Cultural preferences for entertainment make China’s beer market #1
SMASH! Beer seeps through the fabric and in an instant my pants and socks are soaked. I look to my right and a red-faced balding Chinese man with a double chin begins to apologize as though he had just committed a crime. No one dares get up as the floor is covered in broken glass. After a stupid joke the man had slammed his left hand on the flimsy table and sent five bottles of beer along with several plates of food smashing to the ground. This was the scene a few weeks ago when I went to my friend Guang Hui’s birthday dinner.
Boisterous dinners like these are one of the two main forms of Chinese entertainment. Ask any Chinese person what the top things to do for fun with your free time in China, and chances are good they will tell you fubai and KTV. China’s urban centers do boast a growing number of bars and clubs, many similar to what you would find in a trendy entertainment district in New York or LA. Bar and club culture is growing in popularity; however, the average Chinese person cannot afford such extravagances. For fun, most Chinese people get together with a group of close friends, order a table-full of food and beer and talk for hours. Afterwards, they may go sing karaoke at a KTV club. Sometimes KTV is even the main activity of the night as people can easily spend upwards of four hours singing the night away. Both activities often involve consumption of bottles and bottles of cheap Chinese beer and or the infamous Chinese liquor, baijiu.
These two main forms of entertainment led China to overtake the US as the world’s largest beer market as of 2005, and the market continues to grow at a fast pace. Except for widespread national consumption of several major brands, the beer market as a whole is rather regionalized, with different parts of the country consuming different combinations of Chinese and international brews. Let’s look at two of the foreign beer companies who are battling for their share of China’s beer drinkers:
Anheuser-Bush InBev:
InBev’s 52 billion dollar takeover of Anheuser-Busch was an extremely strategic move for the company’s China operation. Before the acquisition, InBev already had a 28.5% stake in Zhujiang Beer Ltd. Anheuser-Bush previously had a 27% stake in Tsingtao Beer and beat out SABMiller for ownership of Harbin Beer. In order to prevent Anheuser-Busch InBev from obtaining a monopoly position, the Chinese government has currently forbid the company to expand in China through further acquisitions.
SABMiller:
SABMiller, the world’s second largest beer company, leverages its 49% stake in China Resources Snow Breweries (CR Snow) to buy up small breweries in China, revamp their operation and produce Snow beer. According to a Guardian report, Snow beer is on track to replace Bud Light as the world’s best selling beer for 2008.
These two foreign companies are far from the only foreign players in the Chinese beer market. Many foreign brands have failed, like Australia’s Fosters, but others such as Heineken and Corona continue to push on. Will there be a foreign company crowned the king of beers in China? The market is here and growing, and unless there is a dramatic shift in Chinese consumers’ entertainment preferences in the near future, China’s beer market will continue to thrive and remain the world’s largest beer market.
What are your thoughts on possible acquisitions of Chinese breweries? Do you have a favorite Chinese beer that was not mentioned in this post? Leave a comment and start the conversation.
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Comments
Great post, Joel. I find market studies for beer in China interesting- especially considering one of the old slang terms for beer - 马尿. It seems Chinese consumers have really taken to beer. I just wish they demanded higher quality. I’m not convinced we’ll see that anytime soon though.
Although China is the world’s largest overall consumer of beer in terms of volume, it is still under-penetrated as per capita consumption is still the lowest when compared to the US and European countries. While this may appear to offer growth opportunities for large breweries operating in China, the only beer firms likely to succeed are those which can strengthen their distribution network and sustain low profitability. In the long term, increased scale could be the driving force behind increased market profitability.
I was interested to read that their had been restrictions placed on foreign expansion. In the past, it had been one of the few industries in China where foreign ownership was relatively unrestricted by government.
I still enjoy how relatively fragmented the Chinese beer market is. One of the best, most refreshing brews I had was Xinjiang black, which I dug out of an ancient cooler in Hotan. Its near impossible to find in Beijing though (outside the restaurant attached to the Xinjiang provincial rep office). It makes me frustrated to learn that Snow Breweries is the top brewery in China, with an estimated nationwide market share of 15% in 2006 (followed by Tsingtao at 13%, Yanjing at 10%). Of these , Yanjing is the only completely Chinese owned company.
Other great Chinese beers? I have to agree with Cathy. Harbin on draft is great.
-Matt
Hi Joel. Interesting post. I was wondering when I saw the news of Snow taking n1, who is drinking this beer? I mean,I have been living in both Beijing and Shanghai, and I’m pretty sure that Qingdao is still more popular overall.
I have the impression that Snow has grown so fast by offering a cheaper and lower quality product than Qingdao, and taking the lower part of the market. This would explain why I don’t see it so much in the restaurants I go in central Shanghai. Perhaps this is a good example of expanding business by conquering the famous local-local market?
PS. We got the black xinjiang in Shanghai too and it rocks.
Great observation Uln. You are certainly right, for those of us living in China’s major cities it seems like Qingdao is by far the market leader. Snow’s success is definitely a result of its efforts to market Snow beer outside China’s major urban centers. A friend of mine whose family owns a hotel in Heilongjiang primarily serves Snow and another friend who just visited Wuhan said Snow reigns supreme there as well.
I’m surprised Anheuser-Busch’s ownership of Harbin Beer hasn’t caused it to be more widely available. Not only do I not see it in the US, but back in 2006 I didn’t see it anywhere else in China either (although perhaps that’s changed?)
I’m not enough of a beer drinker to know how it really measures up, but I do know that on that hot August day in Harbin it was the best beer I’d ever had…