China: Large-scale breweries to pursue competitiveness of scale

Since 2002, when China became the biggest beer producer and seller in the world, the volume of China's beer production and sales has been growing over 6 percent annually in the past near 4 years, China Economic Net released July 28.

At present, the per capita beer consumption of China is close to 22 liters, while it is 30 liters at the average level in the world and 80 liters in Europe and the US. The per capita consumption in China is equivalent to only 1/8 of that in Czech Republic, 1/4 in the US, and 40 percent in Japan.

If the per capita beer consumption of China reaches international level, namely 30 liters, the production scale is expected to achieve almost 40 million tons with a sales revenue of more than 100 billion Yuan. In the face of such an attractive market growing fast, who will have the upper hand in competition between domestic first-tire enterprises led by Yanjing, Tsingtao and China Resources and foreign companies represented by AB, SAB and Carlsberg?

Chasing "competitiveness of scale " remains to be the most notable characteristic of beer market in 2006. As to the whole beer industry of China, though it caused a slide of the industrial profit margin, fierce competition also brought about vigor for development. The structural adjustment and scale-production of beer industry are coming true through competition. In 1996, the output of Tsingtao Beer was only 0.31 million tons. By means of active expansion and restructuring, Tsingtao merged and purchased more than 50 enterprises in various scales, and obtained an output of over 4 million tons in 2005.

At present, most of more than 500 manufacturers throughout the country are still "small, dispersive, poor, and weak"; the annual output of nearly 80 percent small enterprises is lower than 50 thousand tons.

Striving to become stronger with a larger scale is the direction for large-scale beer enterprises. As for the way of expansion, co-operation of competitive parties, which has been proved to be successful, will become the mainstream of the market. In 2002, Yanjing acquired Liquan Beer, which possessed nearly 60 percent of Guangxi market shares, equivalently Yanjing included the Southwest as its market scope. In January 2006, InBev, a Belgium Group, took over Fujian Sedrin Brewery, then equivalently possessed Fujian beer market on the whole. How to break fund bottleneck when developing advantage in scale? Perhaps in the near future, the financing gap of domestic enterprises as well as the investment demand of international brands will lead to a more harmonious cooperation accompanied with continuous conflicts.

How will do the massive small and medium beer enterprises that are of less scale advantage? It is predictable that the number of small and medium beer enterprises will decrease year by year along with the improving industrial concentration; but they will keep in existence in the industry for a fairly long time. Perhaps the optimal choice for them is to re-segment and re-target the market, and differentiate their products from others. Jinchuan Health Beer firmly occupies a segmentation of China's beer market with　the unique health-care function of their beer, being a typical case of small and medium beer enterprises that pursue specialization operation. Potential flavored beer market in China like low-calorie beer, lady beer, fruit beer, vegetable beer, and milk beer yet need developing. "Developing what others don't have, excel in the quality, win by innovation, and make product adjustment when others copy us". For small and medium beer enterprises, the urgent priority is to turn their target to the segmented markets, which have potential for development and profit that big enterprises haven't noticed or entered yet.

Difficult cross-region competition

So far as global beer industry is concerned, lots of brands are tightly connected with the local region they grown up. In 2005, the total beer output of China was 31.8545 million kilo-liters, up by 10.94 percent year-on-year. At the meantime, China is one of the countries in the world that has the most brand names; and basically there are regional brands in each province, municipality and autonomous region. The regional distribution of domestic beer brands is as following: China Resource and Harbin in the Northeast China, Yanjing in the North, Tsingtao in the East China, Chongqing in the West China, Zhujiang in the South China, and Jinxing in the Central China. Consumers show special preference to local brands. Mr. Li, on business in Beijing, said: "As a Shenzhener, I'm used to drink Zhujiang Beer. I’m not well used to the flavor of other brands after coming to Beijing."

The regional brands maintain their advantage. Meanwhile, along with the expanding merger and acquisition in beer industry, the market scope of big enterprises turns to be interlocking. Tsingtao, Yanjing and China Resource have started competing head-to-head in such markets as Beijing, Northeast China and Southwest China. In 2005, pioneered by "Dayou" (High-grade Tsingtao Beer packed with big-bottle), Tsingtao Beer entered Beijing and obtained certain market shares; Yanjing Beer successively acquired some beer breweries in other places; China Resource kept expanding market shares all over the country. After a series of merger and acquisitions, a situation of tripartite confrontation consisted of three large beer groups, i.e. Tsingtao, Yanjing and China Resource, has been established, supplemented by Zhujiang, Chongqing, Harbin and Jinxing as the second echelon.

China's beer market, with annual sales revenue of $6 billion, is attracting lots of foreign beer giants to join in. Foreign brands including Budweiser are massively attacking high-class beer markets. In Beijing Sanlitun, Houhai, Yansha Liangmaqiao, where bars are relatively concentrated, the best sellers are Budweiser, Heineken, Carlsberg, and Corona. Data shows that they have won the lion's share in Beijing high-class beer market. The M&A and expansion raised by international beer brands has made the competition in China beer market more intense.

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