The analysis of beer industry in China involves lots of factors. Different analysis purposes
require different methodologies and determine which factors should be emphasized. In this case
study, I assume the client is a potential entrant to China’s beer market. The article tries to give
answers to the following questions that may be the client’s concerns.
What are the current situation and business environment of beer industry in China? Who
are the main competitors in the current market? What are their performances? What are the
China’s beer-consuming patterns? What are the suggestions about entering the market?
Because of the limited time requirement, in some parts I mainly show the structure of the
analysis and the approaches that I will get information from.
A case study on China’s beer industry
I.
The overall situation of beer industry in China
1. The output and revenue aspects
China’s beer industry was first introduced by Russian in 1900.1 After a century’s
development, at present, China ranks the first place in beer production around the world. In 2011,
it produced a quarter of the whole world’s beer output.2 Statistics show that China’s beer market
has seen a steady growth in both volume terms and value terms in the past years. However, it is
also true that the market is growing slower and the profit margin is becoming smaller.
Chart1: Beer Production in China, 2000-20123
Beer Production (10,000tons)
Beer Production Growth
year
Chart2: Beer Industry Revenue in China, 2000-20124
Revenue (100,000,000yuan)
Revenue Growth
year
1
http://wenku.baidu.com/link?url=Hah6zho3PfCXfDTet1G2HEQvitZpkFTLoicHmbK9gH5UqBzuzJQr4gtlbfYfqafEUBEl
cowGDKogkiFtWBEhasCDB08KkLpUx7MENwlCzJW
2 http://www.cnwinenews.com/html/201207/19/20120719085753137192.htm
3 National Bureau of Statistics of China
4 Yinhe Securities’ beer industry report
Chart3: Beer Industry Profit in China, 2000-20125
Profit (100,000,000yuan)
Profit Growth
year
Chart4: Gross Profit Rate of Beer Industry in China, 2000-20126
Gross Profit Rate
year
2. The consumption aspect
As to the consumption aspect, the total the consuming volume per person has reached the
average level of the whole world. It is believed that the growth potential of the market is still
great, given relatively low per capita consumption compared to developed countries.
Chart5: Per Capita Beer Consumption of the world in 20107
India
Nigeria
Thailand
The whole world
Vietnam
France
China
Argenti
Korea
na
Jpan
Mexico
South Africa
Brazil
Russia
Canada
UK
II.
Spain
Venezuela
US
Romania
Australia
Poland
Germany
Czech
Liter per person
Industry history and life cycle analysis
1. Brief introduction of beer industry’s history in China
To have a clear understanding of China beer market, it is necessary to know about the
industry’s history. After the establishment of China in 1949, the beer industry production and
5
6
7
Yinhe Securities’ beer industry report
Yinhe Securities’ beer industry report
Yinhe Securities’ beer industry report
consumption development can be divided into three stages as below.8
 Start up stage (1949-1982). Although the beer industry grew fast during this period, the
per capita consumption was still very small, less than one liter.
 Fast development stage (1979-2007). During these 28 years, the CAGR reached 17% in
beer industry. In 2003, China’s beer output volume surpassed the US and became the
biggest consumption country in the world.
 Steady development stage (2007 till now). In 2007, China’s average beer consumption
surpassed the world average level and the yearly-growth keeps between 5% and 10%.
2. Industry life cycle analysis
According to the industry life cycle theory, an industry’s life cycle generally consists of four
phases; start-up, growth, maturity and decline. Based on the numbers of competitors and beer
sales volume, China’s beer market is believed to have finished the start-up stage and is at the end
of growth stage. The rapid growth in beer industry is over and the industry consolidation will be
over in the near future. 9
III. The macro environment of beer industry in China
1. Political environment
2. Economic environment
3. Social environment
4. Technological environment
(In this section, information can be got from government websites (eg. National Bureau of
Statistics) , beer industry association websites, researching institute websites and so on.)
IV. The micro environment of beer industry in China
1. Industry value chain
The China beer industry is consisting of several steps. The basic structure can be summarized
as the value chain below. 10
Chart6: Beer industry value chain
Raw Materials
/Components
Assembly
/Fabrication
Distribution
Channel Ⅰ
Distribution
Channel Ⅱ
Client
Water
Malt
Stores
Facilities
Entertaining
Hops
Bottles
Companies
Technology
First-class
Wholesalers
Consumers
Supermarkets
Entertainment
Outer Packing
2. Five forces analysis
On the basis of the industry value chain, Porter’s Five Forces model is used to analyze the
industry structure.11
8
Guotai Janan Securities’ report
GF Securities’ beer industry report
10 Changjiang Securities’ beer industry report
9
11
http://wenku.baidu.com/link?url=H2KRaPsbj3EFY2Nb2pzsVa5SCzHVyhetD5mT30fiTuZfXkZB5Kba5vxB42zqCIAS2L
OZwj0FepyhhUJxcasaUfb5q8xCq6tT2cR-QgcGcwO

V.
12
Bargaining power of suppliers
As is shown in the value chain, to product beer needs several raw materials and
components. Beer is at the downstream stage of the industrial chain, the expanses on raw
materials are very high. One of the crucial materials for beer production is barley. China’s
beer producers mostly import barley from the Europe and America. Thus, the suppliers are
highly concentrated. Besides, the transformation cost is also high because of the huge
quality differences among barley suppliers. Therefore, the bargaining power of suppliers is
strong.
 Threat of new entry
Beer industry is a traditional industry with relatively low technology threshold. However,
it is a capital-intensive industry, requiring great expense in facility investment and bringing
high risks to new comers. Also, there are obvious economies of scale in this industry. With a
low profit margin, a scale advantage is vital for a company’s competence. The existing firms
have established stable distribution channels, which is a high barrier for potential entrant.
Thus, the threat of new entry is weak.
 Rivalry among existing firms
There are two main types of beer on the market, draft beer and pasteurized beer.
Homogeneity is a common phenomenon in the present market, thus the current
competition is fierce. As competition is a vital factor in beer industry, it will be further
analyzed in the following section.
 Threat of substitute products or services
Substitute products of beer include liquor, wine, red wine, yellow wine, rice wine, and
so on. Among all the substitutes, only rice wine has the similar price to beer. However, the
rice wine attracts far less customers than beer. It is not often for beer consumers to switch
to alternatives so the threat of substitute products is weak.
 Bargaining power of buyers
As the competition between beer producers is intense, it is very easy for customers to
change the brand. The bargaining power of buyers is strong due to the low transformation
cost. A detailed customer analysis will be made in Section Ⅵ.
Competitive rivalry of beer industry in China
1. Industry concentration ratio
During years, the beer market is becoming more and more concentrated. At present,
China’s beer industry is an oligopoly. In 2011, the CR4 was 58%.12 Four leading companies
take up more than half of the market and will continue to increase their market share
according to international experiences.
Guotai Janan Securities’ beer industry report
Chart7: Top 10 companies’ performance13
Output volume (10 000 tons)
CR10
Chart8: Top 4 companies’ performance14
Inbev
Yanjing
Tsingtao
Snow
2. Competitive structure
The existing companies in beer industry can be divided into three echelons. The first
echelon consists of Tsingtao beer，Snow beer，Yanjing beer，Budweiser-Inbev, which are
nationwide enterprises. The first class companies have accomplished lots of M&A and will
grow bigger by scale effect. The second division includes regional companies, such as
Chongqing beer, Zhujiang beer. They are trying to find their own way of growing by merger
or self development. The third class companies are mostly small local companies, whose
production is under 200 000 tons per year. In the future, they may be merged by other big
companies.
3. Regional competition pattern
China’s beer market has an obvious regional characteristic. 16 provinces’ beer markets
are oligopoly. 14 provinces’ markets have low brand concentration and competitions will be
intensive on those markets.
4. Key competitors
The four first-class companies should be analyzed carefully. Their information can be
gathered through company’s website, annual reports, institute reports, field study and so
on.
VI. Consuming patterns analysis of beer industry in China
1. Who-Organizations
13
14
Guotai Janan Securities’ beer industry report
Guotai Janan Securities’ beer industry report
(This part answers the following questions. Who buys beer, an individual, an organization
or a group? Who is the decision maker? Who is the executor? Who is the end user? What are
the buyers’ characteristics?)
For example, an investigation shows that people at the age of twenties are the primary
consumers.15
2. What-Objects
(This part answers the following questions. Which type of beer is the most popular one?
Why do consumers like it?)
According to an investigation, Draft beer tops the list of type of beer drunk for Chinese
consumer – with 72% of beer drinkers drinking this type. Pasteurized beer (53%), Fresh Beer
(37%) and Iced Beer (30%) also top the table in terms of preference. Fruit beer and Stout are
also popular with around one in five consumers in China – with 23% and 21% choosing
these types respectively, as are Low alcohol and alcohol Free beers with 14% of consumers
each.
Brand ranks equally with taste for Chinese consumers when it comes to Beer – and a
quarter (25%) report these factors being the most important when choosing beer – much
ahead of price which is the most important factor for just 8% of consumers. Conversely,
advertising appears to have little impact as just 1% of Chinese consumers claim this factor to
be the most important. 16
3. Why-Objectives
(This part analyzes the motive in beer purchasing. How do the mental, physiological,
cultural, social factors influence the decision making? )
In developed areas, people tend to consume more beer than less developed areas.
When it comes to the top reasons for drinking beer, some 73% of Chinese consumers
claim that this is when socializing with friends or family. The remaining top five reasons are:
when eating at banquets or parties (62%), when entertaining guests at home (61%),
accompanying a meal (44%) and when socializing with people after work (43%). Around a
third (33%) of Chinese consumers claim to drink beer to wind down after work and nearly
one in 10 (9%) claim to drink it after playing sports17
4. How-Operations
(This part analyzes each group of customers’ demands and makes classification.)
For example, people in North China tend to consume more beer than people in South
China. But people in South China drink more expensive beers. 18
5. When-Occasions
(This part analyzes the specific purchasing time.)
For example, there is seasonality in beer-consuming patterns. During colder months,
beer consumption is significantly lower than during warmer months. 19
15
Changjiang Securities’ beer industry report
16
http://www.mintel.com/press-centre/food-and-drink/china-beer-consumption-hits-the-50-billion-litre-mark-for-fi
rst-time-in-2011
17
http://www.mintel.com/press-centre/food-and-drink/china-beer-consumption-hits-the-50-billion-litre-mark-for-fi
rst-time-in-2011
18 Changjiang Securities’ beer industry report
19 Guangzhou Securities’ beer industry report
6. Where-Outlets
(This part describes the purchasing sites. The four distribution channels introduced in value
chain should be investigated.)
……
The consuming patterns should be emphasized. In this section I listed only a small part
of factors that can be found on the internet. More accurate information should be gathered
through questionnaires, interviews, focus groups and so on.
VII. Conclusions and suggestions
1. Key success factors of beer industry in China
The beer market in China is under fierce competition, it is necessary to get an
understanding of the key success factors. Based on the information above, there are four
key success factors in beer industry.20
 Market stronghold. China’s beer market has an obvious regional character, thus, to
maintain a stable situation in regional market will make sure continuous success.
 Marketing ability. The marketing ability is a vital factor for profit. For example, of all the
distribution channels, the entertainment channel is of the highest profit and should be
paid much attention to21
 Capital ability. A sufficient fund supply will help beer companies to expand because of
the capital-intensive character.
 Brand effect. Companies has to establish there own brand to be specific in the market.
2. Market risks
3. Industry prediction
4. Summary
20Changjiang
21Changjiang
Securities’ beer industry report
Securities’ beer industry report