Market research
A recent wave of activity in China's brewing sector suggests that the world's brewers are upping the ante in the country. They would do well, warns Pete Brown, to learn the lessons of history, and not stick to the tried and tested: It didn't work last time.
//i2.aroq.com/1/sabmillerchina.jpgWhenever I see news of western designs on the Chinese beer market my pulse quickens a little, like I’m watching a stunt motorcyclist or a high wire trapeze act. It’s that guilty realisation that, while you try to tell yourself you’re willing them to succeed, the excitement comes from the fearful thrill that you’re about to witness a calamity.
Anheuser-Busch Inbev buys Weixue Beer Group Co – ooh!
Heineken JV Asia Pacific Breweries sells its stake in Kingway brewery – ahh!
A-B Inbev – encore! – buys Liaoning Dalian Daxue Brewery Co- whoa!
Is this the start of another stampede into the world’s biggest - and most dangerous - beer market? Is it bravery or foolhardiness? Who’s going to be left standing to take the final bow, and who will be taken to intensive care?
Memories are short in the corporate world. And, even if they were not, the multinational psyche seems determined to repress the haunting spectre of the first invasion of the Chinese beer market by western brewers.
When the Chinese economy first opened up, it was clear to everyone that it would soon become the biggest beer market in the world. In the 1990s, global brewers believed they could simply enter and set up shop like they had done elsewhere. They each saw a massive, growing market with no big brands – and each attempted to fill that vacuum at the same time. So disastrous did this strategy prove, that Tim Murray, who led Foster’s first charge in 1993, described the result as "the corporate Vietnam”.
The first problem was that western brewers went in and built state-of-the-art breweries that required premium prices to deliver a return, in a market where the premium segment not only didn’t exist, but was at that time unable to exist.
The second problem was one of corporate vanity – a sense that their practices were best, they were proven elsewhere, so they would darned well work here just as well as they did everywhere else.
They didn’t.
China is one of the world’s oldest civilizations, and alcohol has been close to the heart of its people since day one. Alco-archaeologist Patrick McGovern believes he has stumbled across beer making and drinking rituals in the Chinese interior that may stretch back as far as 7000 BC – completely rewriting what we widely believe to be the origins of beer.
Alcohol remains a fundamental part of Chinese society, with drinking rituals forming a cornerstone of public and private, corporate and civic life.
Not much of this booze was beer though – until the economy opened up.
The reasons why beer then took off are revealing. China is a collection of near-autonomous provinces. Breweries in each province not only provided employment; they subtly suggested that the water was pure, and that, with beer being accessible only to the affluent, there was burgeoning demand for everyday luxuries.
The Chinese government was very keen for the inward investment from foreign breweries. But, those that came into this environment with an attitude of ‘we’ll show you how it’s done’ were inevitably going to get their fingers burnt.
My interest in the country comes from a brief visit I made there as part of my second book, 'Three Sheets to the Wind', which sought to compare and contrast beer drinking cultures around the world.
Before I went, someone slipped me a copy of 'Mr China' by Tim Clissold, a book that tells the story of one man who was sent to China with a massive investment pot to buy into Chinese industries, and escaped with a tiny fraction of it left a few years later.
The tale of the brewery he bought and attempted to run is particularly hilarious – if you share my dark sense of humour. Chinese business culture revolves around the concept of not losing face, so negotiations would always start with a serious amount of attitude. Clissold meets Madame Wu Hongbo, chief engineer of the First Light Industry Bureau of the People’s Municipal Government of Beijing, a ‘Chinese Boadicea’ who accuses him of “talking in dog farts”, and describes the ever-worsening situation at the brewery as “a right stir-fry of pubic hairs and garlic”.
He has to deal with returned beer bottles full of leaves or bulbs of garlic, entire extended families walking out on strike when one member is disciplined, staff growing vegetables on factory sites, and salespeople starting fights with unhappy customers. The western approach simply fails to connect, resulting in financial catastrophe.
My own visit gave me another angle on China’s individual spirit. In Shanghai one Saturday in 2004, the Budweiser-branded beer garden, where everything from the stage to the menu holder was in regulation red and white, was deserted. But, the bars in trendy Maouming Longlu street were packed. Here, Western music, fashion and brands were not being adopted without question, they were being culturally appropriated into a mix of new and old. Picture a young couple sitting at a table sipping Bud, playing Mah Jongg, wearing Armani T-shirts and listening to a band playing cover versions of Britney Spears songs with Chinese lyrics, and you start to get the idea. They were appropriating western brands, western icons, but adapting them to suit.
Of course, the fascination with China is never going to go away. Global brewers simply can’t afford to ignore the place, even if they were capable of doing so. After overtaking the US to become the biggest beer market by volume at the end of the millennium, it’s now almost double the size, accounting for nearly a quarter of total global beer volume, with a forecast growth rate of 159% to 2015. The Snow beer brand, co-owned by SABMiller, has grown sevenfold since 2004 to become the world’s biggest brand, far outstripping Bud Light, with almost every bottle sold inside China itself. Three of the world’s top ten beer brands are now Chinese.
So there’s no question that western brewers could ever leave China alone.
And, lessons have clearly been learned – much of the activity like that quoted at the start of this piece demonstrates a province-by-province strategy, engaging with local brands from the ground up rather than trying to impose foreign imports.
But will that be enough? Back at global HQ, if these corporations are still looking at an endgame of consolidation, premiumisation, rationing of brand portfolios and/or the gradual imposition of global flagship brands, the potential for a second Vietnam will never be far away.
You only need to be able to read to see that those who do eventually make money in China will only do so by accepting the country on its own terms.
Sectors: Beer & cider, Emerging markets – BRIC
