Crafty competitors

Since 1903: China’s oldest beer

Founded in 1903 as an English-German joint venture, Tsingtao Brewery was acquired by the Dai Nippon Brewery in 1916 when the Japanese took control of Shandong province. China’s most famous beer brand remained under Japanese ownership until 1945.

Then, a decade after the Second World War, Dai Nippon split into two smaller companies, to avoid antitrust issues at home. The Asahi Brewery was spun out and in 2009, Asahi returned to China and took a 19.99% stake in Tsingtao again.

Tsingtao has flourished to become the second largest brewery in China, controlling 17.9% of the domestic market, according to Fortune. However, Asahi sees less of a future in China. The Japanese firm said last week that it was seeking to sell its Tsingtao stake for at least $1.2 billion.

Asahi has been looking to split from Tsingtao for some time. Earlier this year, its president Akiyoshi Koji expressed disappointment that Tsingtao was not selling Asahi’s premium product Asahi Super Dry. “Ownership without control doesn’t make much sense,” he told Bloomberg

According to Southern Metropolis Daily, Japanese brands Kirin and Suntory have already exited the China market, where demand for lower-priced lager is waning. Tsingtao’s profits fell 14% and 30% in 2015 and 2016 respectively, although the company’s earnings have rebounded more than 7% in the first half this year on the back of introducing more premium products.

This refinement in tastes suggests a forthcoming boom in the market for craft beers – drinks that are often produced on a smaller scale with more adventurous flavours than mainstream beers (see WiC346). According to The Economist, last year saw a threefold increase in the number of Chinese craft breweries, taking the total to 150, and consumption has increased by two-thirds over five years.

This is an encouraging indicator for foreign crafters eyeing the China market. James Watt, founder of the UK-based BrewDog, was “visibly excited” when discussing its potential in China, The Guardian reports.

“In China we’re going to build a brewery and we have an opportunity to grow exponentially where the craft beer market is forecast to be more than 10 million hectolitres in five years time,” he said. (Total beer production in China at the moment is around 492 million hectolitres.)

The craft craze isn’t always good news for China’s artisan brewers who are now facing pressure from much bigger foreign players: in particular, AB InBev. The world’s largest brewer bought an American craft beer producer, Goose Island, in 2011 and is using it to spearhead its China craft push.

Fortune describes AB InBev running a particularly aggressive campaign, determined not to miss out on the craft market in China the way it did in America. According to the report, AB InBev offers bars payouts to only pour AB InBev crafts, it carpet-buys advertising space in popular areas and hires customers to fill out partner bars – and it requires distributors to consult with AB InBev before signing on with other craft breweries.

Local microbreweries struggle to compete with these cash-intensive tactics and are further hampered by regulations. According to Fortune, the rules effectively limit domestic craft breweries to selling their kegs on site, whilst importers like AB InBev can distribute nationally.

The giant brew house has also begun buying into Chinese crafters, taking an undisclosed share in popular Shanghai-based Boxing Cat, and causing consternation amongst the craft community. “It’s great for Boxing Cat Brewery,” said Carl Setzer, founder of Beijing-based Great Leap Brewing, “But bad for China craft brewing because it’s still an emerging industry that is under-regulated and growing… The last thing we need is a commercial brewing conglomerate determining how we are all defined.”

© 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.