China’s Beer Market in 2018
Due to the changing lifestyles of the Chinese, alcohol consumption, especially in beer, has undergone a major shift in the past years. There is an increase in disposable income as the middle-class population continues to grow. Greater exposure to foreign products has resulted in significant growth in sales of imported brands. This holds true not only in large urban and coast areas, but also in less developed cities.
Currently, China’s beer market is the largest in the world. Annual consumption, both in local and foreign beer, reaches 45.7 billion liters. In terms of imports, the year-on-year growth is 11% and 13% by volume and value, respectively. Mass-consumed beer or local brews account for more than 90% of the market. There is a huge demand, however, for imported and premium brands, as well as for craft beers. Foreign companies like AB InBev and Carlsberg go toe to toe with China’s biggest breweries in terms of sale.
China’s beer imports are still dominated by European producers. Germany continues to lead the pack, shipping about US$209.5 million worth of brews in 2017. Mexico comes second, followed by Belgium, Netherlands and Portugal.
The United States’ craft beer imports to the Chinese market continues to grow. In 2017, China comprised 2.5 percent of American exports.
To succeed in China’s beer market, businesses should: 1) determine how to feasibly sell in China, 2) localize their brand and product(s) as needed, 3)deploy an effective marketing strategy, 4) find reliable distributors and establish diversified sales channels, and 5) find a professional local partner help navigate common challenges and carry out necessary due diligence and preparation in order to reduce costs and maximize long-term returns.
The experience of Foster’s Group – an Australian beer producer – demonstrates the value of investing in determining feasibility and testing the market. Coronas’ success in China’s beer market shows the return firms can enjoy when they accurately assess the market and consumer preferences, properly localize and market their brand and products, and employ the time and due diligence necessary to develop strong relationships with suitable local partners who can help them establish reliable sales channels.
China's Beer Market Growth
Beer represents 75% of China’s total amount of alcohol consumption (by volume). Imports have been growing year by year, reaching US$750 million in 2017. By volume, the year-on-year growth is at 11%, while import value is at 13%.
There is a heightened expectations for beer products among Chinese consumers. The citizens’ increasing levels of wealth has ushered in a more discerning drinker population. They have developed a sharp-eye for brands, both local and foreign. Beer quality, value and service have become more important than ever.
Beer consumption and Gross Domestic Product (GDP) have a strong correlation in China. Areas with highest consumption are Greater Beijing, Central Provinces and North East China. Local brews continue to dominated the market, but preference for imported brands is concentrated but expanding.
The Rise of the Millennials
The millennials, aged 22 to 37, are considered the driving forces behind the rising beer consumption in China. While the older generation tend to stick to local brews, this demographic has been switching to imported premium brands, as well as other flavored alcoholic beverages and ciders. They demand high quality beers but with lower prices and are eager to explore new flavors and different brands.
Due to the growing preference of the Chinese for imported premium beers, huge opportunities have been opening for foreign breweries to enter the market. Since imported brands sell at a better price compared to domestic beer, distributors and retailers are ensured of bigger profits.
Beers in China
China’s beer market is divided into three segments. Mass-consumed beer is the largest sector, accounting for 90% of the market. These are the locally brewed ones, usually low-priced and consumed by people across all income levels.
Leisure beers (10%) are imported brews, more expensive and with higher alcohol content. Having the least share of the market at 0.1%, craft beer is the result of the Chinese drinkers’ shift from macro/mass-consumed brews to more premium and craft flavors.
Manufacturing in China’s beer market is regionally fragmented, with local producers dominating smaller areas. Top brand in 2017 was Snow by China Resources with its commanding 25% market share, followed by Tsingtao, Budweiser, Yanjing, Carlsberg and AB InBev’s Goose Island.
Top Beer Exporters to China in 2017
Europe remains the largest source of imported beer in China, accounting for almost 75% of the goods. Germany is still on the lead with its US$209.5 million imports in 2017. Other EU countries on the list are Belgium (US$69.7 million), Netherlands (US$65.9 million), Portugal (US$63.4 million), Spain (US$51.7 million) and France (US$40.7 million). A large number of imported beer also came from Mexico, South Korea, United Kingdom, Russia and United States.
Challenges in China's beer market
Determining Feasibility in China's Beer Market
Measuring Affordability & Geographic TargetingProperly measuring the affordability of your product in China will enable you to determine if there really is a consumer base that can afford to buy your product and, if so, where they’re located. This allows you to employ accurate geographic targeting and focus your resources on those areas most likely to bring commercial success.
The AUA SpectrumProperly measuring the affordability of your product in China The Awareness – Understanding – Affordability (AUA) Spectrum tells you who to sell to, where, and at what price. Many firms fail in China because they haven’t accurately measured the feasibility of selling their product in China and, if feasible, where their product falls along this spectrum, so they can effectively target and invest resources.
Deploying an Effective Marketing Strategy in China's Beer Market
Although demand for imported beer is rising in China, Chinese consumers still have low brand loyalty and awareness for foreign brands. For example, their awareness of beers is often limited beer giant AB InBev and Danish brewer Carlsberg, though there are many other companies that produce world-renowned beers. Their knowledge of different tastes and varieties of beers is still limited.
China’s media market, online platforms, and way of consuming advertising is unique and evolving quickly. Foreign companies that want to communicate effectively with Chinese consumers need to master Chinese social media, and understand what will and will not work in China.
Localizing a Brand & Product
In China, brand loyalty is low, but the value placed on products that project high-quality, unique/novel and luxury is high. Foreign companies often struggle to communicate or alter their brand to accommodate Chinese culture, ways, of thinking, and consumer values. It is essential that your brand resonates with Chinese consumers so that it will stand out in their mind as distinct as they’re faced with ever increasing options when shopping.
Localizing your particular beverage’s blend, flavor, portion size, and the like are also often important for balancing novelty with familiarity. While some products require little or no localization, others do. Making sure you determine this need and properly localize is important.
Consumer Awareness & Understanding
Awareness and understanding of the different brands, qualities, applications, and other key factors for beer in China varies considerably compared to mature consumer markets, such as the United States or Japan. Variation is mostly based on geography and income—which tend to be interlinked. Large urban areas and coastal provinces, generally, are typically the wealthiest local markets in China, with greater exposure to foreign markets and cultures and the disposable income necessary to try new, often expensive (by local standards), foreign goods. Smaller cities, towns, and interior provinces, tend to be in contrast to this—often starkly so. Knowing where your product fits along the AUA spectrum is a major contributor to success or failure in China.
Choosing Suitable Sales & Distribution Channels and Partners
Working with a distributor is often viewed as a quick and easy way to start selling in China. However, foreign producers have difficulty assessing the true capabilities of individual distributors and their suitability as a partner in China.
Large distributors usually have a regional or national reach and focus on distributing through large chains. However, these chains prefer to sell well-known brands and products from countries already known for beer. For example, Germany, Mexico or Belgium. Such distributors typically also require guarantees of large volume, prefer established brands, and are risk averse. This poses problems for small or medium producers; the distributor may not be interested or will demand unfavorable unfair terms.
Although information exists online or in government databases regarding large distributors in China, little or no information is available on smaller distributors. This is important because most distributors in China focus on a specific local area and distribute to bars, restaurants, and other local establishments likely to be interested in offering foreign beer options to customers. They also tend to be the most receptive to working with small or medium sized producers. However, conducting due diligence is critical and difficult; some distributors are informal or do not understand their obligations and the best way to check is by investigating locally.
Online sale is often a good option—both as an option for selling independently or through a distributor. Chinese consumers are comfortable buying online and it offers greater transparency. The key in this case is creating an effective online shop or your own website, securing warehousing and finding a reliable fulfillment company.
The Case of AB InBev’s Corona
Anheuser-Busch InBev is one of the world’s largest breweries with deep roots in the Americas, Europe and Asia-Pacific. Its biggest market in Asia is China, compromising about 95% of its import volumes. The company is the owner of premium brands like Budweiser and Harbin Ice, which enjoy immense popularity among the Chinese consumers. In 2014, it introduced its global beer brand Corona to further strengthen its premium portfolio in the country.
Since entering the Chinese market, Corona has been steadily gaining loyal followers. In 2016, the brand sold 24 million hectoliters of beer. This year, Carlos Brito, CEO of AB InBev, announced that Corona has become the number one imported beer brand in China and that it continues to grow rapidly in the super premium segment of the market.
Corona’s success in China is due to multiple factors. The first one is timing. AB InBev introduced the brand to the market when demand for premium beer was high. Due to the increasing wealth of the Chinese, more and more consumers are looking for high-quality brews that they cannot find in their local beer selections.
Second, the company decided to hire a Chinese brand agency, W+K Shanghai, to handle Corona’s overall brand communications, as well as digital and social projects, in mainland China. This allowed the company to establish effective sales channels and develop a marketing strategy that resonated with Chinese corporate buyers and end consumers.
Third, with a local partner’s help, AB InBev recognized the changing consumer market in China and planned its marketing approach accordingly. Corona’s campaigns are focused on the younger generation, which comprises a huge chunk of the Chinese beer drinker population. Its 2017 summer campaign “Living is Now,” and 48 hours, go now” launched on Weibo and WeChat generated impressive responses online.
The Case of Foster’s Group
Foster’s Group was a multinational beverage company based in Australia. It was considered as one of the fastest growing international premium beer brands in the world, with over 100 million cases sold annually. The company created the Foster’s Lager, a popular beer brand distributed worldwide. In 2011, SABMiller bought Foster’s Group and renamed it Carlton & United Breweries. It then became a direct subsidiary of Anheuser-Busch InBev when the latter took over SABMiller in 2016.
Foster’s Group first entered the Chinese beer market in 1993. It had breweries located in Shanghai, Guangdong and Tianjin. Aside from the Foster’s Lager, it also distributed brands like Shanghai Lager, Guangming, Qing Yi and Yi Hao. In 1999, the company sold its Tianjin and Guangzhou headquarters. Seven years later, it announced not only the sale of its last remaining office in Shanghai, but its final exit from the Asian beer market.
The company was known for producing premium beers, using imported ingredients like barley and malt. Its brews costed five to six times more than that of local brands. The people behind Foster’s Group failed to consider China’s economy that time. In the early 1990s, the level of disposable income in the country was relatively low. Consumers could barely afford to buy basic necessities, let alone purchase beers worth a fortune.
Even during that time, competition was fierce in the beer market. International companies struggled to enter the market dominated by local breweries. The Chinese generally had little knowledge about foreign brands, except for the popular ones like Budweiser and Carlsberg. As a result, Foster’s Group had difficulty establishing its name with the consumers. Another problem that the company encountered was that the beer products they sold did not fit the Chinese palate. The Foster’s quality level and taste was mainly based on the preference of its Australian consumers.
China’s large population and rising disposable incomes, coupled with increasing demand for beer and more preference for better quality, means stiff competition in the market. This makes assessing feasibility all the more important, which includes several components.
First, assess affordability. It’s important to have hard data showing whether or not Chinese consumers can afford your product and, if so, which ones and where. This will allow you to focus time and resources on areas where you have a high probability of achieving commercial success.
Second, measure the level of consumer awareness and understanding of your product. This will provide a good indication of how much time and resources you will need to invest in order to familiarize customers with your product, demonstrate how it fits into their lifestyle, and why they should buy it. This is a necessary precursor to budgeting for and developing your marketing strategy.
Third, determine the regulatory burden and risks; how that will impact your costs and customer price, lead times, importation process, and warehousing.
Deploying an Effective Marketing Strategy
Full market strategies will vary by product and firm; however, some ideas are applicable across all products.
Educate Consumers Although more Chinese consumers are becoming more knowledgeable about imported beers, the majority of them remain unfamiliar. This makes educating Chinese consumers important to sellers. Many organize tasting events or other events that teach them about the product’s quality, varieties, history, and culture. This helps build a good first impression, increase demand and familiarity, create brand awareness, increase the perceived value of the brand, and eventually build brand loyalty.
Adopt an Online Strategy It is important in any market for companies to adopt a marketing strategy that focuses on their target consumer segment. Most consumers of imported beers in China are wealthy, urban, and young (born after 1980). They often research about beer online and frequently use social media as a source of information about their beer choices. This makes online marketing critical to succeeding in China. Although most producers sell via distributors in China, marketing is still a must, and making use of online platforms and channels is the most cost-effective way of developing the brands in China.
Localizing a Brand & Product
To ‘watch and learn’ is often a good strategy for those who want to succeed in life. However, watching and learning in China offers limited lessons. Many foreign firms have not properly localized their brand and products, with many companies exiting the market annually—not understanding why their product failed to take off in China. Even some of the largest brands in China apply a blunt force strategy, merely relying on Chinese consumers to recognize their brand name and make purchases solely on this basis. This can deliver sales, but is not sustainable—particularly as competition and the subsequent need for differentiation and clear messaging increases.
Invest the time and resources necessary to understand how Chinese consumers are likely to enjoy your beer, their motivation for purchasing, and values so you present your brand and communicate your message in a way that both stays true to what your company stands for and resonates with local consumers. This will pay dividends in the long-term and allow you to more easily differentiate yourself in an increasingly crowded market.
Choosing Suitable Sales and Distribution Partners
Large producers are going to focus on developing relationships with large distributors in China with regional or national reach. Given the ability to deploy large volumes, this is sensible. Such companies also have the internal resources to conduct proper due diligence and navigate China’s legal landscape, though most large distributors are known to foreign government agencies, making their authenticity easily confirmed. As well, these tend to be experienced outfits well aware of their obligations and with expansive and established distribution channels.
Small and medium producers, by contrast, are going to find more interested partners in local or provincial distributors. Although many such distributors are experienced, reliable, and have well-established distribution channels, many are not and confirming which is the case with a particular distributor is difficult. Any government records which might exist, are likely to be solely in Chinese.
Although producers can try to carry out proper due diligence on their own, it’s best to work with a local third party to do this, taking advantage of their understanding of the Chinese market, legal landscape, language, regulatory system, and way of doing business. Once a company has identified a suitable local distributor which has passed inspection, the third party can assist with establishing a formal relationship with the distributor and ensuring all agreements are fair, transparent, and legal.
China continues to be prime markets for imported beer. The demand for better-quality beers is rising as younger and wealthier consumers keep up with the trends and embrace the modern lifestyle.
Companies wishing to sell in China’s beer market should: 1) evaluate the competition, 2) determine which local markets to target, 3) examine how product’s pricing compares to the average national and local market prices, 4) analyze branding including labelling, packaging, messaging and other brand assets, and 5) carry out necessary due diligence to find a professional local partner to achieve sales goals in the market.
Competition is best be evaluated through a Competition Analysis where product is assessed in terms of growth outlook, varietal and price, then compared to existing brands in the market.
The best local markets for your product can be identified through the Target Market Analysis (TMA) as well as the profile of the ideal customer for the product and guidance on choosing the right kind of distributor.
Market pricing, strategy and how they compare to the competition can be assessed through a Marketing Pricing Analysis (MPA) providing a clear picture of your product’s place in the market, relative to existing competition, and what you can do to best position yours for success.
Knowing how well your existing or planned branding will support sales growth and what you should do to maximize your chances of success can be shown in a detailed Branding Analysis where the product’s brand assets are assessed compared to competitors’ in the market.
Although finding a reliable distributor can be challenging, particularly for small and medium-sized producers, carrying out due diligence can ensure you know if you are working with the right company. A Distributor Due Diligence Assessment examines a distributor’s track record, operations, facilities, licenses and more and provides a useful risk assessment and recommendations.
With these tools, expertise, and support, you will be setting yourself up for long-term growth and success in whichever market you choose to do business.