Premiumisation is the key to the future growth of the Chinese beer profit pool
China is the largest beer market in the world, but profitability per hectolitre is low. Yet, despite low profitability the Chinese beer profit pool has grown, attracting investments from both domestic and foreign brewers.
Future investments under threat?
Some global brewers have invested heavily in the country, with a long-term investment horizon, while others have been deterred by the risks and relatively low returns and have stayed on the sidelines. As volume growth has started to slow and even showed a decline in the past five quarters, future investments could be under threat. We argue that the Chinese beer market is transforming and that the main driver of profit pool growth in the future will be value and profit per hectolitre, rather than volume. This creates challenges and opportunities for local and foreign brewers.
Volume vs. value
The Chinese beer market is the largest in the world, with more than one in four beers consumed in the country. This makes the Chinese beer market almost twice the size of the entire western European beer market and more than twice the size of that of the United States. Beer is, however, relatively cheap in China. The average retail price of a litre of beer in China is CNY 9.50, or USD 1.60, which is far below the price levels seen in western Europe (USD 5.70) or the US (USD 4.10). As a result, China is only the second-largest beer market in the world in value terms, behind the US. The profitability in China is even lower and China is the world’s fifth largest profit pool, but this position has improved significantly over the past years. Value rather than volume will be the key driver for growing the profit pool as premiumisation will provide further opportunities for both imported and foreign licensed beer brands.
How to achieve premiumisation
Both local and foreign brewers can become active in the super-premium segment. Local brewers can expand their portfolio in the super-premium segment with either imported or foreign-licensed brands. Exporters from specific countries with a strong beer culture are most likely to succeed through a partnership with Chinese distributors, while global brewers with international brands can either enter the Chinese market quickly through a partnership with a Chinese brewer that has distribution power or through a greenfield operation.
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Francois SonnevilleSenior Analyst - Beverages Read more
RaboResearch Food & AgribusinessPO Box 17100 (UC 053) 3500 HG Utrecht, The Netherlands