Beer sector eyes golden opportunities

Higher-end products seek loyalty from younger consumer demographic

The beer industry in China has entered into a period of high-quality output and diversification, with more growth in productivity and sales anticipated, said top industry experts and players.

He Yong, secretary-general of the China Alcoholic Drinks Association, said during the China Beer Summit held last Friday in Beijing that the industry is confident of the upgrading of the country's beer market, particularly high-end products — an unwavering trend fueled by higher expectations among consumers.

The National Bureau of Statistics said China's beer industry maintained its growth momentum in the first eight months.

From January to August, production of major beer enterprises reached 27.08 million kiloliters, a year-on-year increase of 3.1 percent.

In August, the production growth rate decreased slightly, with large-scale beermakers brewing 3.74 million kl for the month, a year-on-year dip of 5.8 percent.

CADA's He said, "There have been profound changes in products and consumer groups in the beer sector, leading to more variations to push the sector to further expand its categories, overriding boundaries between beverages and liquors to meet demand for diversification and personalization, as the consumption population has become increasingly more fragmented."

Digital and smart transformation is key to transforming the supply chains for beer producers, said Geng Chao, chairman of Beijing-based Yanjing Brewery — the nation's top brewer — adding that every aspect of operations, including production, logistics, marketing and consumer management, have to face challenges in digitalization to unleash further growth potential.

On the consumer side, the male-dominated structure is altering. As Generation Z (those born after 1995 and into the 2000s) gradually becomes the mainstream consumer demographic, the rise of female consumers is also apparent. Innovations have also played a leading role in achieving breakthroughs in terms of product portfolio, distribution channels, smart manufacturing and differentiation in quality, said Huang Kexing, chairman of Tsingtao Brewery Co Ltd.

Top beer producers in the country have prioritized high-end beer categories to achieve greater profits and gain consumer loyalty in recent years despite the relatively early stage of the subcategory.

In 2022, production and sales of middle- to high-end beers in China stood at about 15-18 million kl, accounting for 35 to 40 percent of the industry's total sales, with high-end and ultra high-end products accounting for about 15-20 percent.

The middle- to high-end market share increased by more than 10 percent compared to 2021. In comparison, the ratio is about 40 percent in developed markets.

Li Zhigang, president of Carlsberg China, said the country being the world's largest and most vital beer consumption market has never changed, with high-quality development as a major objective for the industry to remain sustainable.

In 2022, China was the single largest market for Carlsberg, contributing about 13.6 billion yuan ($1.86 billion) in revenue. With five manufacturing facilities in the country, Carlsberg ranks No 5 in the market, with an around 8-percent share.

Most of Carlsberg's presence is in West China, where it enjoys about a 66 percent market share. Last year, the company managed to rise from a 6-percent national market share in 2021, boosted by rising tourism in western regions, urbanization and its high-end brand portfolio strategies.

According to the 2023 interim report of Chongqing Brewery — which represents Carlsberg China — its revenue, profits and sales have climbed to record highs, with first-half sales up 4.76 percent at 1.72 million kl, revenue 7.17 percent higher at 8.5 billion yuan and net profit soaring 18.89 percent to 865 million yuan year-on-year.

The company expects to maintain momentum in China in the second half robust to realize high single-digit growth for the full year of 2023.

Chongqing Brewery is among the top beer producers in the country, and its business was booming in the first half.

CR Beer, Tsingtao Beer and Yanjing Beer recorded double-digit growth in net profits of 22.3 percent, 20.22 percent and 46.57 percent, respectively, in the first half. Revenue of the top three reached 23.8 billion yuan, 21.5 billion yuan and 7.6 billion yuan.

For example, high-end products from Yanjing Beer grew 12.81 percent in the first half, compared with a year earlier, mainly by embracing young consumers and focusing on high-end products.

Among high-end players, Budweiser APAC, according to its 2023 interim report, achieved revenue of $3.6 billion during the first half, an increase of 6.17 percent year-on-year. Net profit attributable to the parent company was $575 million, a decrease of 8 percent.

In the first half, the company's total sales volume in China increased by 9.4 percent and its revenue by 15.4 percent year-on-year, respectively. The premium and super-premium segments both grew by double digits in the first half.

Budweiser APAC's revenue in 2022 was $6.48 billion, a decrease of 4.57 percent year-on-year. Net profit attributable to the parent company was $913 million, a decline of 3.9 percent.

An SPDB International report said Budweiser's medium- to long-term growth logic is not as solid as those of Chinese beer companies. Compared to Chinese brewers, Budweiser APAC has a relatively high proportion of sales of high-end and ultra high-end products (reaching over 50 percent), and the marginal profit margin expansion effect brought by future high-end transformation is relatively weak.

Beer production costs have become a more visible concern for the industry since 2021. The production costs of beer mainly include raw materials (barley, rice, hops), packaging materials (aluminum, glass, corrugated paper), labor costs and other manufacturing expenses. To ease price pressures, most breweries have raised prices for their core products. Meanwhile, the high external dependence on barley and hops are bottlenecks for the development of the beer industry, said industry experts.