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China's Premium Beer Market is Booming

On September 14, Chongqing Beer announced that it would inject their respective business units into Chongqing Jia Niang (重庆嘉酿), a joint venture controlled by Chongqing Beer, through a joint capital injection with Carlsberg. Chongqing Beer is the largest business unit controlled by Carlsberg in China, with revenue of RMB3.58 billion in 2019. The deal is expected to significantly shore up the position of Chongqing Beer in the local premium beer segment.

Premium beer sales growing robustly 

China is the largest beer consumption market. According to Global Data, a market research firm, China’s beer consumption totaled approximately 48.8 billion liters in 2018, accounting for 25% of total global consumption and 66% of the Asia-Pacific region. Compared to many other countries, China’s per-capita beer consumption is still very low, indicating more room to grow in the future. 

The Chinese beer market can be segmented into four price segments, i.e., low-end, mid-to-high-end, high-end, and ultra-high-end, of which low-end beer (under RMB4 /500ml) takes roughly 70% of the total sales. 

Since 2018, the Chinese beer industry has been moving from low-price competition to focus on high-quality beer offerings, mainly due to the declining beer-drinking population and growing consumer sophistication. Global Data predicts that the premium beer segment (hereinafter collectively referred to high-end-beer and ultra-high-end beer) in China will grow at a CAGR of 8.5% from 2018 to 2023, significantly higher than 4.7% of the overall market growth.  

Beer variety increasingly diverse

The Chinese beer market has been dominated by low-priced lagers. In recent years, in response to growing sophisticated consumer taste, a dozen of new beer variants represented by craft beer have flooded into the local market, which is crowded with numerous flavored beers such as white beer, dark beer, Ayer beer, and non-alcoholic/low-alcoholic beer. This has not only improved the beer consumption experience of local consumers, but also helps expand the premium beer consumption. 

Budweiser taking the lead

In 2018, Budweiser APAC took a whopping volume share of 46.6% in China’s premium beer segment, leaving other beer makers lag much behind. This is largely attributable to the company’s well-designed brand portfolio, active product innovation, trend-setting brand campaign, as well as extensive coverage of high-end catering channels. 

In the premium beer segment, Budweiser APAC owns global-renowned brands such as Corona, Stella Artois, Hoegaarden, and Budweiser. Meanwhile, the company has also launched craft beer brands such as Boxing Cat and Goose Island. This has given the company a differentiated competitive edge against its rivals. 

Besides, leveraging accurate insights into local beer consumption trend, which has been shifing from male-dominated social consumption occasion to family gatherings, male and female gatherings, and drinking during meals, the company launched small-packed beer and canned beer, which effectively stimulated its sales.  

Domestic rivals catching up  

Attracted by growing consumer demand for premium beer and higher profit margin, major domestic beer makers represented by China Resources, Tsingtao and Yanjing have all jumped onto the wagon, and have successively launched a dozen of premium beer brands sine 2016. 

In recent years, Tsingtao Beer has made a great stride in upgrading its product structure. The company’s mid-to-high-end product output grew by 7% in 2019, much faster than 3.5% growth of its overall product output. 

China Resources Beer, while accelerating the launch of its premium brands, also acquired Heineken’s China business in early 2019, hoping to enhance its competitiveness in this segment. 

As local breweries continue to beef up presence in the premium segment, Budweiser will face an increasing pressure to defend its ground in the years to come.