Intensifying competition in China’s premium beer segment

China | China’s beer production has been on a downward slope since 2013. In 2020, the domestic beer output stood at 341 million hl, which is a 7 percent decline over 2019. If this downward trend continues, the market leader, China Resources beer, which makes Snow beer, will be lucky to achieve flattish volume sales, observers say.

China’s top five players are China Resources Beer, Tsingtao Brewery, Budweiser APAC, Yanjing Brewery, and Carlsberg. In 2020, these five firms commanded a combined market share of approximately 91 percent. This breaks down to 33 percent for CR Beer, 23 percent for Tsingtao Brewery, 18 percent for Budweiser APAC, 10 percent for Yanjing Brewery, and 7 percent for Carlsberg, according to a report by Mirae Asset Securities (September 2021).

Drinking better beer

Even before covid hit, China’s overall demand for alcohol was in decline, as the country’s working-age population – the biggest drinkers – is shrinking in numbers.

Analysts at Mirae Asset Securities are seeing a meaningful shift in food and beverage consumption patterns in China, “fuelled by increased purchasing power and the lingering effects of the pandemic. Quality (over quantity), health, convenience, and uniqueness have become key considerations when purchasing F&B products.” As a result, Chinese consumers increasingly turn to premium or high-end beers.

It is easy to see why every brewer wants to crack into the high-end segment: China’s beer market by value expanded 21 percent from 2016 to 2019, according to Euromonitor.

Scramble for market shares

Per Mirae Asset Securities, already 34 percent of beer revenues are realised in the high-end segment, compared with 31 percent for mid-end and 35 percent for low-end beers (2020). Budweiser has the number one position in the high-end segment, with a market share of 46 percent, followed by Tsingtao Brewery with 25 percent.

In the face of growing competition and seeing that it trails Budweiser as well as Tsingtao in the premium segment, CR Beer, which is in a partnership with Heineken, has sought to rejig its portfolio and slim down capacities. The brewer operated a total of 68 breweries at the end of June, down from 98 at the end of 2016, and plans to shut ten more. The workforce has been cut by half, it was reported.

The restructuring has contributed to solid earnings. Compared with the first six months of 2020, CR Beer’s net profit doubled to approximately USD 650 million in the January to June period of 2021. The company looks to capitalise on this strong position by diversifying while it still can.