China - Country Overview

The People's Republic of China (PRC), commonly known as China, is the world's most populous country, with over 1.3 billion inhabitants and is also the world's 3rd/4th largest country (depending on dependent and adjacent territories), which means that it is arguably one of the largest, if not the largest consumer markets in the world.

For the past 30 years, Chine has witnessed one of the world's fastest growing economies and has become the world's second largest exporter and third largest importer of goods. Adding its emergence as a leader as producer in most fields and that is has become the world's 2nd largest country by total GDP (PPP), we are truly facing an economic major power and emerging superpower of the world.

Politically influenced overall economic landscape

Politically, still a communist single-party run country, at the moment China focuses on supporting the economic growth in the context of the ongoing global recession, which it has successfully dealt with so far, China being one of the few countries that have been able to do so and quite rapidly head towards the end of the credit crunch and benefit from the changes in the world.

Externally, as China looks to become not only a world economic superpower, it also aims to become the dominant force in Asia, and especially in Eastern Asia.

From an economic point of view, China has not only successfully fought off the global recession, but it was also able to prevent it, through a series of decisions, such as an aggressive credit policy loosening and a surge in public spending. However, such a loose monetary policy may backfire on the economy, causing a rise in the prices of manufactured goods, as most of the credit at the moment looks to be directed towards investment. Also, the trend of investing instead of consumption will remain a problem for the following period.

Overall country trends

China has also made significant social progress, higher education playing a significant role in the developments of other fields.

However, the healthcare system is still mostly run by the government (only around 10% of the hospitals are privately-run). The gaps between rural and urban development are mostly visible especially in this sector.

At the moment, China relies a lot on imported technologies, so the aim for the future is to increase the investments in research and development in order to contribute to the development of the country as a whole. The most important areas with significant research and development are the IT&C, energy, health & life sciences, bio-technology and agriculture.

Although ranked only 89th in the world and 12th in its region in the Ease of Doing Business rankings (Doing Business by World Bank, 2009), China has improved its processes of setting up a business considerably. The government also looks to loosen up its policies and improve the investment climate in order to make it even more attractive.

Environmentally, China has tried to implement a “green strategy” policy, but it has so far failed largely in its attempts to changes its current environmental landscape. The country has severe issues it needs to address to, such as air and water pollution, but land degradation and soil erosion are also important matters to consider.

Chinese Beer Market

Overview

China's beer market, in its 8th year as the largest player in the world in terms of both production and consumption, experiences steady growth and faces quite a big growth, largely due to the current low consumption per capita (GAIN Report, 2007).

With around 251 beer producers nationwide, which own some 550 factories, China has broken the average annual beer output barrier of 40 million tons (Asia Pulse, 2009). However, with an annual per capita beer consumption average of just around 30 liters (still meeting the world's average), there is still a lot of potential for growth.

Depending on various sources, the total beer market volume for 2008 reached around 39 billion liters of beer produced in China (Datamonitor, 2009), whereas sales, including imported beer, have reached 43 billion liters (Euromonitor, 2009), with an overall market volume growth of around 12%.

Total sales in 2008 have experienced a growth of around 15%, reaching the figure of around £27 million. The compound annual growth rate (CAGR) for the past 5 years was 12% (Datamonitor, 2009), with an expected future average rate of around 8% in volume on the whole beer sector.

Imports & Exports

China's beer export volumes are, at the moment, nine times more than the imports, with the situation likely to remain the same or even change further in terms of exports, which had a reported growth of 16% in 2007, compared to a 12% growth of imports in the same year.

However, sales of imported beer remain very low compared to domestic beer sales. This is largely due to the low costs of producing beer in China. Most foreign companies choose to start their own production of beer locally, by setting up factories or acquiring existing ones, instead of importing their products.

Market Segmentation - Profiling and Characteristics

Although the beer market is comprised of lagers, ales, stouts & bitters and low or no alcohol beers, the overwhelming part of the market represented by the sales of premium and standard lagers, which account for 99.2% of the total beer market (Datamonitor, 2009).

Due to special beers having a bitter taste and being quite expensive, dark beers and stouts are almost unheard of on the Chinese market. Most of the specialty beer and ales/stouts/bitters, which account for only 0.5% of the total market, are sold in pubs, bars and restaurants in major cities, although they are now available in some hypermarkets such as Wal-Mart and Carrefour (Datamonitor, 2009).

The Chinese beer market can be divided in two major categories: imported and domestic. Imported beers are those that are brewed overseas and afterwards imported into the country, whereas local or domestic beers consist of all the beers that are brewed within China, regardless of the origin of the brand. Examples include Guinness (Ireland), Newcastle (England) or Corona (Mexico) for imported beers, or Budweiser (USA), Carlsberg (Denmark) and Asahi (Japan) as foreign-brand but locally brewed beers.

The domestic beers, can be divided in 2 main categories of lagers - standard lager, which accounts for a vast majority of the market overall sales (81.2%) and premium lager bringing the rest of the aggregate revenues (18%), the very small 0.8% being the rest of the beers (speciality, low or no alcohol, ales, stouts, etc.).

In terms of the price bands for lager, there are 3 main groups of price ranges - the Premium sector, with an average price of over 20¥(CNY)/liter (around £1.8), the Standard sector, with an average price of 7-20¥/liter (£0.63 - £1.8) and Economy sector, with prices below 7¥/liter (£0.63). Leading brands on the Economy segment, which accounted for almost 90% of the total sales volume in 2008 (Euromonitor, 2009) include Snow, Tsingtao, Yanjing and Harbin.

Market Trends

According to data from Euromonitor - GMID, notable trends in beer consumption in China are the low-sugar, low-carb diets, with light beers experiencing very good performances. Two important brands of such beers are Tsingtao Huan Dong (Tsingtao Brewery) and Snow Bei Shuang (China Resources Enterprise).

Rising incomes have also had an impact on the beer market, with collateral effects on the development of pubs and bars. Consumers, driven towards the on-trade channel are less price sensitive and more responsive to various successful promotional techniques used by beer companies, such as premium lager promotions having beer sales girls visiting restaurants, pubs and bars and introducing such brands as the foreign Carlsberg or Budweiser, or local Tsingtao and Yanjing to consumers.

However, the off-trade channel is still the main source for beer sale, with a massive 68% of the total sales volume in 2008. There is a growth in the on-trade beer consumption, mainly in major cities, such as Beijing or Shanghai, and it is largely due to an increase in entertainment and recreational activities and a more Western-like lifestyle.

Currently, the Chinese beer market tends to have an average alcohol content of between 2.8% and 3.6% ABV in a lager beer, considerably lower than the world average of around 4.0-4.3% ABV. The increase in consumption among females, who prefer lighter, flavored beers, and the consumer preferences and dislike for bitter taste and high prices of regular lagers have also had an influence on this.

Competitive Landscape

The Chinese beer market is a very fragmented market, with both domestic and foreign brewing companies attempting mergers and joint-ventures in a bid to establish strong positions and acquire greater market shares.

Despite the huge size of the country and population, difficulties in securing distribution networks and reliable logistics service and the presence of so many players on the market, regionally or nationally, there have been significant changes and achievements on the market, especially in the past 2 years, 2008 and 2009.

In 2008, the market was dominated by 3 major players, which held almost 41% of the market share between them - China Resources Snow Breweries (SAB Miller), Tsingtao Brewery and Beijing Yanjing Brewing Corporation.

However, important moves have shaped the market in 2009, with the merger of InBev and Anheuser-Busch, followed by the newly formed A-B InBev offloading of 20% of its stake in Tsingtao Brewery to Japanese producer Asahi, followed by the sale of its remaining 7% stake in Tsingtao (Just-drinks.com, 2009).

Currently, the top three companies in China - Anheuser-Busch InBev (24%), the SAB Miller - China Resources Enterprise joint venture, called China Resources Snow Breweries (15.9%) and Tsingtao Brewery (13.7%) (Datamonitor, 2009) account for around 55% of total volume sales, with CRSB - SAB Miller being the market leader through the outstanding performance of its main brand, Snow, sales of which grew by 69% in 2007 alone (Euromonitor, 2009).

Before the A-B InBev merger, the top three domestic brewers were followed, in terms of Global Brand Ownership, by A-B InBev (acting separately on the market before 2008). However, the Chinese companies were able to maintain their position, mainly due to their wide distribution networks, such as China Resources and Beijing Yanjing.

The launches of new products, in line with the market trend of healthier, low-calorie beers, have brought the Tsingtato Huan Dong and the Snow Bei Shuang. The latter, at a price of ¥2.50 per bottler, positioned in the economy lager segment, backed by a strong brand image of Snow and the wide distribution network of China Resources, is expected to perform very well and increase the position of CRSB - SAB Miller on the market.

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