Chinese Beer Profits Are Still Really Small
Jeffrey Towson 陶迅
Consultant and keynote speaker on digital strategy and personalization. Anti-CBDC, free speech absolutist. TechMoat Consulting. Tech Strategy Podcast. Please do not contact about podcast guests, seo or digital mktg.
China is the world's biggest beer market.
This is a frequently cited fact. So is the fact that Snow (drunk mostly in China) is now the world’s most popular beer by volume. In fact, three of the world's top 10 beers are now Chinese (Snow, Tsingtao, and Yanjing).
All very impressive. But it is worth remembering that while China is the #1 by beer volume, it is still fairly low in profits. Note the below chart (from a year or so ago, so not totally current).
Note: China's 1.4B consumers have been generating about the same beer profits as Columbia or South Africa.
Given the huge volume, the obvious reason for the small profits is low pricing. Low pricing in Chinese economy beer is a result of the intense current competition. But it is also a legacy of the days when the government owned and ran breweries.
It was actually Chairman Mao and the party that made beer both ubiquitous and cheap in China. They opened state-owned breweries in virtually every city and made it affordable for everyone. The big China beer SOEs have been rolling up these smaller SOEs for the past twenty years. One consequence of this history is that Chinese consumers are very used to the idea that beer should be really cheap.
Talk to any executive about beer in China today and they will quickly bring up "premiumization". The goal is to get Chinese consumers to upgrade to premium beers - which offer better profits. And this is happening. But big profits in Chinese beer have been a dream for a long time.
Cheers from Beijing, jeff
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I write and speak about "how rising Chinese consumers are disrupting global markets - with a special focus on digital consumers".
If you would like to read my posts, please click 'Follow'.
If you would like my recommended China reading list, you can get it at www.jeffreytowson.com. You can also get a free chapter of my One Hour China Book there as well.
Some previous posts include:
- How China's Increasingly Emotional Consumers Are Shaking the World
- How I Went From NYC to Working for Prince Alwaleed
- What Wall Street (and Jim Cramer) Are Getting Wrong About Starbucks in China
- What To Do When Your Fail in China (Pt 2): Ford vs. Fiat
- What To Do When You Fail in China (Pt 1): Danone vs. Carlsberg
About: I am a Professor of Investment at Peking University Guanghua School of Management in Beijing. I am also an investor, consultant and former executive / slave to Prince Alwaleed.
Photo by timquijano (creative commons, link here)
纪检监察 — 招行成都分行
8 年Chinese's welfare, Chinese enterprise's challenge.
Managing Partner at Radiant Capital
8 年Hey Jeff, that was interesting. Comparing your two graphs of total beer volume (M hl) vs. total EBIT (US$MM), I was surprised that the US, Japan, Brazil and Mexico all yield similar numbers of around US 30 cents per Litre, or roughly 14 times higher than in China. I couldn't see volume numbers for Canada and Australia but judging from the profit graph they're probably in a similar or even higher range. Not sure what that implies for beer market profit margin consistency across such diverse markets (diverse in terms of volume, economy, per capita income, etc.), but anyway it's surprising to see how much higher they all are compared to China in this data. Alternatively, to a beer optimist I suppose it points to tremendous upside in China from even small incremental increases in margin approaching global norms.
Consulting Manager , Project and Program Director
8 年I'm thinking of Shane Roberts, Brewer, and Peipei Xin, Doctoral Candidate. Similar dynamics seem to be affecting almost all businesses/markets. Respectfully LLL
Scrum Master at Pinnacle Group
8 年Good article. I also think low profits are due to inefficient production methods and wasteful use of resources. The focus on cost efficiency and stakeholder (investor) return are not a part of most business models here. It's all volume and market share that seems to drive everything.
Director, Sales Manager @ Green Terra Enterprises Ltd | CSC, LLQP
8 年Drinking is not a good habit any how.