Sector Trend Analysis – Beer trends in China

Chinese consumers trends

Premiumization and craft beer

Alcohol sales in China are growing rapidly with consumers acquiring a taste for international premium products as young Chinese consumers are trading up quality over quantity. Demand for craft beers is significantly increasing with both the rise of local craft breweries and the entrance of a growing number of foreign craft beer brands. There's a shift in preference from mass-produced beers to refined craft beers among Chinese's consumers. Within first-tier cities^{Footnote 1}, the new wealthy class and the middle-class are abandoning long-standing local pale lager beers and are increasingly demanding high-quality craft beers of specialty flavours, which symbolizes prestige and sophisticated taste. It is no longer difficult to find a large variety of imported beers in first-tier cities in China. Historically, the craft beer market has been primarily driven by foreigners in first-tier cities. Limited and associated with large first-tier cities, such as Beijing, Shanghai, Guangzhou and Shenzhen, craft beer is beginning to spread to lower-tier cities such as Chongqing, Qingdao, Hangzhou and Nanjing. In these cities, craft beer sales are rising, despite being priced much higher than low-end mass market beers. China's craft beer culture is still immature compared to Europe and North America. As craft beer is relatively new, not many people outside of first-tier cities understand the nuances and flavours of craft beer nor the work behind the product.

Millennials and social networks

A new, more globally-minded generation born from 1981 is exercising a strong influence on the market. Chinese millennial consumers are increasingly attracted to premium products and services and are more likely to buy craft beer and imported brands. They are willing to choose more expensive options for higher quality and are demanding unique and individual experience.

Chinese's millennials are highly dependent on their smartphone and are active on social media platforms such as WeChat and Weibo^{Footnote 2}. Being active on social media can make visibility easier and can be a great marketing tool for creating more brand awareness for imported beer. To capture market share and grow sales, manufacturers are targeting these consumers with premium products.

E-commerce

Chinese consumers, especially millennials urbanites in first-tier cities, buy almost everything online, including foreign beer due to the convenience of the developed delivery system in tier-one cities. Beer can be sold online through an online Chinese super market. The most used and trusted e-commerce platforms include Tmall, and JD.com. International players can take advantage of the rapid expansion of e-commerce and to help penetrate China's beer market with more imported products.

Chinese beer market

Chinese consumers are the largest consumers of beer in the world on an aggregate basis (Euromonitor International, 2018). Volume sales of beer in China have slightly declined since 2013, as more Chinese adults strive for healthier lifestyle. However, value sales have increased as consumers drink less, but purchase better quality alcohol.

Chinese consumers are increasingly looking for "mid-price lager", "premium lager", imported beer and dark beer with a stronger taste than their traditional pale ale (for example: Tsingtao or Qingdao, 3.6% alcohol). "Economy lagers" have registered a negative compound annual growth rate (CAGR) through the reviewed period and the trend towards consuming economic lager is expected to continue to decline beyond the forecast period (2018-2022).

Wheat and craft beer are among the beer types with the highest penetration rates among Chinese beer drinkers. IPA, wheat beer and stout have registered impressive growth over the reviewed period and this trend is expected to continue over the forecast period (2018-2022).

Off-trade and on-trade review^{Footnote 3}

Today, most Chinese producers are making blond beer, which is very light, with little alcohol, such as Tsingtao, Snow or Harbin. This production is slightly exported abroad, but is mainly intended for the domestic market. These beers are usually consumed during meals (off-trade) at home.

Both wheat and craft beer reflect the trend toward premiumisation in beer, and Chinese consumers have shown their appreciation of these products over the reviewed period (2013-2017). Depending of the location, craft beer is often more expensive and only available at the brewery itself, specialized restaurants or beer shops.

According to Euromonitor International, Chinese beer drinkers with high household incomes are more likely to have tried each type of beer and liked them. The likelihood of consumption of wheat and craft beer among beer drinkers with higher household income gives companies a specific audience to target.

Companies

In China, the average beer price sold within the off-trade channels continued to increase in 2017 due to rising production costs. Increased labour and logistical costs, as well as falling consumer demand (quality over quantity), led to unit price increases on beer, especially "economy lager beer".

The five largest domestic Chinese brewers are China Resources Beer (Holdings) Co (a subsidiary of state-owned China Resources Holdings Co), Tsingtao Brewery Co, Beijing Yanjing Brewery Co, Harbin Brewery Group and Budweiser Wuhan International Brewing) continued to increase their total volume sales more rapidly than other companies in 2017. Market concentration continues to intensify due to several factors, including their well-established brand reputations, strong capital funding and ongoing efforts in new product development, marketing, and channel expansion. China Resources Beer (Holdings) Co Ltd continues to lead beer production with a 26% total volume share in 2017. Its lead was due mainly to the strong performance of its brand Snow, the flagship brand of the company and the largest single beer brand in volume terms worldwide since 2008. China Resources Beer is planning to sell more premium lagers to fully meet dynamic demand from sophisticated consumers in the incoming years (2018-2022). AB InBev opened a new craft brewing plant in China to meet rising demand for premium beers.

Chinese breweries are regionally fragmented, with local producers dominating smaller markets. In recent years, it has been common for larger beer manufacturers to acquire smaller local manufacturers in order to increase their market shares. For these reasons, and because of strong support for domestic manufacturers, foreign manufacturers may find it hard to invest in the beer manufacturing segment. Therefore, joint ventures (JVs) and acquisitions are the best way to enter the Chinese market (China-briefing, 2017).

First-tier cities represent the largest share of the imported alcohol market in China. However, with economic expansion and changing lifestyles, entering lower tier markets can be a more viable alternative for new entrants. For instance, the Danish brewer Carlsberg successfully implemented this strategy by prioritizing lower tier cities in 2002. To be successful in China, it is necessary for foreign companies to conduct in-depth market research, and understand the objectives and demands of the Chinese consumer, regional differences in consumption, and the internal dynamics of the market structure.

Sales through different distribution channels vary across different regional markets. For instance, the share of on-premises sales is higher in eastern and southern coastal cities than inland regions. Foreign investors can obtain information on suitable distribution channels by connecting with local agents and channelling their links in China.

E-Commerce represents a cost effective, convenient, and trustworthy platform through which brands can directly connect with millions of users. Online sales of alcohol beverages in China have quadrupled since 2013 and will likely double by 2022 as more consumers look for product information online before buying (Euromonitor International, 2018).

Foreign beer in China

European beers are perceived as high quality and enjoy an advantageous perception positioning within Chinese consumers. Germany is Europe's leading beer exporter to China in volume and value, but many other European countries have significant market shares of the total imported beer market in China.

In 2014, nearly half of all beers exported to China came from Germany, this trend is now declining to a quarter of all beer exported to China, opening up opportunities for brands from different countries around the world.

In earlier years, a foreign label would have already been received as high quality. However, this has changed due to the rise of the millennial generation in China. This generation's expectations for a product are increasing - quality, value and service have become more important than ever. These higher expectations also apply to foreign brands.

Foreign beer has received increasing competition from local Chinese beer. In addition, the amount of foreign labels entering the market have increased as well, resulting in greater competition overall.

Growing new middle-middle Chinese consumers continue to develop a preference and taste for foreign brands with a desire to trade up through purchases of premium foreign products. Imported beer sells at a relatively high price compared to local beer and offers more profit to distributors and retailers.

While imported brands remain significant to the craft segment in China, increasing numbers of microbreweries are opening across the country.

The ten largest cities are located in the eastern half of the country, situated on or near the coast. Shanghai is the biggest with 22.7 million people, followed by Beijing with 20.4 million. Consumers in first tier cities have the country's highest disposable incomes and tend to seek high quality, premium, and imported products. The provinces of Fujian, Shanghai, Guangdong and Zhedang have important ports and are the major entry points to Chinese markets.

Product launch analysis

In the last five years, 481 new beers were launched China. Out of these, 134 were actually new beers on the shelves of Chinese grocery stores. Featured products are increasingly being relaunched with new formulas and ingredients.

Description of above image

Launch type	2013	2014	2015	2016	2017	Total
New packaging	37	30	26	50	56	199
New variety/range extension	42	20	22	27	36	147
New product	38	22	12	41	21	134
Relaunch	0	0	0	0	1	1
Total sample	117	72	60	118	114	481

Source: Mintel, 2018

Special edition

To capture the attention of consumers, several foreign companies have made or are actively launching products based on Chinese holidays' special events. Over the forecast period, more breweries are anticipated to move their marketing campaigns away from a focus on beer to a broad engagement through games, comics (manga), movies and TV series.

Chinese New Year Budweiser

Source: Mintel, 2018

Country of manufacture	China
Launch type	New packaging
Price in local currency	CNY78.00
Price in US dollars	11.30

Budweiser beer has been repackaged for Chinese New Year 2017. The festive design red carton contains 6 × 355 millilitre (ml) bottles.

2017 Halloween Special Edition Beer

Company	AB Inbev
Brand	Budweiser
Country	China
Store type	Internet/Mail order
Date published	December 2017
Launch type	New packaging
Price in local currency	CNY99.00
Price in US dollars	14.97

Limited Edition Beer in Beach Pack

Source: Mintel, 2018

Company	Cervecería Modelo
Distributor	Ab Inbev
Brand	Corona Extra
Country	China
Store type	Mass merchandise/Hypermarket
Date published	October 2017
Launch type	New packaging
Price in local currency	CNY85.00
Price in US dollars	12.92

Packaging

Craft beer can be found in premium supermarkets and supermarkets selling imported goods. Most of these products are in small packaging due to their short shelf-life. In term of packaging, Chinese consumer's attention is attracted by different designs and visual effects. Packaging must be attractive, original and be adapted to local taste. For instance: in 2017 Niulanshan Distillery Co launched a new product under the Bei Er Niu brand. The packaging is printed in Beijing dialect and expresses a cordial and positive attitude, which emotionally connects to the Beijing consumers, especially the younger generation.

Description of above image

Unit pack size (ml)	2013	2014	2015	2016	2017	Total
500	45	21	19	60	49	194
330	47	29	21	44	32	173
600	10	5	0	1	1	17
355	0	0	5	1	6	12
300	0	3	1	2	2	8
250	0	2	0	0	4	6
320	1	1	0	0	4	6
1000	1	1	0	3	0	5
580	3	0	0	0	1	4
170	0	0	3	0	0	3
Total Sample	117	72	60	118	114	481

Source: Mintel, 2018

Claims

The trend toward premium brands is spreading as beer companies have created new higher-tier brands and imported more upscale varieties, while craft breweries have expanded in China. The increase in premium beer has driven an increase in value sales of beer at retail. Featured products are increasingly released with the label premium or limited edition. Many products already on the market are being repackaged with a new design to embrace the premium concept even if the content has changed slightly or not at all.

Description of above image

Claim	Number of products
Premium	60
Limited edition	19
Ethical – environmentally friendly pa	17
Active on social networks	14
Seasonal	10
Ethical – environmentally friendly product	9
Economy	8
No additives/preservatives	7
Low/no/reduced sugar	3
Event merchandising	3

Source: Mintel, 2018

Product launch examples

Draft Beer

Company	Huarun Snow Beer
Brand	Snow Nian Qing
Country	China
Country of manufacture	China
Store type	Internet/Mail order
Date published	November 2017
Product source	Shopper
Launch type	New packaging
Price in local currency	CNY120.00
Price in US dollars	18.11

Product Description: Snow Nian Qing Pi Jiu (Draft Beer) has been repackaged in a newly designed format containing 12 x 500ml units. It is made using selected hops, rice and malt to offer a pure taste.

11.5° Beer

Company	Huarun Snow Beer
Brand	Snow Nian Qing
Category	Alcoholic beverages
Country	China
Country of manufacture	China
Import status	Not imported
Store type	Mass merchandise/Hypermarket
Date published	December 2017
Launch type	New variety/Range extension
Price in local currency	CNY15.10
Price in US dollars	2.28

Product Description: Snow Nian Qing Pi Jiu (11.5° Beer) is made using selected quality malt and processed according to a unique boiling technique to provide a rich taste. This product retails in a 500ml unit featuring the Beijing opera types of facial makeup design.

Black Beer

Company	Yanjing Beer
Brand	Yanjing
Category	Alcoholic beverages
Country	China
Country of manufacture	China
Import status	Not imported
Store type	Mass merchandise/Hypermarket
Date published	December 2017
Launch type	New variety/Range extension
Price in local currency	CNY8.50
Price in US dollars	1.28

Product Description: Yanjing Hei Pi is QS certified. This product retails in a 500ml pack.

Original White Beer

Company	Lanbaoshi Beer
Brand	Lanbaoshi
Category	Alcoholic beverages
Country	China
Country of manufacture	China
Import status	Not imported
Store name	Huadong supermarket
Store type	Supermarket
Date published	December 2017
Launch type	New packaging
Price in local currency	CNY5.00
Price in US dollars	0.76

Product Description: Lanbaoshi Yuan Jiang Pi Jiu (Original White Beer) has been repackaged. This product is fermented with yeast using wheat, and retails in a newly designed 500ml pack, bearing a QR code.

Pure Draft Beer

Company	Chongqing Brewery
Brand	Chongqing Brewery
Category	Alcoholic beverages
Country	China
Country of manufacture	Chile
Import status	Imported product
Store name	Xinshiji Supermarket
Store type	Supermarket
Date published	November 2017
Launch type	New variety/Range extension
Price in local currency	CNY6.30
Price in US dollars	0.95

Product Description: Chongqing Brewery Chun Sheng Pi Jiu (Pure Draft Beer) is QS certified. This product retails in a 500ml pack.

Conclusion

China is a key region for Canadian brewers to consider. Foreign brands are particularly popular among Chinese consumers and craft beers recent introductions to the Chinese market is gaining popularity. When considering such a large market, it is important for companies to make targeted market entry plans. It is recommended that companies work closely with a local partner to determine the exact export and retail requirements for the market. Companies interested in pursuing these markets should consider gaining first hand experience through trade shows and conferences.

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

• Overview of the Trade Commissioner Service in China
• Find a Trade Commissioner

For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found on the International agri-food market intelligence page, arranged by region.

For additional information on Food and Hospitality in China (FHC), 2019, please contact:

Ben Berry, Deputy Director
Trade Show Strategy and Delivery
Agriculture and Agri-Food Canada
ben.berry@canada.ca

Sector Trend Analysis – Beer in China
Global Analysis Report

Prepared by: François Thériault, Market Analyst

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