Ni Hao! This Bud's for You
As mainstream beer brands in North America are under pressure from Mexican imports, while crafts and foreign beers keep growing in popularity in China, consumers there now drink the most Budweiser in the world.
Foreign beers are a common sight in today’s market. In many countries, international brands make up a substantial portion of the offering. Beers like Heineken, Guinness, Stella Artois, and Carlsberg have long had a majority of sales outside of their home markets. The relatively small domestic markets even ceased to be their number-one destinations. Recently, this has also become true for another famous brand. Budweiser, the 'King of (American) Beers', is very popular in China... and today, more Budweiser is consumed in China than in the US (see Figure 1)
US and Chinese Consumption of Budweiser, 2000-2018e
Source: GlobalData 2018
The emergence of foreign beer
Exporting beer to foreign markets is not a new phenomenon. Guinness, for example, has been shipping beer from Ireland to the UK since 1769. And when the Brits discovered a taste for lager in the 1970s, brewers like Whitbread started to produce Heineken, Stella Artois, and Carlsberg locally under licence. Over the past two decades, however, interest in international brands has exploded. Volumes have more than doubled, and the worldwide share of foreign beer has increased from 10% to 16%. Foreign beers can now be found on every continent (including Asia), although they remain most popular in North America and Western Europe.
There are several reasons for the popularity of foreign beers. As tourism and migration increased, consumers became attracted to the image of foreign beers. Whether it is nostalgia for a beer drank back home or on holiday, or a longing for a product with authenticity of a country far away, consumers see foreign beer as a premium product. This became even stronger as consumers wanted to enhance their drinking experience – for example, by pairing beer with ethnic foods. Marketing, too, has played an important role, as brewers started to sponsor major sports and music events, focusing their efforts on leading international brands.
Apart from increased consumer demand, internationalisation has been helped by changes on the supply side. The largest ten brewers in the world saw their market share double, from one-third to two-thirds over the past 20 years. As brewers gained an on-the-ground presence overseas, trading up consumers from low-margin local brands to high-margin international brands became part of their strategy.
The secret of AB InBev’s success in China
The success of Budweiser in China did not come overnight. For years, the market was one of the least profitable in the world, despite having large and fast-growing domestic beer volumes. When Anheuser-Busch bought Harbin in 2004, many feared that fragmentation and low selling prices of beer would provide insurmountable obstacles. Today, however, we see a thriving Chinese profit pool.
AB InBev has increased its proportion of revenues from international brands in China, from 36% in 2016 to 46% in the first half of 2018 (partly boosted by the recent World Cup). But the company is benefiting from the experience gained with iconic domestic brands such as Harbin and Sedrin. AB InBev uses a multichannel strategy and distributes beer through modern retail (including new retail stores Hema and Super Species) and foodservice channels. It makes use of multimedia such as Weibo, web group sharing, and KTV for advertising. Harbin, for example, has introduced Hot Dance Video on Douyin, one of the most popular online platforms, in an attempt to appeal to younger generations. AB InBev is using its best practices from across the world and its local knowledge of the Chinese market to drive the profit pool growth.
Lessons to be learned for other brewers
Although foreign beers have reached an 8% volume share of the Chinese market, we believe the category will still grow further. For foreign brewers without significant operational experience in the country, it will be difficult to benefit from this development without the help of a local partner. At the same time, we think that the prize might be too large for international brewers to ignore, and a new 'China strategy' may need to be formulated. We estimate that the current operating profit of Budweiser in China is in excess of USD 400m, making it larger than, for example, the entire profit pool in Italy, the Netherlands, or Belgium. We also believe that China could serve as a blueprint for other emerging markets, and that brewers might reconsider the long-term internationalisation strategy for their leading brands, based on the experiences in this exciting market.
Download a PDF version of this article
Where to go from here
RaboResearch Food & AgribusinessPO Box 17100 (UC 053) 3500 HG Utrecht, The Netherlands