Blog: Olly WehringChina's beer market - not quite the cash cow we thought

Olly Wehring | 14 September 2006

There were conflicting noises coming from the world’s beer giants about their fortunes in China last week.

Heineken and InBev were both relatively downbeat about conditions in the world’s largest beer market as they announced their first-half results. However, Tsingtao and China Resources Snow Breweries, which hold the number one and number two spot in China respectively, both signalled their confidence in the market.

For its part, Heineken revealed that, although its operations in China were close to breaking even, the very low price of beer and “chronic” over-capacity meant the market remained “very tough”. InBev, meanwhile, attacked the “aggressive” price competition of its rivals in China for what it deemed a disappointing performance during the first half of the year.

Nevertheless, Tsingtao, in which Anheuser-Busch owns a 27% stake, forecast strong growth during the second half of the year in the country. Its nearest rival, SABMiller’s local venture CR Snow, enjoyed its own buoyant first-half on the back of soaring sales of the Snow brand.

Despite China’s undoubted promise, pricing remains a key issue and seems to be the critical factor in determining a brewer’s market share in key provinces. The big brewers talk of the potential of the growth of more premium brands in China but, save for in a few major cities, the average beer drinker can only afford cheaper, local brands.

The low price of beer may be an obstacle to profitability in China but multinationals would do well to realise that the market is not ready for a thriving premium segment.

Pushing mainstream brands, like Tsingtao and Snow, throughout the whole of China has won their owners share - albeit, perhaps, at the expense of profits - but has given those brewers a strong, more national foothold for when consumers can afford to trade up on a wider scale.

Heineken and InBev have built strongholds in the south and east of the country but it seems their regional focus has left them slightly off the pace in the race to capture the long-term growth in China.


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