4/1/2010. Slightly Smaller Area than the United States Total: 9,596,960 sq km. WTO Accession

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1 Gan Bei to 1.3 Billion People The China Market Presented by William W. Westman Craft Brewers Conference Chicago April 8, 2010 Economic Overview Economic Overview World s Second Largest Economy (PPP) GDP Growth 2007: 11.9% 2008: 9.8% (estimate) 2009: 7.5-9% 759% (forecast) 2010: 8-10% (forecast) 2008 GDP per capita (PPP): World Bank estimates $6,020 (PPP), CIA estimates $6,000, IMF estimates $5,970 Unemployment: 4% officially in urban areas, but including migrants may be as high as 9% Source: CIA World Fact Book, EIU, 2009, USB Economic Overview Slightly Smaller Area than the United States Total: 9,596,960 sq km China's Expanding Middle Class Million households w/real PPP incomes 000/yr over $20, WTO Accession Source: Source: Global Insight s Global Consumer Markets Service & FAS China Forecast China s Beer Industry The largest in the world in terms of production volume Average per capita beer consumption is 5.25kg (or 5.19 liters; this is the official Chinese estimate but.) Beer production increased 4.9% in 2009, over 2008, to 43 billion litres (33 liters per capita) Imported beer sales are very small compared to domestic beer sales, at less than 22 million liters in So What is this important to the U.S. Craft Brewer? 1

2 Opportunities for Imported Beers Rising disposable incomes and a developing taste Imported, specialty items will spur demand Increase in foreign community in China and China s emergence in the world economy Favorable Environment Accession to the WTO has benefited Chinese industries across the board Gradual removal of market barriers and trade restrictions creating increased competition among domestic and foreign operators Opportunity to introduce high-value, imported American Craft Beers Looking Ahead China s huge population, coupled with the market s immaturity and sound long-term economic structure, all serve to create a very appealing market. The Saddle Restaurant Beijing China s economic recovery remains firmly on track Craft Brew Market in China Expat community is well established and growing in China Many more int l students studying Chinese as interns then seeking work in China Increase in international restaurants Sports bars open 24-hours per day, 7 days/week English Premier League, Cricket, Australian Rules Football, World Cup, ATP Tennis Circuit, NFL and MLB (esp. the Yankees on Chinese channels) 2

3 International Influence Solana s Tsingtao Brew Pub The NBA and CBA Yao Ming in the USA; Stephan Marbury in China. Chinese students studying abroad, in the USA! Increasing destination i malls: The Village in Sanlitun (Addidas, Blue Frog, Union Grill, Element Fresh, Apple Store) Lufthansa Center (high end designer stores + Paulaner Brew Pub) Solana Mall (Tsingtao brewery, All American Sports Bar, Bling, ice skating rink) The Night Life Night clubs and bars open all night International DJs and theme nights Fashion and Style The World of Suzie Wong, Apartment 8 in Chaoyang, Clubs/Bars in Five Star Hotels Chinese culture and KTV Beijing German Brew Pub 3

4 Retail Market Increasing incomes consumers shop in Carrefour, Wal-Mart, City Shop, and Jenny Lou s opportunities opportunities of imported craft beers. Emphasis on food safety, packaging, international selection of beverages and food products. Wine market expanding very fast. Cheeses and yogurt. 4

5 Market Development Strategies Emphasis on the Expat community More sophisticated and wealthy Chinese consumers who travel frequently Emerging City Markets Distribution Networks Rising incomes have driven the consumer foodservice market, and also the development of pubs and bars Food-beverage pairing promotions for five-star chefs in hotels and international restaurants Educational seminars on U.S. craft beers 5

6 Techniques Effective promotion tools: --Simple promotional items in popular expat locations plus developing relationships with key F&B managers and bartenders. --Sales girls hired by beer manufacturers in bars and restaurants are effective tools to push sales, and to introduce new or premium imported American Craft Beer and Ale to Chinese consumers. Additional Market Information Beer Sales Off-trade accounts for 68% of total volume sales in 2008/2009, which includes domestic and imported beer. On-trade channel sales is growing faster, due to the strong development of the consumer foodservice market. Regional Differences Consumer preferences vary in different regions in China. People in Northwest China tend to prefer stronger tasting and high-strength beers. The majority of Chinese consumers prefer lighter tasting and lower- strength beers. Premium Standard Economy Sector Pricing Pricing Above RMB20 per liter RMB7-20 per liter Below RMB7 per liter Growth of Imported Premium Lager (>Y20 ($2.93) per bottle) 2008/ CAGR Growth of 36% 3.6% -4.6% 46% sales volume Growth of Value 5.7% -2.0% Source: Official statistics, Trade associations, Trade press, Company research, Store checks 6

7 Pricing Standard lager brands (RMB7-20 per litre) recorded the strongest growth during The leading standard lager brand in China is Tsingtao, which recorded a volume share of 32% in 2009, with demand being fuelled by rising demand for higher quality amongst increasingly sophisticated consumers. Pricing Demand for premium lager brands (> RMB20 per litre) remains limited in China, with such products recording a total volume share of just 2% in Premium lager sales are dominated by multinational brands like Budweiser, Heineken, Tiger, and Carlsberg, with the majority of sales being made on-trade. Domestic Competition Top Six Domestic companies in beer sector China Resources Enterprise Co., Ltd with production capacity of around 10 billion liters. Tsingtao Brewery Co., Ltd Beijing Yanjing Brewing Corp Harbin Brewery Group Co., Ltd Henan Jinxing Brewery Group Guangzhou Zhujiang Brewery Co. Ltd No official micro brewers in China. There is a China Food Industry Association s Beer Chapter. The official website is Brand Shares of Top Ten Domestic Brand Beer Brand Snow Tsingtao Yanjing Harbin (Anheuser- Busch InBev NV) Zhujiang Hans Jinxing Liquan Sedrin (Anheruser- Busch InBev NV) Laoshan Company China Resources 8.8% 13.3% 15% 17% Tsingtao Brewery 4.5% 4.8% 5.8% 6.1% Beijing Yanjing Brewery 4.5% 4.6% 4.9% 5.2% Harbin Brewery Group Ltd % 4.7% Guangzhou Zhujiang Brewery Co. ltd 3.8% 3.5% 3.0% 2.9% Tsingtao Brewery 1.7% 2.0% 2.6% 2.8% Henan Xinxing Brewery Group 2.9% 2.8% 2.7% 2.7% Beijing Yanjing Brewery 1.6% 1.9% 2.2% 2.6% Inbev Sedrin Brewery Co % 2.6% Tsingtao Brewery Co. Ltd 1.5% 1.7% 2.2% 2.4% Others 51.1% Source: Official Statistics, Company Research Company Shares of Top Ten Global Beer Brands % total Volume China Resources enterprise Tsingtao Brewery Anheuser-Busch InBev NV Beijing Yanjing Brewery Co Henan Jinxing Brewery Group Guangzhou Zhujiang Brewery Co Suntory Holdings Ltd Carlsberg A/S Kingway Brewery Holdings Ltd Asahi Breweries Ltd Source: Official Statistics, Company research Beer Imports by Country/Region of Origin (Liter) Country % Change World 21,828,148 28,132,881 40,501,332 Germany 7,325,490 8,238,110 12,414,016 Mexico 7,924,683 9,012,035 10,235,487 Taiwan 1, ,511 4,639,305 South Korea 2,112,223 3,678,992 3,913,456 Belgium 433, ,667 1,484,690 France 191, ,230 1,412,790 Malaysia 1,303,114 1,352,099 1,269,969 Russia 282,684 1,341,810 1,132,262 Netherlands 632, , ,100 Ireland Source: World Trade Atlas, Beer made from Malt , , , ,

8 Beer Production, Imports and Exports Million Liters Production 29, ,620 35, , ,030.9 Million liters Beer Sales Volume through On-trade and Off-trade Channel Apparent Consumpti on 28, , , , ,817.4 Exports Imports Retail 18, ,711 23,484 26,179 27,509 29,050 Food Service 8,765 9,726 11,110 12,462 13,165 13,952 Total 27,599 30,437 34,594 38,641 40,674 43,002 Source: Global Trade Information Service (GTIS) Source: Official statistics, trade associations, trade interviews and estimates Competition Domestic beer manufacturers dominate beer sales in China, with the top six domestic manufacturers accounting for 52.6% of total beer volume sales in the country. Increasing acquisition and improved distribution channel in wider areas made domestic market share larger than before. Example of Acquisition Snow is a 51:49 joint venture between Hong Kong s China Resources Enterprises and Anglo-South African Brewing SABMiller. In April 2009, China Resources Snow Breweries, the country s leading brewer by volume acquired Shandong-based Amber Breweries for US$41.78mn(CNY285mn) in a bid to become a truly national player in China and to beat its fierce competitor Tsingtao. The acquisition not only increased Snow s production capacity but to establish a manufacturing presence in a market dominated by its rivals-tsingtao. Which Shandong province accounts to nearly 50% of Tsingtao s total revenues. Competition Multinational manufacturers such as Carlsberg and Heineken are increasingly focused on China. Carlsberg acquired a beer hop manufacturer in Xinjiang province in West China in April 2009, and is developing its operations in West China. Leading Taiwanese brand Taiwan Beer also entered mainland China in Opportunities To increase profit margins, manufacturers are reducing packaging from standard ml 640ml to 500ml, or 600ml, and the smaller packs are more popular in the market. 8

9 Opportunities Chinese are yet to adapt to the relatively bitter taste of ales, dark beer and stout. Local consumers prefer low priced locally- brewed lagers ($0.30 per 500 ml in local Beijing kiosks). Off-trade or retail sales are limited. 9