4/1/2010
Economic Overview
Gan Bei to 1.3 Billion
People
Th China
The
Chi M
Market
k t
Economic Overview
 World’s Second Largest Economy (PPP)
GDP Growth
2007:
11.9%
2008:
9.8% (estimate)
2009:
7.57 5-9% (forecast)
7.5
2010:
8-10% (forecast)
 2008 GDP per capita (PPP): World Bank estimates $6,020
(PPP), CIA estimates $6,000, IMF estimates $5,970
 Unemployment: 4% officially in urban areas, but including
migrants may be as high as 9%
Presented by
William W. Westman
Craft Brewers Conference
Chicago
April 8, 2010
Source: CIA World Fact Book, EIU, 2009, USB
Economic Overview
China's Expanding
Middle Class
250
150
WTO Accession
A
i
100
50
Source: www.flora.huh.harvard.edu/china/images/floramap.gif
China’’s Beer Industry
China




The largest in the world in terms of production
volume
Average per capita beer consumption is 5.25kg
(or 55.19
19 liters; this is the official Chinese
estimate but…
but….)
Beer production increased 4.9% in 2009, over
2008, to 43 billion litres (33 liters per capita)
Imported beer sales are very small compared to
domestic beer sales, at less than 22 million liters
in 2008.
18
20
20
16
14
12
08
20
10
06
04
02
98
20
00
96
94
0
92
over $20,0
000/yr
200
19
90
Million households w
w/real PPP incomes
Slightly Smaller Area than the United States
Total: 9,596,960 sq km
Source: Global Insight’s Global Consumer Markets Service & FAS China Forecast
So……
What is this important to
the
U.S. Craft Brewer?
1
4/1/2010
Opportunities for Imported Beers
Rising disposable incomes and a developing taste
Imported, specialty items will spur demand
Favorable Environment


I
Increase
iin fforeign
i community
it in
i China
Chi andd China’s
Chi ’ emergence
in the world economy
Accession to the WTO has benefited Chinese
industries across the board
Gradual removal of market barriers and trade
restrictions creating increased competition
among domestic and foreign operators
Opportunity to introduce
high-value,
imported American Craft Beers
The Saddle Restaurant
Beijing
Looking Ahead

China’s huge population, coupled with the
China’
market’’s immaturity and sound longmarket
long-term
economic structure, all serve to create a very
appealing market
market.

China’’s economic recovery remains firmly on
China
track
Craft Brew Market in China





Expat community is well established and growing
in China
Many more int’l students studying Chinese as
interns then seeking work in China
Increase in international restaurants
Sports bars open 2424-hours per day, 7 days/week
English Premier League, Cricket, Australian
Rules Football, World Cup, ATP Tennis Circuit,
NFL and MLB (esp. the Yankees on Chinese
channels)
2
4/1/2010
International Influence



Solana’s Tsingtao Brew Pub
The NBA and CBA – Yao Ming in the USA;
Stephan Marbury in China.
Chinese students studying abroad, in the USA!
I
Increasing
i destination
d i i malls:
ll
The Village in Sanlitun (Addidas, Blue Frog, Union
Grill, Element Fresh, Apple Store)
 Lufthansa Center (high end designer stores +
Paulaner Brew Pub)
 Solana Mall (Tsingtao brewery, All American Sports
Bar, Bling, ice skating rink)

The Night Life




1308 Beijing
Night clubs and bars open all night
International DJs and theme nights
Fashion and Style—
Style—The World of Suzie Wong,
A
Apartment
8 in
i Chaoyang,
Ch
Cl
Clubs/Bars
b /B iin Fi
Five SStar
Hotels
Chinese culture and KTV.
German Brew Pub
3
4/1/2010
Retail Market




Increasing incomes – consumers shop in
Carrefour, Wal
Wal--Mart, City Shop, and Jenny
Lou’s—
Lou’s
—opportunities of imported craft beers.
Emphasis on food safety
safety, packaging
packaging,
international selection of beverages and food
products.
Wine market expanding very fast.
Cheeses and yogurt.
4
4/1/2010
Market Development Strategies



Emphasis on the Expat community
More sophisticated and wealthy Chinese
consumers who travel frequently
E
Emerging
i Ci
City M
Markets
k – Distribution
Di ib i N
Networks
k
Rising incomes have driven the consumer foodservice
market, and also the development of pubs and bars
 Food
Food--beverage pairing promotions for fivefive-star chefs
in hotels and international restaurants
 Educational seminars on U.S. craft beers

5
4/1/2010
Techniques
Effective promotion tools:
--Simple
-Simple promotional items in popular expat
locations plus developing relationships with key
F&B managers and bartenders.
bartenders
--Sales
-Sales girls hired by beer manufacturers in bars
and restaurants are effective tools to push sales,
and to introduce new or premium imported
American Craft Beer and Ale to Chinese
consumers.

Additional Market Information
Beer Sales


Regional Differences
Off-trade accounts for 68% of total volume
Offsales in 2008/2009, which includes domestic and
imported beer.
On--trade channel sales is growing faster
On
faster, due
d e to
the strong development of the consumer
foodservice market.


Consumer preferences
vary in different regions
in China.
People in Northwest
China tend to prefer
stronger tasting and
high--strength beers.
high
beers.
The majority of Chinese
consumers prefer lighter
tasting and lowerlowerstrength beers.
Growth of Imported Premium Lager
(>Y20 ($2.93) per bottle)
Pricing
Sector

2008/2009 20042004-2009
CAGR
Pricing
Premium
Above RMB20 per liter
Standard
RMB7RMB7-20 per liter
Economy
Below RMB7 per liter
Growth of
sales
volume
3 6%
3.6%
-4.6%
4 6%
Growth of
Value
5.7%
5.7
%
-2.0%
2.0%
Source: Official statistics, Trade associations, Trade press, Company
research, Store checks
6
4/1/2010
Pricing


Pricing
Standard lager brands (RMB7(RMB7-20 per litre)
recorded the strongest growth during 2009.
The leading standard lager brand in China is
Tsingtao which recorded a vol
Tsingtao,
volume
me share of
32% in 2009, with demand being fuelled by
rising demand for higher quality amongst
increasingly sophisticated consumers.


Demand for premium lager brands (> RMB20
per litre) remains limited in China, with such
products recording a total volume share of just
2% in 2009
2009.
Premium lager sales are dominated by
multinational brands like Budweiser, Heineken,
Tiger, and Carlsberg, with the majority of sales
being made on
on--trade.
Brand Shares of Top Ten Domestic Brand
Beer 2006006-2009
Domestic Competition
Brand
Top Six Domestic companies in beer sector
 China Resources Enterprise Co., Ltd with production
capacity of around 10 billion liters.
 Tsingtao Brewery Co., Ltd
 Beijing Yanjing Brewing Corp
 Harbin Brewery Group Co., Ltd
 Henan Jinxing Brewery Group
 Guangzhou Zhujiang Brewery Co. Ltd
 No official micro brewers in China. There is a China
Food Industry Association’s Beer Chapter. The
official website is http://www.haicent.com/
Company
2006
2007
2008
2009
Snow
China Resources
8.8%
13.3%
15%
17%
Tsingtao
Tsingtao Brewery
4.5%
4.8%
5.8%
6.1%
Yanjing
Beijing Yanjing Brewery
4.5%
4.6%
4.9%
5.2%
Harbin (Anheuser(AnheuserBusch InBev NV)
Harbin Brewery Group Ltd
0
0
4.5%
4.7%
Zhujiang
Guangzhou Zhujiang
Brewery Co. ltd
3.8%
3.5%
3.0%
2.9%
Hans
Tsingtao Brewery
1.7%
2.0%
2.6%
2.8%
Jinxing
Henan Xinxing Brewery
Group
2.9%
2.8%
2.7%
2.7%
Liquan
Beijing Yanjing Brewery
1.6%
1.9%
2.2%
2.6%
Sedrin (Anheruser(AnheruserBusch InBev NV)
Inbev Sedrin Brewery Co.
-
-
3.1%
2.6%
Laoshan
Tsingtao Brewery Co. Ltd
1.5%
1.7%
2.2%
2.4%
Others
51.1%
Source: Official Statistics, Company Research
Company Shares of Top Ten Global Beer
Brands 22006
006--2009
% total Volume
2005
2006
2007
2008
Beer Imports by Country/Region of Origin (Liter)
Country
2009
World
2007
2008
2009
% Change
43.96
21,828,148
28,132,881
40,501,332
China Resources enterprise
13.1
15.4
17.9
17.9
19.2
Germany
7,325,490
8,238,110
12,414,016
Tsingtao Brewery
13.4
12.9
12.9
13
13.4
Mexico
7,924,683
9,012,035
10,235,487
Taiwan
1,783
255,511
4,639,305
2,112,223
3,678,992
3,913,456
433,535
680,667
1,484,690
Anheuser--Busch InBev NV
Anheuser
-
-
-
12.1
10.8
Beijing Yanjing Brewery Co.
10.2
10.2
10.4
10.4
10.7
South Korea
Belgium
Henan Jinxing Brewery
Group
4.2
4.6
4.3
4.2
4.1
France
Guangzhou Zhujiang
Brewery Co.
4.0
3.8
3.5
3.0
2.9
Malaysia
Suntory Holdings Ltd
2.4
2.8
2.6
2.4
2.5
Russia
Carlsberg A/S
1.8
1.9
1.9
1.8
1.8
Netherlands
Kingway Brewery Holdings
Ltd
1.4
1.4
1.4
1.5
1.6
Ireland
Asahi Breweries Ltd
1.7
1.9
1.9
1.6
1.4
Source: Official Statistics, Company research
50.69
13.58
1,715.70
6.37
118.12
61.42
191,465
875,230
1,412,790
1,303,114
1,352,099
1,269,969
282,684
1,341,810
1,132,262
632,584
840,707
890,100
390,240
499,448
515,917
-6.07
-15.62
5.88
3.3
Source: World Trade Atlas, Beer made from Malt.
7
4/1/2010
Beer Sales Volume through
On-trade and Off
OnOff--trade Channel
Beer Production, Imports and Exports
Million
Liters
2004
2005
2006
2007
2008
Production
29,100.5
30,620
35,151.5
38,905.7
41,030.9
Apparent
Consumpti
on
28,986.1
30,494.2
34,995.3
38,721.9
40,817.4
Exports
141.3
147
177.5
205.7
241.6
Imports
26.8
21.1
21.3
21.8
28.1
Source: Global Trade Information Service (GTIS)
Million
liters

Domestic beer manufacturers dominate beer
sales in China, with the top six domestic
manufacturers accounting for 52.6% of total
beer volume sales in the country
country.
Increasing acquisition and improved distribution
channel in wider areas made domestic market
share larger than before.


Multinational manufacturers such as Carlsberg
and Heineken are increasingly focused on China.
Carlsberg acquired a beer hop manufacturer in
Xinjiang province in West China in April 2009
2009,,
and is developing its operations in West China.
Leading Taiwanese brand Taiwan Beer also
entered mainland China in 2009.
2009.
2006
2007
2008
2009
18 834
18,834
20 711
20,711
23 484
23,484
26 179
26,179
27 509
27,509
29 050
29,050
Food
Service
8,765
9,726
11,110
12,462
13,165
13,952
Total
27,599
30,437
34,594
38,641
40,674
43,002
Source: Official statistics, trade associations, trade interviews and estimates
Example of Acquisition



Competition

2005
R il
Retail
Competition

2004
Snow is a 51:49 joint venture between Hong Kong’s China
Resources Enterprises and Anglo
Anglo--South African Brewing
SABMiller.
In April 2009, China Resources Snow Breweries, the country’s
leading brewer by volume acquired ShandongShandong-based Amber
B
Breweries
i for
f US$41.78mn(CNY285mn)
US$41 78 (CNY285 ) in
i a bid to become
b
a
truly national player in China and to beat its fierce competitor
Tsingtao.
The acquisition not only increased Snow’s production capacity
but to establish a manufacturing presence in a market dominated
by its rivals
rivals--Tsingtao. Which Shandong province accounts to
nearly 50% of Tsingtao’s total revenues.
Opportunities

To increase profit margins, manufacturers are
reducing packaging from standard 630630-640ml to
500ml, or 600ml, and the smaller packs are more
popular in the market
market.
8
4/1/2010
Opportunities



Chinese are yet to adapt to the relatively bitter
taste of ales, dark beer and stout.
Local consumers prefer low priced locallylocallybrewed lagers ($0.30
($0 30 per 500 ml in local Beijing
kiosks).
Off--trade or retail sales are limited.
Off
9