China: Beer Industry recorded total sales of CNY15.9 billion in the first quarter of 2006

Chinese brewers are looking to the World Cup and new marketing strategies to help them boost beer consumption and absorb some of the sector’s substantial unused capacity, Decision News Media released June 29.

After several years of low margins, China's beer sector has begun to consolidate, allowing the bigger players to increase profits. But even the bigger firms need to do more to improve efficiency, according to Adam Zhou, analyst at KGI Securities.

“Tsingtao had a capacity utilization of about 70 per cent during 2005,” he told AP-Foodtechnology.com. The industry average is around 80 per cent.

But stronger sales during the World Cup, as well as hotter than average temperatures in June, will lift consumption and demand.

In addition, some companies are investing in new marketing campaigns to boost sales. Tsingtao has rolled out a football programme in collaboration with CCTV, and is also looking to roll out its sponsorship of the annual Qingdao beer festival to festivals in other cities.

“In the first stages of growth, during 2001-2001, brewers tried to compete on capacity rather than the market. There was a flood of low margin products.”

But beer is a fast cashflow industry and if you can't sell the product, you soon have to exit the market. Now there is a healthier growth model, with the larger players eliminating a lot of the smaller ones last year,” explained Zhou.

The industry recorded total sales of CNY15.9 billion in the first quarter, up 30.1 per cent on the prior year, while output increased by 15.1 per cent to 5.9 million tons, according to the Development Research Centre of the State Council.

More importantly however, net income rose by 70 per cent to RMB274 million, largely reflecting the absence of loss-making and unprofitable businesses.

“This year there is a good environment for beer producers,” said Zhou.

He expects Tsingtao to see a steeper growth rate in the future based on the consolidating market. It is also looking to enter new, profitable markets like Beijing, where the Yanjing Beer company has long had a stronghold.

Both Tsingtao and Snow Breweries, the country's second biggest producer, are moving in on the area surrounding Beijing with some signs of success.

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