Fizz gets a pre­mium touch

China Daily (USA) - - BUSINESS - ByWUYIYAO in Shanghai wuyiyao@chi­nadaily.com.cn ByWUYIYAO in Shanghai wuyiyao@chi­nadaily.com.cn

One hot Sat­ur­day af­ter­noon midSeptem­ber, Li Hao, a 29-year-old re­searcher with a chem­i­cal com­pany in Shanghai, binged on a dozen va­ri­eties of craft beer. He helped him­self to all those drinks at a beer fair at Pudong Kerry Cen­ter in Shanghai. More than 50 stalls were sell­ing hun­dreds of brands, both global and lo­cal. Li wished he had a pair of bel­lies to take them all in.

“I had never imag­ined beer-drink­ing could pro­duce var­ied ex­pe­ri­ences of tastes wildly dif­fer­ent from one another. Un­til now, beer was just an eco­nom­i­cal re­fresher for me, par­tic­u­larly on scorch­ing sum­mer days. All those cans and bot­tles of dif­fer­ent brands tasted the same more or less. But craft beer— phew, it’s dif­fer­ent, and like wines now ... high-end bev­er­ages, with qual­i­ties that match their high price,” Li said.

In Shanghai these days, con­sumers can buy more than 200 va­ri­eties of craft beer at high-end gro­ceries, brew­ery-run out­lets, bou­tique din­ing bars or through home-de­liv­ery ser­vices. Prices range be­tween 30 yuan ($4.5) and 100 yuan per liter.

In­vestors are eye­ing the craft beer mar­ket as seg­ment ex­pan­sion ap­pears on the hori­zon and de­mand for niche prod­ucts rises, said ex­perts.

Ac­cord­ing to Wang Deliang, brew­ery re­search di­rec­tor with the China Na­tional Re­search In­sti­tute of Food & Fer­men­ta­tion In­dus­tries, in­vest­ments in the craft beer seg­ment have been ris­ing in re­cent years be­cause of prospects of high prof­its of up to 30 per­cent.

In­vest­ments need not be high as in other liquor seg­ments like whisky be­cause craft beer, a niche prod­uct, is not pro­duced on a mass scale, said Wang.

Take Bei­jing-based Panda Brew that started in 2013. It has so far re­ceived 20 mil­lion yuan from a hand­ful of in­vestors, in­clud­ing ven­ture cap­i­tal firm Tiantu Cap­i­tal. Its ca­pac­ity has in­creased to an­nual out­put of some 1,000 met­ric tons, which is sup­plied to 50 cities across China.

See­ing such mar­ket po­ten­tial, large brew­ers are jump­ing on the craft beer band­wagon. Ear­lier this year, Guangzhou Zhu­jiang Brew­ery Group Co Ltd an­nounced it will launch four fa­cil­i­ties to pro­duce craft beer and use online distri­bu­tion chan­nels to sell it.

In­vest­ments in con­sump­tion­driven sec­tors, par­tic­u­larly high­end

The past cou­ple of years have been taking some of the fizz out of tra­di­tional beer mar­ket in China. While the spend­ing power of con­sumers has been in­creas­ing, the vol­ume of beer con­sumed has been de­creas­ing.

That’s still a “glass half full” for An­gus Or, CEO of Carls­berg China, be­cause Chi­nese con­sumers’ tastes are evolv­ing and pref­er­ences chang­ing, promis­ing bright prospects for high-end bev­er­ages.

The new gen­er­a­tion — peo­ple born af­ter 1990 — is de­mand­ing bet­ter prod­ucts. So, the beer mar­ket will likely see higher sales if it be­gins to in­tro­duce in­no­va­tive va­ri­eties. Carls­berg’s Or is con­vinced fu­ture op­por­tu­ni­ties lie in big cities and non-al­co­holic beers or ciders.

In ad­di­tion, the in­creas­ing pop­u­lar­ity of craft beer is a bright spot. Premi­u­miza­tion is another strat­egy that the Dan­ish brewer is adopt­ing to im­prove its per­for­mance. It’s a strat­egy that has al­ready pro­duced good re­sults in other mar­kets.

That has be­come nec­es­sary now in China to re­verse the down­trend of the last two years. Ac­cord­ing to the Na­tional Bureau of Sta­tis­tics, about 47.15 mil­lion kilo­liters of beer were pro­duced in 2015, down more than 5 per­cent Michael To, food and bev­er­ages, picked up in re­cent years be­cause con­sumers have been up­wardly mo­bile. Sup­ply­side re­forms have also helped im­prove op­er­a­tional ef­fi­cien­cies, im­prov­ing prospects for prof­its. An in­creas­ing num­ber of con­sumers have been ex­posed to a wider range of choices due to travel for work, tourism or ed­u­ca­tion, thus cre­at­ing de­mand for new prod­ucts in the do­mes­tic mar­ket.

The fizz in the craft beer mar­ket re­flects con­sumers’ ris­ing in­di­vid­u­al­ism and as­sertive­ness with re­gard to pref­er­ences. As the mar­ket opens up, more and more im­ported beer brands, par­tic­u­larly craft beer la­bels, have in­creased their of­fer­ings in China, ac­cord­ing to a re­search note from con­sul­tancy Roland Berger.

While the tra­di­tional beer mar­ket in China is highly con­sol­i­dated and dom­i­nated by a hand­ful of play­ers, the craft beer brew­ery mar­ket is and a five-year low.

Signs are that the sit­u­a­tion may not im­prove much this year. In the first half, about 22.51 mil­lion kilo­liters of beer were pro­duced, down 4.3 per­cent year-on-year.

Carls­berg’s re­sponse is to ac­quire ma­jor lo­cal brands in China and “pre­mi­u­mize” them to meet the de­mand for high-qual­ity prod­ucts. It is eye­ing beer brands/ va­ri­eties such as Chongqing, Wusu, Dali and Xixia.

“We’ve also in­tro­duced a se­ries of su­per-pre­mium brands un­der our ‘Master’s Choice’ port­fo­lio, in­clud­ing im­ported high-end brews such as Grim­ber­gen from Bel­gium, Poretti from Italy, and Karhu from Fin­land. We aim to meet a va­ri­ety of con­sumer needs in all cat­e­gories — main­stream, pre­mium, as well as su­per-pre­mium highly seg­mented. Ac­cord­ing to data of Dian­ping Hold­ings, China’s big­gest online food ser­vice rat­ings web­site and a key in­for­ma­tion provider, China has more than 3,000 craft beer brew­eries. Their out­put and sales rev­enue are less than 3 per­cent of the en­tire beer mar­ket.

In the US, craft beer takes about 13 per­cent of the mar­ket share, ac­cord­ing to an es­ti­mate in a re­search note of Founders Se­cu­ri­ties.

Un­like the mild-tast­ing canned and bot­tled beer, which is dis­trib­uted through su­per­mar­kets un­der the big play­ers’ brands, craft beer usu­ally has a stronger taste, a re­sult of high-grav­ity brew­ing. Each va­ri­ety of craft beer has a dis­tinct taste as the raw ma­te­ri­als used, brew­ing con­di­tions, tech­niques, and brew­ers’ fla­vors vary. Out­put is usu­ally to the tune of just 1,000 liters per day.

“Lim­ited sup­ply, unique fla­vors, dis­tinct ex­pe­ri­ence and high-end brand­ing all ap­peal to the younger gen­er­a­tion of con­sumers who like to have some­thing dif­fer­ent,” said Michael To, mar­ket­ing spe­cial­ist with Shanghai-basedFo­cus Strat­egy Con­sul­tancy Ltd.

Shi Dechuan, a 34-year-old soft­ware pro­gram­mer based in Shanghai, said craft beer made by a lo­cal brew­ery along the road to Yun­nan prov­ince was most im­pres­sive. He dis­cov­ered the beer while trav­el­ing in sum­mer this year.

“You don’t re­ally want to drink the same beer when you travel to dif­fer­ent places, so craft beer, which uses lo­cal fruits, tea leaves, malt and yeast, gives you that sense of lo­cal­ity, and makes a tour dif­fer­ent,” said Shi.

Lim­ited sup­ply, unique fla­vors, dis­tinct ex­pe­ri­ence and high-end brand­ing all ap­peal to the younger gen­er­a­tion of con­sumers...”

mar­ket­ing spe­cial­ist with Shanghai-based Fo­cus Strat­egy Con­sul­tancy Ltd

— by pro­vid­ing them with the best-tast­ing prod­ucts,” Or said.

This has helped Carls­berg al­ready even though the larger beer mar­ket is cool­ing. In the first half of 2016, Carls­berg’s op­er­at­ing prof­its at global and Asia/re­gional lev­els rose 8 per­cent and 6 per­cent year-on-year re­spec­tively, de­spite the cor­re­spond­ing vol­umes de­clin­ing by 1 per­cent and 4 per­cent. Clearly, premi­u­miza­tion is driv­ing Carls­berg’s sales growth.

Beer mar­ket an­a­lysts said premi­u­miza­tion is a sys­tem­atic strat­egy that re­quires ef­forts of many teams, from pro­duc­tion, pack­ag­ing and distri­bu­tion to mar­ket­ing, brand­ing and con­sumer ed­u­ca­tion.

Fang Gang, a Bei­jing-based beer

Nobuharu Sakai, a spokesman.

Tat­suya Ina­gawa, an Osaka-based spokesman for Takashimaya, said the re­tailer noted a rise in the sale of lower-priced items such as stain­less-steel flasks and baby bot­tles. Cus­tomers mak­ing du­tyfree claims per month have in­creased as much as 30 per­cent this year, while av­er­age sale prices are down by as much as 15 per­cent, he said.

While Ja­pan’s tourism in­dus­try and ex­porters may get some relief from poli­cies an­nounced by the BOJ as it puts down­ward pres­sure on the cur­rency, a more crit­i­cal fac­tor would be theUS dol­lar, said Jes­per Koll, chief ex­ec­u­tive of­fi­cer of the Ja­pan unit of Wis­domtree In­vest­ment Inc. Toky­obased

the num­ber of de­vel­oped mar­ket cur­ren­cies among which the yen is the best per­former, gain­ing about 20 per­cent ver­sus the US dol­lar

The US dol­lar main­tained de­clines fol­low­ing its worst day in two weeks af­ter the US Fed­eral Re­serve damped the out­look for higher in­ter­est rates overnight. The yen is the best per­former among 10 de­vel­oped mar­ket cur­ren­cies this year, gain­ing about 20 per­cent ver­sus the US dol­lar.

“You can make the case for a weaker yen — and last month’s de­ci­sion does that,” said Koll, re­fer­ring to the BOJ move. “At the same time you do need to make the case for a stronger dol­lar.”

WANG XIAOY­ING / CHINA DAILY

PRO­VIDED TO CHINA DAILY

Chi­nese con­sumers en­joy drinks dur­ing a beer fes­ti­val in Qing­dao, Shan­dong prov­ince. Along with the swelling de­mand for high-end beer in China, in­vest­ments in the craft beer seg­ment have been ris­ing in re­cent years.

PHOTO BY RO­DRIGO REYES MARIN / AFLO

Chi­nese tourists shop in the Ak­i­habara elec­tron­ics area in Ja­pan dur­ing the China Na­tional Day hol­i­day on Oct 4, 2016.

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