When most people think of China, they conjure images of the Great Wall or perhaps the Forbidden City. They think of cultural foods, or rich history and diverse cultures. However, more and more people are thinking “beer” – at least big breweries are. The Chinese market is one of the fastest growing in the world and that includes the market for premium beer, a fact that Heineken and Anheuser-Busch are both attempting to exploit. Why are so many breweries looking East, though?
Actually, it is a pretty interesting situation that mirrors economic shifts around the world. As China comes into its own in the 21st century, companies from automakers to fast food franchises to big breweries are eyeing the profits to be had.
It’s about Profitability
If there is one thing that has marked every big brewery in the world in the last few years, it’s a loss of profitability. Breweries throughout Europe, America and Canada are losing money in a big way. In the States, much of that loss is due to an increasingly large craft beer market. Local breweries are siphoning off Big Beer’s clientele. In other parts of the world, the decline is for different reasons. For instance, German breweries are losing sales because the aging German population is starting to drink less beer and those that follow are drinking other beverages more.
That lack of profitability has sparked the need to exploit new markets around the world. Quite a few breweries are looking to tap into Africa, but China might be the Holy Grail for Big Beer. Year over year, beer sales in China have grown by leaps and bounds. Estimates point to the fact that in just a few years, China will be the largest consumer of alcohol in the Asian market and will probably lead the world in a decade or two.
For instance, during 2010 the Chinese market represented more than 70% of the total beer consumption in the Asian market (which includes Australia and New Zealand). That is expected to grow significantly by 2020. Big breweries are jostling to take advantage of this burgeoning market.
Premium Beer Markets
Most big breweries have had at least some presence in China for many years now. Both Heineken and InBev have sold their brews within the borders of China for some time. However, it seems that the Chinese market is changing and the focus is shifting to premium beers. According to some sources, the profit for premium beer in the Chinese market is 10 times higher than it is for “standard” beer.
To take advantage of that, Heineken is shifting their sales focus and selling off some of their mainstream assets within the nation. The brewery expects the market share for premium beer to grow by more than 10% in just the next few years while the market for mainstream beer will see lower growth (or possibly no growth). Part of this has to do with the increasing affluence of the everyday Chinese family. As they begin to enjoy a higher standard of living, Chinese consumers are increasingly demanding higher quality products. The appeal of premium beer is luring many away from traditional breweries like Tsingtao and Kirin.
In order to focus more closely on premium beer sales, Heineken has started selling off some of their less lucrative assets. The company sold some of their shares in Kingway Brewery Holdings, as well as in Jiangsu Dafuhao Breweries.
China’s Growing Appetite for Beer
As mentioned, one of the primary reasons that breweries like Heineken and InBev are looking to China is the nation’s growing appetite for beer. The Chinese economy has experienced significant growth in recent years (one of the few global economies to do so). 2011 is expected to finish out with almost 10% growth in the Chinese GDP, with another 8.1% growth coming in 2012. That translates to a significant increase in consumer spending within China, as more and more citizens find that they have surplus funds to spend on luxury goods.
Consumer electronics and other luxury goods are expected to lead the pack here, but premium beer sales are expected to grow to 2.1 billion liters by 2020. In contrast, 2010 saw consumption on the scale of 44.8 billion liters in mainstream beer sales. Of course, the problem that Heineken and other foreign breweries face is that many Chinese nationals still prefer to buy from Chinese brands, even if that means going with so-called mainstream brews. To combat this trend, breweries are beginning to undertake marketing campaigns touting their premium beer advantage – taste, body and flavor (most Chinese beers are light lagers).
The Overall Asian Market
China is not the only nation in which Heineken and other big breweries are refocusing their energies. Japan is also a target, though the market here is much more heavily saturated with premium beers thanks to the country’s greater exposure to American and European culture over the years. Vietnam is another area that big breweries are betting on for decent growth and there are also signs that India will play a significant role.
Overall, the shift in big brewing’s focus is synonymous with the shifts in the global market place. There’s an unmistakable West-East shift going on, even in the world of finance. The Asian market is hot and expected to grow hotter, while the US and Europe are cooling as financial trouble lingers and consumer confidence remains low.
Of course, that shift in marketing and promotion from West to East is a good thing for many craft breweries, particularly those struggling to make an impact in the US and the UK. As Big Beer shifts their marketing focus, it opens up opportunities for even more diversity in the marketplace that smaller breweries can exploit.
Only time will tell just how receptive the Chinese market will be to foreign breweries entering the premium beer market but signs have been good thus far. For the Chinese people, this certainly heralds an interesting time though it’s hoped that there will remain room in the market for small, traditional Chinese breweries to continue operating.