Local Chinese Brewers Make Push For Premium Beer Market

Local Chinese brewers, such as Tsingtao, Yanjing and Zhujiang Beer, are increasingly looking towards the premium beer market as a potential source of revenue as they try to break a monopoly by foreign companies in the world’s largest beer market, where only 5 percent of beers drunk are premium draught beers.

Local Chinese brewers, such as Tsingtao, Yanjing and Zhujiang Beer, are increasingly looking towards the premium beer market as a potential source of revenue as they try to break a monopoly by foreign companies in the world’s largest beer market, where only 5 percent of beers drunk are premium draught beers.

According to a report by Reuters, foreign brands such as Anheuser Busch presently dominate the premium beer segment in China with a 45 percent share, while Tsingtao Brewery is a distant second with a 15 percent share, with Heineken and Carlsberg trailing at 7.5 percent and 6.1 percent, respectively.

In the next five to ten years, analysts believe that the premium beer market in China will increase by almost five times, as growing brand awareness and new lifestyle changes affect the taste palates of an increasingly wealthier middle class.

China’s beer consumption, which hit 450 million hectoliters last year, is nearly twice that of the US, and is expected to grow by 5 percent per annum in the next few years, double the 2.5 percent growth forecast for the global market this year.

The premium beer market is expected to drive this growth, and be a major source of revenue for brewers due to its higher profit margins and greater brand appeal in the long run.

[quote]“The industry is trying to raise average selling prices to improve margins to levels we see internationally,” said London-based David Serre, who oversees Credit Suisse’s global beer industry investment banking business.

“If you get the premium strategy right, get the pricing right, the profit growth prospects are truly amazing,” he added. [/quote]

Major local brewers are now seeing their premium beer segment grow faster than foreign brands thanks to their vast sales network, nationwide presence and cost advantage.

Accordingly, shares of Chinese beer companies have also soared in the past decade with Tsingtao posting a twenty-fold increase in its share price since ten years ago.

Foreign brands have since attempted to capitalise on the growing Chinese beer market by either setting up ventures with, or acquiring stakes in, Chinese companies.

[quote]”Over the next five to 10 years, you will find more and more mid-cap Chinese brewers becoming acquisition targets for large Chinese brewers and international brewers willing to play in China,” said Credit Suisse’s Serre.[/quote]