China: Beer market facing significant challenges since last year

Since last year, China’s beer market has faced significant challenges, Futubull.com reported on September 27.

Public data shows that in 2024, the cumulative production of beer by large-scale enterprises reached 35.213 million kiloliters, a year-on-year decrease of 0.6%, representing only 70% of the peak capacity expansion period a decade ago.

Amid an overall decline in production, beer companies are facing increasing performance pressures.

On the surface, in the first half of 2025, the entire beer sector reported revenue of 41.534 billion yuan, a year-on-year increase of 2.75%, with net profit attributable to parent company shareholders reaching 6.512 billion yuan, up 11.81% year-on-year.

However, it is not difficult to observe that the divergence within the beer industry is gradually intensifying.

Take Budweiser APAC, once the king of domestic beer, as an example. According to Budweiser APAC's interim report, the total beer sales volume in the first half of the year was 4.363 billion liters, down 6.1% year-on-year.

Revenue fell by 5.6% year-on-year to 3.136 billion USD, while net profit plummeted by 24.4% year-on-year to 409 million USD. In particular, sales volume in the Chinese market dropped by 8.2%, and revenue declined by 9.5%.

As a result, the rankings of domestic beer companies have also changed, with Budweiser APAC falling to second place and its market share dropping to around 40%.

As a representative of high-end beer, Budweiser APAC’s setbacks also confirm that the previously pursued premiumization strategy in the beer market has shown signs of fatigue.

In recent years, the beer market has undergone several significant strategic shifts.

Before 2012, rapid economic growth and a swift rise in per capita GDP led to an increase in the core consumer base for beer, contributing to the majority of incremental growth in the beer industry. As beer sales rose, major beer companies were in a phase of aggressively expanding their production capacities.

However, by 2013, China’s beer sales had already peaked, leaving limited room for market demand growth. The beer industry entered a stage of stock competition, with overcapacity gradually becoming apparent.

Prior to this, the beer market was predominantly flooded with low-priced beers, making differentiation difficult. Consequently, the beer market experienced prolonged price wars.

After demand peaked, low-end demand began to contract, while high-end demand revealed significant market potential. Foreign brands gained a dominant position in the high-end segment, prompting domestic beer markets to embark on an aggressive process of premiumization.

During this period, leading domestic beer companies made notable progress in upgrading their product mix.

Guolian Securities noted that from 2018 to 2023, the compound annual growth rate of beer prices per ton reached 4.65%. The trend toward premiumization in the beer industry is irreversible, and the average price of beer in China continues to rise, with significant room for further increases.

However, in recent years, as numerous brands have entered the market, this strategy has become less effective, revealing significant differences between major brands.

Tsingtao Beer, with mid-to-high-end products accounting for 72.7% of its portfolio in 2024, saw profit growth without revenue growth. In 2024, its revenue increased by only 5.30% year-over-year, while sales volume declined by 5.86% year-over-year.

Evidently, while raising prices may preserve profits, it is insufficient to counteract declining revenues.

Since the beginning of this year, the sales volume of low-priced beer may continue to face pressure, while the recovery of mid-tier and above products will remain the primary driver of growth in the industry.

However, as such incremental growth gradually reaches its limit, what else is there to expect from the beer industry?

Currently, the valuation of the beer sector has dropped to a historically low level, standing at only 22.63, indicating that the market holds a rather pessimistic outlook for the beer sector.

This undervaluation is closely tied to the severe challenges currently facing the beer industry.

In recent years, due to the sluggish offline dining industry, the on-premise consumption market for beer has also been impacted, resulting in continuous contraction, causing the beer industry to be neglected by the capital markets over the past two years.

Currently, in China's domestic beer market, five major brands represented by CR Snow, Tsingtao, Yanjing, Chongqing, and Pearl River hold a combined market share of 70%, with the market entering a phase of competition for existing shares.

However, this does not necessarily mean that the performance of beer companies will remain consistently lackluster.

By capturing market shares left behind by other exiting firms and leveraging multi-brand operations to secure more niche markets, leading beer companies can still achieve significant growth.

After several years of price increases, compared globally, the average price of beer in China remains at a relatively low level within mainstream beer-consuming markets.

Therefore, in the long term, there is still room for an increase in the average price of beer. With the rise in prices, it can be observed that the profitability of leading beer companies remains relatively stable, with gross profit margins steadily improving.

At the same time, beer companies have also begun to actively explore new breakthroughs and seek new growth paths.

In terms of their core beer business, craft beer and non-alcoholic beer have become key areas for product innovation.

As Generation Z gradually becomes the main consumer group, the 'Tmall Beer Trend White Paper' shows that those aged 18-24 from Generation Z have become the fastest-growing group in beer consumption, with year-on-year growth rates for males and females reaching 25.9% and 39.8%, respectively.

For Generation Z, what matters is not the 'alcohol culture' behind drinking, but rather the emotional value it represents and the mild intoxication experience it provides.

Therefore, craft beer, low-alcohol, and non-alcoholic beer have all become new directions for beer companies.

It is projected that by 2025, the consumption volume of craft beer will reach 230,000 kiloliters, with an annual compound growth rate of 17%. The market size of non-alcoholic and low-alcohol beer will also increase threefold compared to 2020.

Beyond the beer industry, some beer companies have started expanding into other categories, such as entering the rice wine market.

In May this year, Tsingtao Brewery acquired 100% of Jimo Huangjiu's equity for 6.65 billion yuan, officially entering the yellow wine market.

Beverages have also become a key focus for many liquor companies; for instance, Yanjing Beer’s launch of Best Soda is regarded as the company’s second growth curve.

Over the past two years, the traditional alcohol market has largely reached saturation, while niche beer flavors such as fruity, sweet, and creamy types have gradually gained consumer favor.

During the same period, the beverage sector has shown robust growth, with a more fragmented market comprising numerous brands and presenting greater opportunities.

Therefore, innovation in beverage-oriented strategies may quickly become a new direction for beer enterprises.

Meanwhile, as the primary demographic of beer consumers shifts, the consumption scenarios for beer are also changing, with new consumer groups bringing about new consumption patterns, such as instant retail.

Recently, beer companies halting product supply on instant retail platforms sparked controversy.

Amidst fierce price competition in recent food delivery battles, many beer brands frequently undercut prices on instant retail platforms; in some cases, platform prices were 30% lower than standard rates, forcing breweries to halt supply to maintain their pricing systems.

Evidently, as an emerging channel, instant retail and beer companies will inevitably require prolonged adjustments.

However, at the same time, the unique characteristics of beer contribute to the growth of instant retail businesses, and similarly, the instant retail channel has become one of the significant drivers for beer companies.

Data shows that beer has become a core category in instant retail, with a sales penetration rate of 6.5% and a growth rate exceeding 30%.

As major platforms increase their investments in the instant retail channel, this channel is rapidly emerging as an important sales avenue for beer companies.

The scale of beer in the instant retail channel reached RMB 780 billion in 2024 and is expected to surpass RMB 1.2 trillion by 2026, with a compound annual growth rate of 23%.

Moreover, the flexibility and efficiency of instant retail have also made it an essential channel for high-end beer penetration, enabling beer companies to more conveniently complete nationwide rollouts of new products.

In instant retail, short shelf-life fresh beer and craft beer account for over 40%, with average order values increasing by 30% compared to traditional channels.

Among the beer consumer group in instant retail, high-income individuals constitute the majority.

In the future, driven by the combined efforts of exploring new categories and expanding new channels, it may not be long before beer companies emerge from the current downturn.

After several years of valuation adjustments, some leading companies in the beer industry are now showing a certain level of cost-performance appeal.

Moreover, due to stable market dynamics, capital expenditures in the beer industry are relatively low, and cash flows are generally abundant, resulting in generous dividend payouts.

Compared with current prices, the long-term capital return rates of some highly profitable beer leaders have become fairly attractive.

For investors, the beer sector is currently exhibiting clear signs of bottoming out, but a full recovery will still require waiting for signals of improvement in the broader consumer environment.

In the short term, as the low base effect becomes more pronounced in the second half of the year and cost benefits continue to materialize, the performance of the beer sector is expected to maintain steady growth. For regional leaders that are more reliant on the consumer environment, attention should be paid to the pace of recovery in consumption conditions.

If consumption-related policies improve marginally, it may drive a gradual recovery in dining and distribution scenarios. As fundamentals in the sector steadily improve and valuations continue to recover, the beer industry could present certain opportunities.