daxue consulting beer market china

China’s beer market is the fastest growing in the world

Beer occupies an important position in the alcoholic beverage industry, and China is the world’s largest producer of beer. According to Statista, China produced 341.11 million hectolitres of beer in 2020, around 1.6 times more than the United States. There were 346 beer enterprises in China in 2020, reaching 146.894 billion CNY in sales revenue, a 6.12% year-on-year decrease; but achieving a total profit of 13.391 billion CNY, up 0.47% from 2019. The data shows that the Chinese beer market has gradually entered a high-end and more diversified era.

Data source: Statista, designed by daxue consulting, Global leading countries in beer production 2020

New trends of China’s beer market

Trend 1: Craft beer has become popular in China

With the development of the Chinese economy and improving living standards, Chinese consumers’ purchasing habits are dramatically changing as the young generation continues to seek new products with a unique taste, high quality, and freshness. In order to meet changing consumer needs, craft beer emerged and brought rich options to Chinese consumers.

Craft beer uses only malt, hops, yeast, and water for brewing, without adding any artificial additives. Compared with industry beer, craft beer not only contains more malt and hops, but the brewed wort has a higher concentration. The production volume of craft beer in China has raised from 50 million liters in 2012 to 170 million liters in 2015 and was expected to reach 650 million liters in 2020.

Data source: Statista, The output of Craft beer in China 2012-2020

Craft brewing satisfies middle-class consumers with a cultural experience and the satisfaction of being different, which is hardly found in the traditional industry beer.

Statista also showed that 74.25% of the Chinese consumers are willing to pay for craft beer at a higher price as of May 2019, 57,45% of Chinese consumers polled said that they are willing to pay 25% more than the regular price and 16.8% are willing to pay 50% more.

Data source: Statista, Willingness to pay for craft beer in China 2019

Although there are many innovations in craft beer varieties, Chinese consumers have a preference wheat beer came out on top with 61.1%, followed by Amber ale and Belgian ales.

Data source: Statista, Most popular types of craft beers in China 2019

Trend 2: digitalisation of distribution channels has become a key growth factor during the pandemic

Due to the unpredictable lockdown and social distancing policies during the epidemic, businesses that wanted to sell well during peak season in China had to lean more on e-commerce. In 2020, the domestic e-commerce transactions reached 37.21 trillion CNY, a year-on-year increase of 4.5%. Among them, commodity e-commerce transactions accounted for more than 75%, with a total of 27.95 trillion CNY. More specifically, in February 2020, beer sales revenue and volume on the Tmall platform increased by 48.2% and 42.5% year-on-year respectively, and the online average price of beer increased by 4% year-on-year.

China beer market
Source: Tmall, Searching page of beer products on Tmall

Trend 3: Non-alcoholic beer consumption

According to Kantar, the sales volume of alcoholic beverages with an alcohol content of less than 1.2% surged by nearly 30% year on year, while consumer demand for low-alcohol and non-alcoholic beverages increased by 8%. Healthyish predicted that the global non-alcoholic beer market would grow by 32% from 2018 to 2020.

The Chinese consumer demand for non-alcoholic beer is expanding as well. Statista shows that women are the main target group for non-alcoholic beer in China. 33.27% of women purchase non-alcoholic beer at least once a month, and 11.8% of women consume non-alcoholic beer at least once a week, both higher than the male sample data. To follow the consumer trend, Budweiser Anheuser-Busch, the world’s largest beer producer, launched 12 new non-alcoholic and low-alcohol beers last year. Behind the popularity of non-alcoholic beer, we can see many Chinese consumers want to be healthier.

Data source: Statista, Frequency of drinking non-alcoholic beer in China 2019, by gender

Successful foreign beer brands in China

Brand image and price positioning play an important on sales and profitability. Among the leading companies in the Chinese beer market, the most successful foreign beer brands are Budweiser Anheuser-Busch, and Carlsberg, which accounted for 19.5% and 7.4% of the market respectively.

The key to the successes of the two beer companies lies in two main factors:

  1. Endorsement of international brands and successful brand marketing: Both Budweiser Anheuser-Busch and Carlsberg created a strong brand image and customer base by sponsoring large music festivals in China.
  2. First-mover advantage of high-end categories: since the Chinese beer market has been gradually moving towards a higher-end segmentation, Budweiser Anheuser-Busch and Carlsberg had a head start by entering the market in 2010 and 2012, much earlier than domestic brands which launched a series of high-end beer in 2015.
Leading players in china's beer market
Data source: Statista, Market share of the leading beer brands in China 2020 (based on sales volume)

Domestic brands dominate the competition

Domestic brands have a stronghold of the Chinese beer market, making it difficult for foreign brands to enter and grab market shares from established beer brands. CR Beer Snow, Tsingtao Brewery, and Yanjing Beer as domestic brands have a combined market share of 65.1%. More specifically, CR Beer Snow accounted for 31.9% of the market share in 2020, ranking first; followed by Tsingtao Brewery and Yanjing Beer, with a market share of 10.3%.

In addition, the leading companies in the beer market have advantageous base markets, and their brands show obvious regionally divided characteristics and higher local customer loyalty. For instance, CR Beer Snow has obvious sales advantages in Sichuan, Northeast China, and East China; Tsingtao Beer has a higher sales volume in Shandong and Shaanxi provinces, and Yanjing Beer is popular in Beijing, Inner Mongolia, and Guangxi.

Shortcomings of domestic brands

From 1990 to 2010, Tsingtao Brewery and Yanjing Beer began to take a leading position in China. In order to quickly grab market share during the rapid growth period of the beer industry, almost all companies followed their lead to adopt a cost leadership strategy as well as mergers and acquisitions to overcome the fierce competition. However, this strategy has led to overall lower profitability of domestic beer brands than foreign high-end beer brands. For example, Budweiser’s gross profit margin in China is around 60%, while the gross profit margins of domestic brands such as Snow, Tsingtao, and Yanjing Beer are 30% to 40%.

However, the current domestic beer factory price is less than 3,000 CNY per thousand liters, which is much lower than that of developed countries in the world. As an illustration, the price of a ton of liquor in Japan is more than three times the price of Chinese beer. With the continuous improvement of the living standards of Chinese consumers in the future, there is still a lot of room for domestic beer brands to grow in China. Meanwhile, the gradual popularity of high-end beer will become a potential opportunity and advantage for foreign brands to enter the Chinese beer market.

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