarters increased by 1.09% year-on-year. In the running pack, Yanjing seems to be a bit out of step. Yanjing's problems of "slow transformation and bloated institutions" cannot be ignored. The company needs to focus on improving internal management, reducing internal friction, increasing R&D efficiency, and enhancing profitability, spending money where it counts. Otherwise, it not only faces the risk of being abandoned by the capital market but also, in the tide of increasingly fierce competition and higher concentration, may become the next "big fish" to be eaten, despite people's love for Yanjing. Conclusion Undoubtedly, Yanjing has reached its most dangerous moment, but there is no need for excessive pessimism. In the 2018 beer sector's rise and fall (as of June 19), Yanjing Beer still rose 5.64%, although there is a gap compared to China Resources' 34.92% and Qingdao's 12.64% gains, the market still has expectations for Yanjing. According to the 2018 "China's 500 Most Valuable Brands Report" released by the World Brand Lab, Yanjing Beer ranked 41st on the 2018 China 500 Most Valuable Brands list with a value of 110.665 billion yuan, a year-on-year increase of 12.9%. The total value of Yanjing Beer and its sub-brands was 145.813 billion yuan. For the 2022 Winter Olympics, Yanjing and Qingdao Beer are walking side by side, and there is still hope for another improvement. Although many say Yanjing Beer has been left behind by competitors such as China Resources Snow and Budweiser, and no longer has the courage of its youth, showing signs of a hero in decline, recent management reforms have achieved some results, and its exploration and attempts in high-end products have also made some progress. The national brand Yanjing has indeed not run as fast as other brands in the sprint, but the company's national integrity and awareness of scientific research innovation are valuable assets and a manifestation of its social responsibility. With traditional channels being constantly transformed by new business models, Yanjing still has hope to break down traditional regional barriers and use its good reputation in Beijing to create more possibilities. Yanjing clearly still has huge advantages to tap. Looking at the official flagship stores on JD.com and Taobao, the number of followers of Yanjing, Qingdao, Snow, and Budweiser official flagship stores on JD.com are 102,000, 198,000, 482,000, and 613,000, respectively; on Taobao, the fan numbers are 19,000, 462,000, 32,000, and 998,000, respectively. With traditional channels basically established, how Yanjing grasps new retail channels is not only significant for expanding territory but also for capturing high-end and young users. For Yanjing, this is a hard battle! Today's market has been divided by giants. Can Yanjing, squeezed into the hutong, turn around and fight, with the same spirit it had when it conquered the world from the hutong, to carve out a new path? This is crucial for Yanjing. We look forward to a good tomorrow for Yanjing, and hope that in the next 20 years, Yanjing will clear the fog and carve out a new world. Source: Lish Business Review (ID: libusiness)