China: Craft, import beer consumption on a rise in China

Ignoring the cheap beer on tap in a dim and smoky Beijing bar, Cheer Qiu reaches into a fridge bursting with craft ales and pulls out a bottle of locally made Panda Brew, flavoured with honey.

“I’m interested in brewing culture,” says Ms Qiu. She is not alone in shunning cheaper beers in favour of more distinct brews. Volume sales in China at Danish brewer Carlsberg fell 6 per cent last year, while Panda says its sales tripled, the Financial Times reported on February 26.

Kurt Xia founded Panda Brew in 2013 and is now selling his products in 60 cities across the country and has attracted venture capital investment worth Rmb20 mln ($2.9 mln). “Consumers are not satisfied only with lager but want to have something unique and which makes them look cool,” he says.

The two brewers’ contrasting fortunes underline the challenge of China’s more than $70 bln-a-year beer market. Total volumes have been falling about 5 per cent annually for the past three years.

The drop has been driven by the rising popularity of wine and other alternatives, as well as a decline in the numbers of working age people who consume most of the cheap lager, which is priced at less than $1 a bottle and accounts for more than 90 per cent of volumes.

At the same time, the overall value of Chinese beer sales has risen slightly as younger and more affluent consumers switch to premium drinks, especially craft beers. Many of these beverages are from abroad — home consumption of imported beer rose 40 per cent last year, according to consumer research company Kantar Worldpanel, to comprise 3.6 per cent of the market.

That has been a boost for small European brewers. Premium brands have experienced “exponential growth” in recent years, says Antoine Bolly, China marketing manager for Vandergeeten & EG Distriselecta, which distributes Chimay beer and Huyghe Brewery’s flagship Delirium Tremens beer in China.

“The consumer goes more and more for premium instead of value,” he says.

Brand recognition and loyalty for beers such as Chimay, brewed by Trappist monks in Belgium, are rising, Mr Bolly adds, with consumers “asking for the brand in Chinese”. However, in a country ruled by the officially atheist Communist party, “you cannot communicate that it’s made by monks. They refuse to brand it like that.”

Dutch brewer Heineken said this month that its sales volumes in China increased slightly last year on the strength of its more expensive offerings. “We are totally super premium with the Heineken brand in China,” says Jean-François van Boxmeer, chairman. “It’s a promise for the future.”

Scottish “punk” brand BrewDog has also expanded in China. “It seems to have a following,” says Gary Brown, managing director for Topshelf Asia, which distributes the beer in the country. “They are serious about the market here. There’s only a few big markets that haven’t been tapped.”

Despite the decline in volumes, Carlsberg says sales of its premium Tuborg and 1664 Blanc brands are strong in China. “The gain is not volume but value and premiumisation, and we are well placed for that and in that respect optimistic for China,” says Cees ’t Hart, chief executive.

But Chinese beer groups appear to be struggling with the shift to premium drinks. Urban sales volumes of Snow, Tsingtao and Yanjing, the country’s biggest domestic brands, contracted 3, 7 and 8 per cent respectively last year, according to Kantar.

Revenues at China Resources Snow Breweries, the world’s biggest beer group by sales volume, fell 2 per cent to Rmb15 bln in the first half of last year. China Resources Beer acquired SABMiller’s 49 per cent stake in Snow for $1.6 bln last year.

Yanjing’s 2016 sales were down more than 10 per cent to Rmb6.3 bln and profits fell one-quarter compared with the previous year, to Rmb451 mln. The company is “heavily indebted and the market believes they are looking for a strategic investor to bail them out”, writes Gordon Orr of McKinsey.

“However much they try, their brands are just not premiumising well. Consumers view them as the cheap brew that their parents and grandparents turned to. They want something different,” Mr Orr adds.

Tsingtao posted an 8 per cent fall in revenues to Rmb14.7 bln in its most recent financial report, with profits down 6 per cent. Japan’s Asahi is considering selling its 20 per cent stake in the company.

But the Chinese market is not all smooth sailing for premium brands. A lack of refrigeration in bars and distribution vehicles can spoil the taste, and distributors say “parallel” imports of foreign beer brands that avoid paying customs duties are a big challenge.

“When Heineken is sold in Europe under promotion some containers are shipped to China. It’s very difficult to control,” says Heineken’s Mr van Boxmeer.

Ceinwen Michael, a sales manager in China for Vandergeeten, says the problem of parallel imports is extensive: “All big popular beers are getting brought in through other methods.”

Lax enforcement of rules against unofficial vendors has exacerbated the problem. “We’ve given up reporting [parallel imports] to the authorities,” says Mr Brown of Topshelf Asia.

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