Monday 19 August 2013, Amsterdam
With the world’s highest overall beer consumption, the Chinese beer industry has enjoyed a decade of rapid expansion to 2012. However, ever-more-fierce competition, rising costs of labor, packaging and raw materials, and a lower GDP growth rate saw the pace of this expansion slow in to 4% in 2012, according to consumer specialist Canadean’s new report: China Beer Market
Insights 2013.
For organizations that have a stake in the Chinese beer market, a proper understanding of the broader context of life in China, and beer’s place in it, is paramount to successfully capitalizing on the opportunities the market presents.
Growing Economy
Since the late 1970s, China has moved from a closed, centrally planned system to a more market-oriented one that plays a major global role, growing to become the world’s largest exporter in 2010. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2012 stood as the second-largest economy in the world after the USA, having surpassed Japan in 2001. Despite this, per capita income is below the world average, and the environmental damage and social strife that have been precipitated by the economy’s rapid transformation continues to have a substantial impact on the lives of the Chinese people.
In 2010-11, China faced high inflation resulting largely from its credit-fuelled stimulus program. Whilst some tightening measures appear to have controlled inflation, GDP growth has slowed to 7.8% in 2012. An economic slowdown in Europe contributed to a slowdown in China, and is expected to further drag down Chinese growth in 2013. Debt overhang from the stimulus program – particularly amongst local governments – and a property price bubble are currently challenging policy makers. The government’s current Five-Year-Plan- adopted in March 2011 – emphasizes continued economic reforms and the need to increase domestic consumption in order to make the economy less dependent on foreign exports.
The Consumer Palate
China has a multi-ethnic culture with some 56 ethnic groups – of which Han comprise the largest group of almost 93% of the total. There are differences between ethnic groups and regions in eating and drinking habits, although there is a trend towards ‘food without boundaries’.
With more disposable income for urban households, eating out is a popular choice for urban residents, even at Chinese festivals such as the Spring Festival, when people used to gather at home.
Although China is a seen as a hot tea drinking nation, beer has the largest consumption volume of alcoholic beverages. In spite of this, the influence of western culture has been identified as a driver in the increased popularity of soft drinks amongst younger generations, and the double digit growth of coffee and wine consumption in recent years.
Tax Developments
On 15th April 2012, China’s adjusted tax on imports came into effect, which means stricter control on goods coming into the Chinese mainland. According to the latest revision, there is a 50% tax on wines, beer, spirits and tobacco. However, on 14th January 2013, the National Tax Bureau stated that beer produced by brewers used for continuous production does not need to pay consumer tax, which will alleviate some of the burden imposed by tax on brewers.
Beer History
Beer was introduced to China at the beginning of the 20th century, and whilst both supply and demand for beer was low following the founding of the People’s Republic of China in 1949, its production grew steadily. Between 2917 and 1980, China’s beer production grew at an average annual rate of 51% to reach 9 m hl; a period of dramatic growth followed after 1981 as controls on the use of grain were relaxed.
As the standard of living improved in the mid-80s, more investment in breweries was encouraged to create employment and boost economic growth. In 2002, Chinese beer production overtook the then-leading United States for the first time; it has retained this position ever since, and the gap between consumption in the two markets has increased.
Breweries & Brands
China is a complex market, varying widely from region to region. Indeed, nationwide, the market is a collection of regional markets with very few brewers able to operate at a truly national level. China has over 500 breweries, though more than half are unprofitable and almost half the production capacity reportedly lies idle. Consolidation has been speeding up in recent years, and in 2012, there were 20 brewers with volumes in excess of 2 m hl, with total volume accounting for almost 83% of beer sales.
Brewers continue to face pressures from rising costs and many are seeking ways to increase efficiency. At the same time, energy conservation and the reduction of emissions remains a long-term priority. After years of expansion through mergers, acquisitions, new builds and capacity expansion, China Resources Snow Brewery Co Ltd (CRSB) leads the market in China. Tsingtao, the most famous brewer in China, has its brand spread nationwide. A-BInBev, since its global merger, has become the third largest volume brewer in the China market. These three brewers accounted for 49% of consumption volumes in 2012. Other brewers only strong in some of the regional markets are trying to make brands available on a national level.
Further industry consolidation is the long-term trend. There are around 1,500 brands in China, but in terms of distribution coverage, only Tsingtao and Snow are truly national brands.
Segmentation
Lager dominates the Chinese beer market. The segment has been increasing rapidly with the fast growth of the Snow and Tsingtao brands. However, there remain hundreds of local brands, and consolidations are expected over the next two to three years.
No alcohol and low alcohol beer currently have a very small volume, but growth is forecast in light of even stricter punishments for drink-driving. The demand for premium beer has seen an upturn with a new focus on innovation and the search for profit contributing to this, with both mainstream and small brewers developing a broadening range.
