What would you expect the proprietor of a Korean barbecue restaurant in Beijing to look like? Probably not Zhao Jun, owner of the General Chi Yan restaurant in Chaoyang district. He is a former model in his thirties who has lived abroad, and his restaurant attracts a younger, fashionable crowd with its bulgogi beef and galbi (short ribs in Korean soy sauce). “I wanted to make my restaurant a little bit classier,” he tells CBN.
Zhao has upgraded his beer menu too – and there’s a clear profit motive. If he serves a typical Chinese beer such as Yanjing he earns about Rmb7 ($1.03) a bottle. But if he pours a Chimay, made by Trappist monks in Belgium, he can make a much heftier Rmb23.
As CBN reports, beers from overseas have been attracting more interest from younger, urban customers in China. In a trend that parallels their growing interest in imported wine (see WiC344), consumers are getting more adventurous and they’re ready to pay for the privilege of trying a pilsner from Prague or a Californian amber ale.
Total beer consumption in China actually contracted in the first half of this year, after unexpectedly heavy rains in the spring and summer, with larger brewers such as Anheuser-Busch InBev, Tsingtao and Yanjing all reporting sales declines.
CBN cites another study from Roland Berger, a consultancy, that domestic beer production fell 3% last year, But sales of imported labels rose by more than half year-on-year, representing a tenfold increase from five years ago.
Of course, imported beers are a fraction of the overall market, accounting for just over 1% of the 50 billion litres made by domestic brewers. Yet foreign labels are increasingly popular among consumers with higher incomes. When CBN polled its readers it discovered the three least-favoured beers for people earning more than Rmb10,000 a month, or born in the 1990s, were the country’s three classic brands: Snow, Yanjing and Harbin. The favourites were Belgium’s Hoegaarden, Germany’s Franziskaner and Oettinger, as well as China’s own Panda Brew.
Panda is the brainchild of two former students, Pan Dinghao and Xia Yulin, who discovered a taste for craft beer while studying in Canada and the UK. They set up their own brewery on their return to China in 2013 and now try to launch a new beer every two to three months. Backed by venture capital investment, they are now supplying about 50 cities.
CBN notes that it took 10 years for craft beers to grab a foothold in the American market, jumping from 3% of sales to a fifth. It thinks it could take half as long in China, especially if local producers can navigate regulations that make it harder to get started. For instance, new breweries aren’t supposed to get licences if they are producing less than 12,000 bottles an hour, which makes it harder for prospective boutiques. Some brewers have got round the problem by contracting with larger partners, but they’ve still to overcome rules that bottled beer must be filtered to remove the kind of yeasts that many craft brewers want to encourage.
In the meantime, the larger brewers are looking to invest in the trend for higher-priced offerings. Hong Kong-listed Tsingtao has purchased a microbrewer, for instance, while Carlsberg’s response is to “premiumise” some of its local brands and introduce a few ‘super-premium brands’, including higher-end imports Grimbergen from Belgium, Poretti from Italy, and Karhu from Finland.
That leaves some of the start-ups in the sector calling for similar regulations to the United States, where industrial brewers have been blocked from getting craft beer classification. To qualify for the label, brewers are capped at production of six million barrels per year.
Panda’s Pan seems relaxed about the competitive landscape, and he says he wants to encourage the import of more exotic foreign beers because he sees this as enriching the market, given that his own production capacity is limited.
The world of social media has also been crucial in generating interest, and Pan’s firm has launched an app called Jiuhua’er in which customers can comment on a beer and earn loyalty points. Since it went live seven months ago more than 3,600 different beers have been reviewed and Pan’s plan is to import the brands which prove the most popular.
Another newish channel for sales of artisanal beer, says CBN, is Beer Lady, a shop in Shanghai that sells more than 1,100 imported labels. The owner Zhang Yindi got interested in beer as a hobby and she says she will only stock a brand if it meets her quality threshold.
Of substantially greater scale, Alibaba’s online sales platforms are also becoming more important for selling imported beer, with Hoegaarden, Paulaner, Kronenbourg 1664 and Corona the leading sellers. The Hoegaarden and Corona brands (hardly craft beers, hipsters will sniff, but certainly foreign) are part of the AB InBev portfolio, and promoted in the Chinese market alongside other stalwarts such as Stella Artois and Leffe.
All of the major brewers want to sell more premium brands because of the thin returns in the beer market. The Chinese drink about a quarter of the world’s beer, but they account for just 3% of brewers’ profits, Reuters reported earlier this year. CBN says that companies like AB InBev hold a stronger position for sales of premium beer because they have a wider array of trendy labels to offer than local rivals like China Resources and Tsingtao. However, the battle is intensifying across the country’s wealthier cities, where restaurants are being tied into exclusive distribution deals with up-front loyalty payments. As one sales representative at a beer firm told the publication: “About 60% of restaurant chains have been bought out by beer brands. It’s an open secret.” Hotpot chains are said to be a particular favourite for the beverage firms – because of their spicier fare, more beer tends to be consumed.
AB InBev is putting more marketing investment into attracting younger drinkers too. This summer it launched a beer festival in Shanghai’s Xintiandi district, attracting cooler types with a music festival, which then toured through 10 other cities. The plan is to prepare the ground for the next generation of beer drinkers, rather than to make an immediate return. “You cannot link marketing activities directly to a return on investment,” its Asia-Pacific president Michel Doukeris told CBN Weekly. “The core of all our work is to connect to young consumers.”
The same report reckons that Japanese beers haven’t kept pace with the labels at AB InBev, which has been implementing an aggressive portfolio-based approach to brand promotion. Brewers like Asahi – only a tenth the size of AB InBev – struggle for the same scale across the country.
A smaller brewery that has made a breakthrough in China is British, however. As Bloomberg reminded its readers last month, sales of Greene King IPA have surged since Chinese television audiences watched President Xi Jinping sup a couple of pints in a pub with then prime minister David Cameron last October. Articles in the Chinese media at the time described the British as ‘potato people’ who gulp down beer before every meal. But interest in the brand boomed, and exports of Greene King’s IPA rose from 6,000 bottles to 80,000 bottles the following month, according to Xinhua.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.