Beer Manufacturing in China: 1522

Transcription

1 : 1522 DISCLAIMER This product has been supplied by IBISWorld Inc. ('IBISWorld') solely for use by its authorized licenses strictly in accordance with their license agreements with IBISWorld. IBISWorld and All China Marketing Research Co., Ltd. (ACMR) makes no representation to any person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Inc. and All China Marketing Research Co., Ltd. (ACMR). The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication - in papers, reports, or opinions prepared for any other person - it is agreed that it will be sourced to IBISWorld Inc.

2 CONTENTS Contents Industry Definition...3 ACTIVITIES (PRODUCTS AND SERVICES)...3 SIMILAR INDUSTRIES...3 DEMAND & SUPPLY INDUSTRIES...3 Key Statistics...4 CURRENT PRICES...4 REAL GROWTH...5 RATIO TABLE...5 GRAPHS...5 Segmentation...7 PRODUCTS AND SERVICE SEGMENTATION...7 MAJOR MARKET SEGMENTS...8 INDUSTRY CONCENTRATION...8 GEOGRAPHIC SPREAD...9 Market Characteristics...11 MARKET SIZE...11 LINKAGES...11 DEMAND DETERMINANTS...12 DOMESTIC AND INTERNATIONAL MARKETS...12 BASIS OF COMPETITION...13 LIFE CYCLE...14 Industry Conditions...16 BARRIERS TO ENTRY...16 TAXATION...16 INDUSTRY ASSISTANCE...16 REGULATION AND DEREGULATION...17 COST STRUCTURE...17 CAPITAL AND LABOR INTENSITY...18 TECHNOLOGY AND SYSTEMS...18 INDUSTRY VOLATILITY...19 GLOBALIZATION...19 Key Factors...20 KEY SENSITIVITIES...20 KEY SUCCESS FACTORS...20 Key Competitors...22 MAJOR PLAYERS...22 PLAYER PERFORMANCE...22 OTHER PLAYERS...27 Industry Performance...29 CURRENT PERFORMANCE...29 HISTORICAL PERFORMANCE...32 Outlook...35 Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 2

3 INDUSTRY DEFINITION Industry Definition Establishments within the Beer Manufacturing Industry in China (China Industry Code ) purchase barley, water, yeast, malt and other ingredients to produce beer, and various brewing and malt products. The main products manufactured are fresh, carbonated beer products with a relatively low degree of alcohol (2.5% to 7.5%). The beer is packaged in kegs for sale to pubs, bars, restaurants and hotels. Beer can also be packaged in cans and bottles for sale to wholesale and retail alcoholic beverage distributors, and the hospitality sector. ACTIVITIES (PRODUCTS AND SERVICES) The primary activities of this industry are: Pure beer manufacturing Barley malt manufacturing Wheat malt manufacturing Turbid beer manufacturing The major products and services in this industry are: Canned beer Bottled beer Keg and draught beer Other beer products SIMILAR INDUSTRIES Industry: Distilled Spirit Manufacturing in China Description: Includes establishments involved in the production of distilled spirits made of corn, wheat, potato, etc, used for industrial applications or as raw material for alcohol drinks. Industry: Chinese Distilled Alcohol Manufacturing in China Description: Refers to establishments manufacturing alcohol drinks made of fine grain and ferments of different types, usually containing 18% to 60% alcohol. Industry: Tea and Other Soft Beverage Manufacturing in China Description: Includes establishments producing tea drink and other soft beverages not else included. DEMAND & SUPPLY INDUSTRIES Cereal Grain Growing in China Glass Products Manufacturing in China Beverage and Tea Wholesalers in China Supermarkets in China Other Miscellaneous Goods Retailers in China Beverage and Tea Retailers in China Motels in China Full-service Restaurants in China Drinking Places and Bars (Alcoholic Beverages) in China Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 3

4 KEY STATISTICS Key Statistics Industry Revenue 8, , , , ,829.7 $US Mill Industry Gross Product 3, , , , ,255.2 $US Mill Number of Establishments *1,652 *1,693 *1,626 *1,642 *1,690 Units Number of Enterprises *589 Units Employment 261, , , ,061 *245,429 Units Exports $US Mill Imports $US Mill Total Wages $US Mill Total Assets 15, , , , ,856.8 $US Mill Domestic Demand 8, , , , ,755.5 $US Mill CURRENT PRICES Industry Revenue 6, , , , ,829.7 $US Mill Industry Gross Product 2, , , , ,255.2 $US Mill Number of Establishments *1,652 *1,693 *1,626 *1,642 *1,690 Units Number of Enterprises *589 Units Employment 261, , , ,061 *245,429 Units Exports $US Mill Imports $US Mill Total Wages $US Mill Total Assets 12, , , , ,856.8 $US Mill Domestic Demand 6, , , , ,755.5 $US Mill Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 4

5 KEY STATISTICS REAL GROWTH Industry Revenue % Industry Gross Product % Number of Establishments *-1.4 *2.5 *-4.0 *1.0 *2.9 % Number of Enterprises *1.6 % Employment *2.7 % Exports % Imports % Total Wages % Total Assets % Domestic Demand NC % RATIO TABLE Imports share of domestic demand % Exports Share of Revenue % Average Revenue per Employee *0.05 $US Mill Wages and Salaries Share of Revenue % GRAPHS Revenue Revenue Growth Rate Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 5

6 KEY STATISTICS Employment Imports and Exports Note: Unless specified, an asterisk (*) associated with a number in a table indicates an IBISWorld estimate and references to dollars are to US dollars. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 6

7 SEGMENTATION Segmentation PRODUCTS AND SERVICE SEGMENTATION Product/Services Share Canned beer 40.0% Bottled beer 36.0% Keg and draught beer 13.8% Other beer products 10.2% An ACMR-IBISWorld analysis of the product segmentation within the Beer Manufacturing Industry in China in 2007 shows: The total revenue of beer industry was $10.53 billion, of which 40% was from canned beer, about 36% from bottled beer, 13.8% from keg and draught beer, and 10.2% from other beer types. The main reason for people preferring canned beer is that: firstly, canned beer is more convenient and safer for outdoor use than glass-bottled beer; and secondly, the selling price of canned beer is lower than for other beer types. Bottled beer is more popular at the high-end of the market, particularly with restaurants, clubs and hotels. A greater number of consumers in China are starting to consume greater volumes of bottled beer at home. Keg and draught beer is more common in clubs, bars and hotels as pricing levels per serve are usually lower and the product is more cost-effective for these establishments. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 7

8 SEGMENTATION MAJOR MARKET SEGMENTS Market Segment Share Beer wholesalers 40.0% Liquor retailers 30.0% Supermarkets and restaurants 25.0% Other 5.0% An ACMR-IBISWorld analysis of market segmentation within the Beer Manufacturing Industry in China in 2007 shows: About 40% beer products are sold through wholesalers. Manufacturers often set up a general wholesaler in the capital of a particular province, or sell to an established wholesaler. These wholesalers are also responsible for recruiting distribution agents in medium- and small-sized cities. About 30% of beer sales come from liquor retailers, and this proportion of the market is increasing as home consumption increases. Consumption via supermarkets and catering firms has grown in recent years. However, sales in supermarkets have grown faster as beer has become more popular as a drink for home consumption. This method of distribution has made beer more affordable for people who still cannot afford the higher prices charged in bars and clubs. Other direct beer segments, such as bars, airlines and other outlets, contributed to around 5% of total sales. Exports of beer are also included in this segment. INDUSTRY CONCENTRATION The level of industry concentration is medium An ACMR-IBISWorld analysis of industry concentration within the Beer Manufacturing Industry in China in 2007 shows: The industry concentration ratio has been increasing in recent years along with the fast pace of industry development. The main beer enterprises have expanded their production scope and acquired other small firms in order to enlarge market share and promote their brand names throughout China. Such companies hold the core domestic market. Tsingtao Beer has changed its sales strategy from regional markets towards an integrated national market after attracting foreign capital in In the past, Tsingtao Beer's sales covered mainly Shandong, Jiangsu, Shanxi and Fujian provinces. However, the company has now set up its beer production bases across China and started implementing its strategic plans for sales on a national level. China Resources Snow Breweries has acquired small beer companies and enlarged its scope through attracting foreign capital since Today, Snow Beer has integrated its markets and is managing its sales into four large regions: North China, North East China, East China and South West China. The company now has roughly 38 production bases across China. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 8

9 SEGMENTATION Yanjing Beer is the only firm with no foreign capital among the top three companies. At present, Yanjing Beer's main market is Beijing, where its market share is 85%. Its market share reached 70% in Baotao and Chifeng in Inner Mongolia province. Yanjing Beer occupies one-third of the market in Fujian province. At the same time, it entered into the Shandong and Guangdong market. Recently, Yanjing Beer was in talks for partnerships with foreign-funded enterprises in order to enlarge its scope and improve its market positions nationwide. The largest four companies within this industry currently account for around 44% of industry revenue. The largest ten firms made up approximately 67% of industry revenue in The concentration level has been increasing steadily since 2001, and is expected to further increase in the future. Details on industry concentration changes in the past few years are shown in the table below. Market Share of Top 10 Beer Manufacturers in Total Industry to 2007 Percentage Source: Annual Report Note: These data are obtained from Tsingtao Beer's annual reports. Data for 2003, 2006, 2007 are ACMR-IBISWorld estimates. GEOGRAPHIC SPREAD Year: 2007 Geographic Spread Based on Number of Employment Region Percentage East China 36.0 Middle South China 20.9 North China 15.2 North East China 12.8 South West China 8.9 North West China 6.2 Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 9

10 SEGMENTATION Geographic Spread Based on Number of Establishments Region Percentage East China 41.0 Middle South China 18.9 North China 10.9 North East China 12.7 South West China 8.3 North West China 8.2 Geographic Spread Based on Revenues Region Percentage East China 39.6 Middle South China 25.5 North China 11.2 North East China 10.1 South West China 8.3 North West China 5.3 An ACMR-IBISWorld analysis of geographic spread of the Beer Manufacturing Industry in China in 2007 shows: In terms of regional distribution, this industry recorded highest sales revenue and employment in East China. Sales revenue in East China was valued at $8.33 billion, accounting for 39.6% of total revenues, while employment totaled 36.0% of the total. This higher revenue percentage compared to the employment level indicates that firms in this region benefit from economies of scale, greater capital investment, higher consumer demand and strong final pricing levels. Sales revenues and employment in Middle South China were second highest compared to other areas. Sales revenue in this segment reached $5.36 billion in 2007, with 25.5% in total. Employment in this area accounted for 20.9% of the total. Firms in this region also benefited from economies of scale and strong demand. Sales revenues in the other four areas, e.g. North China, North East China, South West China and North West China were lower than those in East China and Middle South China. Sales revenues in North China were valued at $2.35 billion in 2007, accounting for 11.2% of the total. Industry employment in this region accounted for 15.2% of the total. Smaller firms, with a lower level of capital investment, tend to operate in these regions. Sales revenues in North East China were valued at $2.12 billion in 2007, accounting for 10.1% of total revenue, with employment being 12.8% of total worker numbers. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 10

11 MARKET CHARACTERISTICS Market Characteristics MARKET SIZE An ACMR-IBISWorld analysis of the Beer Manufacturing Industry in China during 2008 shows: Industry revenue is forecast to reach $14.17 billion. This was an increase of 9.7% from There are 598 enterprises operating within the industry, employing 255,274 workers. The industry has experienced steady growth in the past five years with annualized revenue growth of 10.6%. Increasing private investment and the entry of foreign capital in manufacturing and production increased total industry output stimulated growth. Domestic demand totaled $13.78 billion, up 7.4% from the previous year. Exports totaled $113.9 million, up 6.3% from Imports valued at $28.2 million, down 2.4% from ACMR-IBISWorld forecasts that in 2009: Industry revenue will increase by 7.5% to $15.23 billion, while value added will also increase by 8.9% to $5.55 billion. Enterprises numbers will decline to 575 and employment will increase to 258,082. LINKAGES Demand Linkages Beverage and Tea Wholesalers in China Companies engaged in wholesaling, importing and exporting beverages, including beer, are customers of this industry Supermarkets in China Includes general supermarkets selling food, groceries, commodities and other products for retail sale Other Miscellaneous Goods Retailers in China Refers to all types of small convenient stores conducting retail sales of miscellaneous goods, including beer, in streets, communities, villages, towns, counties, working areas, campuses, bus stations, docks and airports, etc Beverage and Tea Retailers in China Includes retailers specializing in the sale of all beverage types, including beer Motels in China Restaurants purchase beer products to sell to their customers Full-service Restaurants in China Firms in this industry purchase beer products to sell to their customers Drinking Places and Bars (Alcoholic Beverages) in China Firms in this industry purchase beer products to sell to their customers Supply Linkages Cereal Grain Growing in China This industry supplies beer manufacturers with malt, hops and yeast used as raw materials for beer production. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 11

12 MARKET CHARACTERISTICS Glass Products Manufacturing in China This industry produces glass bottles for bottled beer. DEMAND DETERMINANTS An ACMR-IBISWorld analysis of the factors that drive demand for products from the Beer Manufacturing Industry in China shows: Per capita income increases have enhanced beer consumption in recent years. From the end of the 1980s through the 1990s, the average consumption growth rate was more than 15% a year, which is much faster than total GDP growth for the Chinese economy. As the Chinese government has a stable policy for maintaining GDP growth rate at over 7% a year in the 10 years after 2005, this will have a positive impact on the growth in beer consumption. As such, the China beer market has a large capacity for development in the future. International sporting, economic and cultural events are strong drivers for beer consumption. For example, the Beijing Olympics in 2008 and the Shanghai World Expo 2010 will increase the per capita beer consumption in the relevant years. Beer consumption differs across regions. Local governments protect local beer manufacturers and restrict market entry of brands from other regions. This limits consumer brand choice and has a negative impact on the demand for other brands and for high-end brands in particular (rather than for the total market demand). Product diversification has increased in recent years with the market entry of many foreign brands. The supply of new high-end products stimulated the demand and contributed to growth in the high-end market in up-market restaurants, clubs, hotels, discos, KTV, coffee houses, etc. The unit price of foreign products generally varies between $1.20 and $3.70. The high-end market segment occupies about 8% to 10% of total beer consumption in China. New brands started expanding from the high-end market to the medium-end market as foreign firms intensified alliances and partnerships with domestic companies. China is a major agricultural-based country and its rural market is extremely large. The rural population occupies 72% of China's total population and the per capita beer consumption level in this part of the market is very low at below 8 liters per annum. This per capita consumption is expected to increase with continued economic development and increases in rural household per capita income in future years. DOMESTIC AND INTERNATIONAL MARKETS Domestic and International Markets Exports The level of trade export is low The trend of trade export is increasing Domestic and International Markets Imports The level of trade import is low The trend of trade import is decreasing Domestic and International Markets Analysis Within the Beer Manufacturing Industry in China during 2008: Competing imports are expected to reach $26.7 million, down 2.6% from In 2007, total import volume was 21,828 tons, up 2.4% from Exports are estimated to amount to $112.3 million, up 10.5% from Export volumes totaled 205,674 tons in 2007, up 15.9% from the previous year. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 12

13 MARKET CHARACTERISTICS The four largest trading partners of China in the Beer Manufacturing Industry were Hong Kong, Taiwan, Germany, and Burma. Major sources of competing imports into China during 2007 were: Germany %, with a value of $10.2 million (up by 59.0% from 2006) Mexico %, with a value of $8.2 million (down by 40.2% from 2006) Malaysia - 8.5%, with a value of $2.3 million (up by 80.5% from 2006) Korea - 5.4%, with a value of $1.5 million (down by 34.6% from 2006) Holland - 3.7%, with a value of $1.0 million (up by 21.0% from 2006). Major destinations of China exports from this industry during 2007 were: Hong Kong %, with a value of $34.8 million (up by 1.6% from 2006) Taiwan %, with a value of $11.4 million (up by 67.8% from 2006) Burma - 9.4%, with a value of $9.6 million (up by 40.1% from 2006) Cambodia - 7.7%, with a value of $7.8 million (up by 29.1% from 2006) Macau - 6.7%, with a value of $6.8 million (up by 21.4% from 2006). BASIS OF COMPETITION Competition in this industry is high Competition in this industry is steady Internal Competition The major factors forming the basis of competition between firms in the Beer Manufacturing Industry in China include: Brand Competition. Brand image has played an increasingly important role in the competition between beer manufacturers in China, and is now the most important factor for success in this industry. Market players have readjusted their business strategies and started promoting their brands at the national level. The first three companies that started promoting their brands (Yanjing Beer, Tsingtao Beer and Snow Beer) have become market leaders and now occupy approximately 34% of the total beer sales volume in China. Competition Layers. The competition between beer manufacturers in China is divided in two main layers. These are lowend markets and high-end markets, which are determined by product price and quality. Local brands generally compete in the low-end market, including segments such as retailers, convenience stores and some low- and medium-level restaurants and hotels. Foreign brands usually compete in the high-end market with very few local competitors (mainly Tsingtao Beer, Yanjing Beer, Snow Beer). Market Integration Process. Competition in the newly emerged integrated national market started in the past few years as opposed to competition at the provincial level that was dominant before the economic reforms in China. The market was highly fragmented in the 1990s and competition occurred mainly at the provincial level, due to government policies for protection of its local companies. However, along with the development of the market economy and the stock market, a significant number of mergers and acquisitions have taken place in the past several years. This has largely been driven by companies' aims of gaining a larger market share at the national level. A couple of the largest beer manufacturers in China started acquiring leading local beer companies in different provinces. In provinces where mergers were not done, beer manufacturers established new production capacities. Small companies with low capital and financial flexibility started promotion of their brands in the nearest provinces instead. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 13

14 MARKET CHARACTERISTICS Event Marketing Strategy. Beer manufacturers in China have made significant increases in their investments in marketing for specific events, such as the Beijing Olympics in 2008, the Shanghai Expo in 2010 and other general marketing campaigns at the national level. This brand promotion is usually initiated by the largest companies in the industry. Two of the largest beer manufacturers in China - Tsingtao Beer and Yanjing Beer have already started their marketing campaign for the Beijing Olympics, including extensive advertisements with various types of mass media. In response, their major competitor, Snow Beer, initiated its own marketing campaign at the national level. The competitive strengths of Chinese firms within the industry include: The low price of their beer products; Brand awareness in the low-end market; Better market approach and sales methods due to local knowledge; Large sales network and well-developed distribution channels; and Lower production and operation costs. Chinese manufacturers are not as competitive in the following areas: Product quality; Product differentiation (e.g. dark beer, low-alcohol beer, etc); Customer preferences for foreign products in the high-end market; and Capital availability for investment in market development. External Competition The competition from other industries for the Beer Manufacturing Industry in China is relatively low due to the following factors: The government generally discourages the consumption of the traditional brandy (baijiu) made from rice or other cereals for its detrimental effect on health and the negative influence it has on worker productivity. These alcohol drinks, though, are still quite popular in China, particularly among the male population and their consumption has certainly affected the beer industry. The consumption of wine in China is not currently very common, with the main low-alcoholic drink remaining as beer as there are almost no direct substitutes. Tea and other soft drinks are the major external drink competitors for beer in China. Consumption of these substitutes increases during the summer season. Coffee is also becoming increasingly popular. Competition with beer, though, is limited to some degree, as tea is often consumed together with beer and its substitution is more characteristic for women rather than for men. LIFE CYCLE Life Cycle Stage The life cycle stage is mature Life Cycle Reasons The beer manufacturing industry has developed for more than a century in China, with production technology being quite mature now. Major mergers and acquisitions are occurring, resulting in steady number of establishments. Domestic output has increased in recent years, while imports have gradually decreased. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 14

15 MARKET CHARACTERISTICS Life Cycle Analysis Industry revenue has increased at an annualized rate of 10.2% in the past five years, while value added has increased by 9.6%. GDP growth rate during the same period, about 10.0%, is lower than industry revenue while higher than value added growth rate. Number of enterprises operating in the industry stagnated over recent years. Many mergers and acquisitions took place during this period, and economies of scales started playing an important role in this industry. Many large companies acquired smaller manufacturers located in rural or less-developed areas in order to gain market share and improve their position in the industry. The Beer Manufacturing Industry in China is highly fragmented, with the concentration ratio being one of the lowest in the world when compared to other countries' beer manufacturing industries. However, the concentration level in China has recently increased and is expected to continue increasing in the next few years as China's economy becomes more market-oriented and has a greater involvement in the globalization process. Beer manufacturing technology has improved in the past few years. Large beer firms have improved their technology level by importing new equipment from abroad. This has improved the beer taste, freshness level, quality and output levels. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 15

16 INDUSTRY CONDITIONS Industry Conditions BARRIERS TO ENTRY Barriers to entry in this industry are high These barriers are steady High competition based on provincial level Protectionism from local governments Increasing competition from foreign payers Costs to comply with government regulations This industry is characterized by a high level of regional monopoly and protectionism from local governments. Increased domestic and foreign competition in recent years has created additional entry barriers at the provincial and national levels. Foreign companies have an increased presence in this market. However most of them entered the market through establishing joint ventures with local companies, instead of setting up wholly-owned enterprises. The proportion of joint venture companies has increased to over 70% of total companies within this industry, generating output of over 25 million ton. The increasing levels of foreign capital in the Beer Manufacturing Industry in China has further increased the entry barrier level through improving production technologies, enlarging production scales, and creating advantages from economies of scale through partnerships with large domestic companies. Low product differentiation in China can be an additional obstacle for market entry as it can be difficult to gain the attention of beer consumers. However, this may also provide opportunities in the future for beer manufacturers that are able to produce new and different beer products that consumers enjoy. Firms must adopt costly production equipment to gain economies of scale and meet stringent health regulations. TAXATION Goods Value Added Tax Beer excise Tax Rate Tax Type 17% VAT 3-5% Excise Taxation types and rates for products within this industry include: Excise and VAT, which are the main taxes of the industry in China. The VAT tax rate is 17%. Beer excise amounts of $31.20 per ton of beer priced over $374 per ton, and $27.40 per ton for beer priced less than $374 per ton. This excise amount has been applied since May 1, Previously, beer excise was charged at $24.90 per ton for all beer types. After the excise changes in 2001, the price gap between low-end and high-end beer products increased as firms attempted to regain the higher costs on high-end beer. INDUSTRY ASSISTANCE The level of Industry Assistance is low The trend of Industry Assistance is steady Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 16

17 INDUSTRY CONDITIONS There are no specific tariffs for this industry There are no tariffs imposed on imported beer into China. REGULATION AND DEREGULATION The level of Regulation is medium The trend of Regulation is steady Government regulations imposed on this industry include: Beer State Standard GB All beer manufacturers have to reach the state standard requirements of Beer State Standard GB , which have specific provisions for beer quality, transparency, density, smell, taste, technology, sanitation standards, guaranteed quality period, packaging and so on. This standard is the most general standard for the Beer Manufacturing Industry in China. Standard for Water Use in the Beer Manufacturing Industry GB/T Regulates the use of water in beer production. Discharge Standard of Pollutants for the Beer Manufacturing Industry GB Limits the discharge volumes of waste water COST STRUCTURE Year: 2007 Item Cost % Purchases 61.3% Wages 5.7% Depreciation 3.1% Utilities 1.5% Rent 0.4% Other 10.9% Profit 17.1% Wages account for a small proportion of revenue in the Beer Manufacturing Industry in China, as labor costs are low in China. Transport costs, though not officially available, are estimated to be higher than labor costs. Purchases account for the highest level of revenue at around 61%. These are for raw materials, such as bottles, cans, packaging, labeling, etc. Other costs include electricity, insurance, advertising, office equipment, etc. Profits in this industry have been declining in recent years, due to increasing competition from new entries from domestic and foreign enterprises. This has made it difficult for firms to increase their prices and boost profits. Companies' costs structures are, however, improving as firms become more efficient from greater investment in technology and machinery. In the past, there were significant amounts of resources being wasted and productivity was not as high. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 17

18 INDUSTRY CONDITIONS Economies of scale are important in this industry, and large companies gain through this with lower marginal costs and higher profit margins. As such, general costs are decreasing given the process of mergers and acquisitions in the industry. CAPITAL AND LABOR INTENSITY The level of Capital Intensity is medium The level of capital intensity for Beer Manufacturing Industry is medium. Low capital start-up costs. Large employment is required for production. An ACMR-IBISWorld analysis of the capital labor intensity in this industry shows: The technology requirements in the Beer Manufacturing Industry in China are lower than for those in many other industries. Using depreciation as a proxy for capital, and wages as a proxy for labor, the capital/labor intensity was approximately 2:1 in This shows that the beer industry in China is a more labor-intensive than capital-intensive industry. Beer manufacturers in China vary across different scales, with small enterprises accounting for the largest number of enterprises. Small-scale beer manufacturing relies on low capital, technology, and a larger amount of employment. These small manufacturers have the advantage of low transportation costs as they usually occupy market shares only within particular towns and counties. The Beer Manufacturing Industry in China is not highly technology-intensive, and requires more employment than capital. Large-scale enterprises need smaller numbers of employment and use higher levels of beer manufacturing equipment to produce their various beer lines. The mechanization extent of medium- and small-size enterprises is lower than in large-scale enterprises, and these firms therefore need more labor. TECHNOLOGY AND SYSTEMS The level of Technology Change is medium An ACMR-IBISWorld analysis of the technology changes within the Beer Manufacturing Industry in China in 2007 shows: The main players in this market are local firms with long histories of operations in China. They have extensive experience in the market, but often lack in technology. Local manufacturers started modernization through purchasing or importing advanced foreign equipment from companies that were technology leaders. The technology level of domestic companies has improved greatly in recent years. Many local companies undertook a series of measures to improve their production processes across a range of factors - product quality, technology, inspection and control, raw material quality, etc. In terms of raw materials, using domestically-manufactured malt and other substitutes decreases costs and improves competitive ability. Several mainland beer enterprises managed to improve their beer quality, improve the beer taste, and offer fresher products. In recent years, Tsingtao Beer, Snow Beer and Yanjing Beer have installed fully automated manufacturing lines, initiating the development and improvement of technology equipment within the industry. After completing a round of mergers and acquisitions, several enterprises have already gained economies of scale advantages. However, facing increasing competition from foreign players, domestic enterprises need to continue to improve their brewing equipment technology and management systems. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 18

19 INDUSTRY CONDITIONS INDUSTRY VOLATILITY The level of volatility is low Foreign firms that have created joint ventures with local firms have contributed to stronger growth rates in the industry in recent years. The market integration process has stimulated industry output growth in the past few years. This will continue in the future as well, as the rural market has not been developed yet and market integration may take many years. Marketing and promotion of domestically produced beer at major sporting events influences the industry's output and revenue. GLOBALIZATION The level of Globalization is medium The trend of Globalization is increasing An ACMR-IBISWorld analysis of the Beer Manufacturing Industry in China in 2007 shows: The industry is subject to a moderate level of globalization, which is expected to increase over time. China has a very large market for beer consumption, which has developed steadily over the past 30 years. A small number of well-known domestic brands, including Tsingtao, Yanjing, Snow, Zhujiang and Budweiser, account for more than 50% of market share. In addition, there are many local brands produced and consumed within various locations in China. These localized brands account for a further 25% of market share. A large number of foreign firms have entered the China market in recent years. Many of these have attempted to capture market share through strategic investments with domestic companies or through greenfield investments in factories. Joint ventures and partnerships with domestic enterprises help foreign firms to gain the competitive advantages of economies of scales and local knowledge, which are some of the key success factors for this industry. Foreign players have positions mainly in the high-end beer market. Along with the increasing number of foreign players and higher level of foreign investment capital, the foreign market share is expected to increase in the future. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 19

20 KEY FACTORS Key Factors KEY SENSITIVITIES The key sensitivities affecting the performance of the Beer Manufacturing industry include: Age Group (20-34) People aged are the main consumer group for beer in China and changes in this group are likely to impact on the level of beer consumption. The percentage that this age group occupies in total has been declining due to the one-child policy in China that was implemented in the early 1980s. Domestic Goods Prices - Malt Malt is one of the main raw materials for beer manufacturing. The malt price, and the cost of other raw materials, can directly affect the production costs and profits of beer manufacturers. The malt price, and the importation of other raw materials, is also vulnerable to changes in currency rates, which can have a further negative impact on the industry. Level of Protectionist Policies - Local Government Protectionist policies of local governments can have negative effects on the market integration processes and the longterm development of the Beer Manufacturing Industry in China. Per Capita Disposable Income Greater levels of per capita disposable income lead to increased demand for consumer goods, including products from this industry. Real GDP The level of economic activity and GDP growth influences income levels and therefore the level of beer consumption, as well as development within the industry. KEY SUCCESS FACTORS The key success factors in the Beer Manufacturing industry are: Establishment of brand names Beer manufacturers must develop and promote their brands in order to be successful. Economies of scale Beer manufacturers that have large production plants are able to reduce marginal costs and be more price competitive. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 20

21 KEY FACTORS Having marketing expertise Beer manufacturers that utilize extensive marketing methods are better placed to retain current customers and attract new consumers. Control of distribution arrangements Distribution arrangements are important in this industry, especially for high-end products and sales in clubs, pubs and restaurants. Optimum capacity utilisation The extent of capacity utilization is very important for firms to maximize output and profits. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 21

22 KEY COMPETITORS Key Competitors MAJOR PLAYERS Market Share Major Player Market Share Range China Resources Snow Breweries 17.8% % (2007) Tsingtao Brewery Pty Ltd 14.0% % (2007) Beijing Yanjing Beer Group Company 9.8% % (2007) Guangzhou Zhujiang Beer Co., Ltd. 1.2% - 1.6% (2006) Budweiser (Wuhan) International Beer Co Ltd 1.3% - 1.5% (2006) Other 53.7% % (2006) PLAYER PERFORMANCE China Resources Snow Breweries Market Share: 18.4% China Resources Breweries Co., Ltd. was founded in 1994 and was a foreign-funded enterprise for production and sales of beer and beverages. The company changed its name to China Resources Snow Breweries in 2004 and established a partnership with SABMiller Company, one of the largest beer companies in the world. SAB then purchased a 49% stake in China Resources Snow Breweries. China Resources has been developing rapidly for over 10 years and grew from a local beer factory to a major enterprise with numerous products and business operations in China. Currently, it owns 42 breweries and more than 30 regional brands. China Resources Snow Breweries has located its breweries in 10 main provinces, including: Heilongjiang, Jilin, Liaoning, Tianjing, Beijing, Hubei, Anhui, Zhejiang, Sichuan, Jiangsu, Guangdong, Fujian, and Tibet. The company's annual production capacity is 5.5 million ton, the highest level in China. China Resources Snow Breweries currently accounts for roughly 17.8% of the beer market in China and has regional advantages in many local markets in China. Due to its large-scale campaign of mergers and acquisitions, China Resources experienced dramatic growth in recent years and surpassed Tsingtao Brewery as the largest beer manufacturer in China in Moreover, the company has invested more in brand promotion to raise the recognition of its main brand   Snow ±. The past three years have witnessed tremendous growth in sales volume of Snow beer from 1.22 million tons in 2004 to 5.1 million tons in Snow beer currently contributes roughly 75% of total revenue of China Resources. China Resources Snow Breweries recently set up its new strategy for 2006 and beyond. The company intends to expand its market positions from East China, the well-developed economic regions and coastal areas, to central and western parts of the country, and to cover all China in future. In addition, it took measures to strengthen its position in the large Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 22

23 KEY COMPETITORS eastern region market through the acquisitions of two breweries located in Zhejiang and Anhui provinces in July The company invested $42 million to purchase 100% of Zhejiang Yingyan Brewery and another $10 million for Anhui Huaibei Xiangwang Brewery. Both companies are located in strategic regions with high consumption levels of beer and should strengthen the position of China Resources Snow Breweries in Shanghai and Huaibei cities and the two provinces. China Resources Snow Breweries intends to make additional capital investment to expand production capacity and improve technologies in both factories. Zhejiang Yingyan Brewery's annual production capacity of 186,000 liters will be expanded to 240,000 liters after technological improvements. Similarly, Anhui Huaibei Xiangwang Brewery will be expanded from 93,000 to 160,000 liters. Following the acquisition of these two factories, the number of company facilities in Anhui province increased to six, and in Zhejiang province it increased to three. Rapid growth of the company is expected to slow down substantially in Besides the cooling down of the overall economy, the disastrous earthquake that occurred in May 2008 in Sichuan Province, which is an important market for China Resource will also hinder the performance of the company. Recent news reported that beer sales volume of China Resources in the first half of 2008 grew by only 4.6% compared to the same period in ACMR-IBISWorld forecasts that sales volume of the company will reach 7.35 million tons in 2008, up 5% from 2007, and the sale volume of Snow Brand will reach $5.31 million tons. Sales Volumes for China Resources Snow Breweries to 2008 Million Tons All Brands Percent Growth Million Tons Snow Beer Percent Growth N/C 1.22 N/C % % % % % % % % Source: Company Website Note: 2008 data are ACMR-IBISWorld estimates Tsingtao Brewery Pty Ltd Brand/Trading Name(s): Tsingtao Market Share: 14.5% Tsingtao Brewery is the largest and most prestigious of approximately 600 breweries operating in China. Tsingtao Brewery itself has grown from four breweries in 1996 to 48 today. The Tsingtao brand is sold in more than 50 countries worldwide and accounts for more than 50% of China's total beer exports. Tsingtao Brewery was founded in 1903 by German settlers in Qingdao. The company enjoyed impressive sales growth and had been the number one beer manufacturer in China before being surpassed by China Resources Snow. Introduced to the US in 1972, Tsingtao soon became the top-selling Chinese beer there and has maintained this leadership position ever since. Tsingtao is one of the best known consumer products exported from China to the US. Current Business and Strategy Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 23

24 KEY COMPETITORS Tsingtao Brewery, China's largest brewer, spent $12.5 million in early 2006 to buy a 45% stake in Huashi Beer Group Co, consolidating Tsingtao's leading position in southern China. In April 2003, Tsingtao began its formal partnership with US-based Anheuser-Busch, one of the world's largest breweries. Since then, Anheuser-Busch has increased its stake in Tsingtao from 5% to almost 30%. Tsingtao is providing Anheuser- Busch with a production base and sales network in the Chinese market. The Chinese government owns around 31% of the company. The sales volume of beer produced by the company reached 5.05 million tons in 2007, of which 1.93 million tons are represented by its main brand   Tsingtao ±. Tsingdao Brewery currently accounts for about 13% of total amount of beer produced in China. Financial Performance Tsingtao Beer's operating revenue for its main business maintained an annualized increase of 26.7% during the past decade from 1998 to 2007, with record growth of 54% in 2000 and the lowest of 8.2% in The company's gross profit has had an average annual increase of 19.4% in the past eight years, with record growth of 106.6% in 2002, and the lowest of 2.5% in The large profit increase in 2002 to $47.1 million was due to changes in the company's product strategy that led to improvements in production output and sales volume. At the end of 2002 the company signed an agreement with Anheuser-Busch for a partnership starting in Although this alliance contributed to the overall improvement in technologies, management and product quality, Tsingtao's revenues and gross profits increased much slower in the following years, being vulnerable to the negative effects of the SARS outbreak in 2003, and greater competition in subsequent years. The company readjusted its product strategy in 2006, emphasizing product quality and technology improvements, and earned several national awards for high quality products. Tsingtao's brand reputation also improved, and this led to strong growth in production output and sales volumes of part of the company's subsidiaries. Beer sales of the company are mainly based in Shandong Province and South China. Although Tsingtao Brewery has been making greater efforts to increase its market share in Beijing and Tianjin in recent years, limited progress has been achieved as markets in these two cities are dominated by Yanjing and Snow respectively. As a sponsor for the 2008 Beijing Olympic Games, sales revenue of Tsingtao Brewery is expected to grow much faster than the industry as a whole and its market share is expected to rise to 15% in 2008 from 14% in Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 24

25 Tsingtao Brewery Pty Ltd Financial Performance to 2008 Million Dollars Operating Revenue Percent Growth Million Dollars Gross Profit Percent Growth Million Dollars Total Assets KEY COMPETITORS Percent Growth N/C 15.9 N/C N/C % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % Source: Annual Report Note: 2008 data are ACMR-IBISWorld estimates Beijing Yanjing Beer Group Company Brand/Trading Name(s): Yanjing Beer Market Share: 10.3% Yanjing Company was first established in 1980 and became Yanjing Group later in Yanjing has become one of the largest beer manufacturers in China since it began operations 25 years ago. Yanjing Group has tangible assets of $1.2 billion, and Yanjing brand is valued at $1.39 billion. The company's other two brands "Huiquan" and "Liquan" are valued at $273.3 million and $234.4 million, respectively. The group has a sales network of 28 branches, with 20 of these being company-owned. Yanjing Group's total beer sales volume reached 3.84 million tons in 2007, up 15.3% from Sales revenue of Yanjing Group increased strongly in the past five years due to rapidly growing production capacity as well as the upgrade of the product mix. The share of sales revenue contributed by middle and high-end beer grew from about 20% in 2002 to roughly 31% in This is also reflected in growing profitability of the company in recent years. Yanjing beer is dominant in Beijing and Guangxi, in which the company occupies market share of 80%. Three other major domestic markets include Inner Mongolia, Fujian and Hubei. Sales in Guangdong and Zhejiang have also experienced considerable growth in recent years. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 25

26 Financial Performance of Beijing Yanjing Beer Group to 2008 Million Dollars Revenue Percent Growth Million Dollars Gross Profit Percent Growth Million Dollars Total Assets KEY COMPETITORS Percent Growth N/C 41.5 N/C N/C % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % Source: Annual Report Note: 2008 data are ACMR-IBISWorld estimates Guangzhou Zhujiang Beer Co., Ltd. Market Share: 1.6% Guangzhou Zhujiang Beer Co., Ltd, established in 1985, manufactures beer and its related products such as labels, cartons, crates, etc. At the end of 2002, the company formed an alliance with Interbrew SA of Belgium and established Guangzhou Zhuajiang Brewery Joint-stock Co., Ltd, among which, Guangzhou Zhujiang Beer Co., Ltd held 60% of stocks and Interbrew held 24%. Other Guangzhou-based firms also held stocks. The products of Guangzhou Zhujiang Beer mainly include draft beer, non-alcohol beer, and other beers. In 2006, Guangzhou Zhujiang Beer Co., Ltd's sales revenue increased to $331.6 million, up 6.4% from 2005, and accounting for 1.6% of the market. Its total assets increased 23.1% to $336.8 million in the same year and total profit recorded $32.0 million. Financial Performance of Guangzhou Zhujiang Beer Co., Ltd to 2006 Million Dollars Revenue Percent Growth Million Dollars Total Assets Percent Growth Million Dollars Total Profit Percent Growth N/C N/C 30.2 N/C % % % % % % Source: ACMR-IBISWorld Database Budweiser (Wuhan) International Beer Co Ltd Market Share: 1.5% Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 26

27 KEY COMPETITORS Budweiser (Wuhan) International Brewing Co., Ltd is the investment enterprise by Anheuser-Busch Company of the US and started production in Anheuser-Busch Company holds 85% of the stock. It is located in Wuhan with eight departments including production, administration, finance, logistics, projects, quality control, sales, etc. The investment is more than $170 million. Annual production reached 250,000 tons in Anheuser-Busch became one of the first international beer makers in China when the company bought the Wuhan brewery in Since then, Wuhan's beer production has more than quadrupled to around 4 million barrels per year. Locally-produced Budweiser and Harbin brands are distributed to clients in Hong Kong as well as in northern, eastern and southern China. In 2004, Anheuser-Busch also acquired China's fifth-largest brewer, Harbin, in northern China where per capita beer consumption is double China's national average. The company launched Harbin as an imported brand in the US in In 2006, sales revenue of Budweiser increased 18.9% to $310.2 million and total assets increased 17.1% to $306.2 million. The fast expansion was due to its merger of small beer manufacturers. Financial Performance of Budweiser (Wuhan) International Brewing Co., Ltd from 2004 to 2006 year Million Dollars Sales Revenue Percent Growth Million Dollars total asset Percent Growth Million Dollars total profit Percent Growth N/C N/C 35.3 N/C % % % % % % Source: ACMR-IBISWorld Database OTHER PLAYERS Fujian Sedrin Brewery Company Fujian Sedrin Brewery Company, located on the east coast of Fujian Province, was established in With total assets over $1.1 billion, the company sold more than 720,000 tons of beer in After the 2003 acquisition of the company by Sedrin Group, the Inbev Group of the UK bought 39.5% of the company in January Fujian Sedrin Brewery Company has developed strongly in recent years. Sales revenue from beer products increased by 21.6% to $189.3 million in 2005, from strong demand and the launch of new beer products. In 2006, sales revenue recorded $193.8 million. The company's profit from beer products reached $35.7 million in 2004, up by 18.6% from 2003 as the company benefited from high pricing levels. Total profits increased by 14.8% in 2005 to $41.0 million and in 2006 to $45.9 million. The company also expanded into Hubei province in 2006 with the establishment of another beer manufacturing facility, which will increase its presence in East China and Middle South China. The investment by Inbev Group in 2006 is expected to lead to further development and expansion of the company in future years. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 27

28 Financial Performance of Fujian Sedrin Brewery Company to 2006 Million Dollars Sales revenue Percent Growth Million Dollars Total asset Percent Growth Million Dollars Total profit KEY COMPETITORS Percent Growth N/C N/C 30.1 N/C % % % % % % % % % Source: ACMR-IBISWorld Database Shenzhen Kingway Brewery Co Ltd The Kingway beer brand is owned by Kingway Brewery Holdings Limited (formerly Guangdong Brewery Holdings Limited), a listed company in Hong Kong. Kingway owns seven modern breweries in Shenzhen, Shan Tou, Dongguan, Tianjin, Xian and Chengdu. In January 2004, international brewery Heineken became a partner of Kingway and held a 21% share of the company. Kingway now has more than 1,900 employees. Revenue of Shenzhen Kingway increased 4.3% to $156.6 million in Total assets and total profits increased 3.0% and 10.0%, respectively, during the year. Financial Performance of Shenzhen Kingway Brewery Co, Ltd and 2006 Million Dollars Revenue Percent Growth Million Dollars Total Assets Percent Growth Million Dollars Total Profit Percent Growth N/C 98.0 N/C 5.0 N/C % % % Source: ACMR-IBISWorld Database Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 28

29 INDUSTRY PERFORMANCE Industry Performance CURRENT PERFORMANCE During the current performance period during 2003 to 2008, the Beer Manufacturing Industry in China has undergone significant change and steady growth. High levels of foreign investment and greater numbers of joint ventures with foreign firms have led to solid growth in technological investment and higher output levels. Between 2003 and 2008, industry revenue increased from $8.56 billion to $13.91 billion, while value added increased from $3.64 billion to $5.77 billion (constant 2007 dollars). These represent annualized increases of 10.2% and 9.6%, respectively. Beer Consumption in China China has the largest market for beer consumption in the world with its population of 1.3 billion people. The market has strong prospects with its large population and potential for future growth from its current low per capita consumption level. The average per capita beer consumption reached about 30.6 liters in However, the beer consumption level in western and central regions in China was only 10 liters (compared to 5 liters per person in 2003) due to the lower overall economic development and income levels there. Compared to international levels of around 60 liters per year, China's consumption is quite low, and indicates the significant potential for the domestic market in the years ahead. The adult per capita beer consumption has increased at a steady annualized rate of 8.7% in the period from 2000 to 2007 (see table below). In the first two years to 2003 the per capita consumption rate increased modestly by 5.0% and 5.8%. However, per capita consumption increased strongly in the following years to 2007 by between 9.5% and 12.7% as beer demand grew. This was probably due to tariffs reduction after China's entry in WTO in 2001, changing consumption habits and the temporarily substitution effect from other external competitors (such as wine) to this industry. Consumption preferences recovered quickly in the following few years and per capita demand continued its strong growth in the second phase of the period. During the past five years, the Chinese Beer Manufacturing Industry has expanded more than beer markets in Europe, North America and South America combined. Chinese per-capita beer consumption is only 50% of that in Japan and Korea, and only 20% of that in developed countries like the US and Canada. Drinking trends and perceptions have been changing in China in recent years, and an increasing proportion of the Chinese population prefers beer rather than high alcohol-content drinks. Adult per capita consumption reached 30.6 liters in 2007, up 11.3% from 2006, being the second highest growth rate in the period from 2000 to This growth was driven by several factors, including: increased income levels, greater advertising of beer by the manufacturers, preferential shift towards beer by consumers, and fierce competition that kept prices steady. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 29

30 INDUSTRY PERFORMANCE Adult Per Capita Consumption (PCC) of Beer in China from 2000 to 2007 Litres Year Consumption Percent Growth N/C % % % % % % % Source: National Bureau of Statistics China Note: 2000 and 2004 data are ACMR-IBISWorld estimates Total beer consumption has steadily increased in the period from 2001 to 2007 (see table below), with growth levels increasing from 5.6% in 2002 to 11.7% in The main drivers for this growth were income increases, increases in per capita beer consumption and population growth. The total consumption of beer has jumped from 22.0 million tons in 2000 to 39.1 million tons in 2007, increasing at an annualized rate of 8.7%. Guangdong, Shandong, Zhejiang, Henan, Heilongjiang and Liaoning accounted for more than 2 million tons each. Total Beer Consumption in China from 2000 to 2007 Million Tons Year Consumption Percent Growth N/C % % % % % % % Source: National Bureau of Statistics China Beer Output in China Beer output has risen at an annualized growth rate of 8.7% from 2000 to 2007 (see table below). Beer production varies from consumption, as there is an adjustment made for exports and imports. Beer output showed the lowest rise in 2002, up 3.0%. The industry has steadily increased in the period from 2000 to 2007 as demand and income levels have steadily increased. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 30

31 INDUSTRY PERFORMANCE Beer Production in China to 2007 Million Tons Year Production Percent Growth N/C % % % % % % % Source: National Bureau of Statistics China Despite slow growth towards the end of 2001 and in 2002, the industry recovered in the following years along with the domestic economy. China's entry into WTO also meant that main beer manufacturers started purchasing advanced foreign equipment and improving production technologies and management skills. This resulted in faster growth of 7.2% in production output in 2003, despite the negative effect caused by the SARS outbreak in the first half of the year. Foreign investment increased in 2003, as did the level of competition. Prices of raw materials climbed in the meantime and created cost pressures for beer manufacturers. The overall China economy entered a strong development phase in 2003 and 2004, which created a favorable environment for many sectors, including beer manufacturing. Stimulated by faster growth in per capita disposable incomes, per capita and total beer consumption, as well as technological improvements, equipment upgrades and the world cup held in 2006, production output grew to 35.2 million liters in 2006, up 10.3% from the previous year, which was the second highest increasing rate from 1998 to Market entries from foreign competitors in the form of direct investment as well as capital investments after 2002 and 2003 attributed to the production expansion of domestic players and accelerated industry growth. The competitive landscape experienced dynamic changes and industry concentration levels increased. The top 10 manufacturers accounted for 55% of the total market in 2004, which is up considerably from the market share of 42.9% in Yanjing Beer, Tsingtao Beer, and Snow Beer emerged as the three largest manufacturers in the country over the past five years through a series of acquisitions and the further construction of production facilities. The market has high barriers to entry and many regional governments have set up restrictions to limit new entrants. Regional monopolies are quite characteristic for this industry, although changes are being made with the establishment of integrated markets at the national level. Competition between companies within the industry has intensified in the past five years with the market entry of foreign capital, greater market integration and the large number of mergers and acquisitions. The process of mergers and acquisitions within the industry has quickened, and industry participants have established new production facilities in provinces or markets where they were unable to acquire a local manufacturer. This resulted in significant oversupply in 2005 with a slowdown in output growth for the year. Additional challenges include fluctuations in external demand from overseas markets, resulting in large variations in export growth in recent years. Imports and Exports Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 31

32 INDUSTRY PERFORMANCE Competing imports account for a very small proportion of domestic demand and reached only $26.7 million (constant 2007 dollars), or 0.2% of domestic demand, in The imported value of beer products has decreased at a negative average rate of 15.9% over the past five years, with the largest decline of 37.4% in This indicates the improvements in domestic manufacturing capacity and technology, with the replacement of imports with locally manufactured products. This replacement, however, does not mean replacement of foreign brands by local brands, as the share of foreign brands manufactured in China is increasing. The decreasing proportion of imports in domestic demand reflects the production localization of foreign manufacturers in China. The industry's exports experienced dynamic changes during the 2003 to 2008 period with exports decreasing in 2004 and 2005, while rebounding a respective 15.4% and 13.8% in 2006 and The recent declines were due to the many mergers and acquisition that took place in these years, with efforts of market participants concentrated on the development of the domestic market rather than the international one. Exports increased at an annualized rate of 3.1% for the period from 2003 to 2008 and are expected to continue increasing steadily in the near future as mergers in the industry continue. Reasons for this will again be the stabilization of the domestic market, as well as improvements in production capacity, technology and quality of locally manufactured beer products. HISTORICAL PERFORMANCE The Beer Manufacturing Industry existed about 100 years ago in China, although it was very small and underdeveloped in the first half of this period. The industry's main development phase started in the middle of the 1950s, and has since passed through four periods of industry development. Each of these is described in brief: The first period was the longest one and lasted over 25 years from 1953 to It is further divided into two subperiods, each lasting around a decade - an adjustment phase from 1953 to 1962 and a development phase from 1962 to Many new companies were established and beer output increased at an average rate of 38% a year. Output growth sped up in the second part of the period and even reached 40% for the years from 1963 to Beer output was 400,000 ton in The second period started after 1979 and is characterized with intensive industry growth when manufacturing facilities were established across all China regions, except for Tibet. Total beer output reached 688,000 ton in After this, the Chinese beer industry entered into a high-speed development phase. The number of production facilities quickly increased, while established facilities increased their production capacity. The industry started importing new equipment with better technology from abroad. Beer output reached 6.54 million ton by the mid-1990s. In the past 10 years the Beer Manufacturing Industry in China entered its mature phase of development. The scale of the industry grew steadily and larger companies acquired small ones. Foreign investment levels also started to increase during this time. By 1998, industry revenue had reached $6.80 billion (constant 2007 dollars). This increased to $8.56 billion in 2003, which was an annualized increase of 4.7%. This relatively slow growth was due to weaker economic conditions in China during these years, as well as lower demand for beer than in the years to follow. Value added increased from $2.67 billion in 1998 to $3.64 billion in This stronger annualized growth of 6.4% was the result of strong pricing levels and low raw material costs that boosted profitability. The following table shows slower growth in consumption and outlook of the industry's products in the 1998 to 2002 period. This was due to the underdevelopment of the industry in these years, as well as lower technology levels and weaker domestic demand. Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 32

33 INDUSTRY PERFORMANCE Adult Per Capita Consumption (PCC), Total Beer Consumption and Beer Production in China to 2002 Year Litres Adult PCC Percent Growth Million Tons Consumption Percent Growth Million Tons Production Percent Growth N/C 19.9 N/C 20.6 N/C % % % % % % % % % % % % Source: National Bureau of Statistics China Note: Adult PCC for 2000 is an ACMR-IBISWorld estimate Revenue (constant prices) Revenue $ US Million Growth % ,797.5 N/A , , , , , , , , , , Revenue Revenue Growth Rate Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 33

34 INDUSTRY PERFORMANCE Gross Product (constant prices) Gross Product $ US Million Growth % ,667.8 N/A , , , , , , , , , , Gross Product Gross Product Growth Rate Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 34

35 OUTLOOK Outlook Revenue (constant prices) Revenue $ US Million Growth % , , , , , , Revenue Revenue Growth Rate Gross Product (constant prices) Gross Product $ US Million Growth % , , , , , , Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 35

36 OUTLOOK Gross Product Gross Product Growth Rate ACMR-IBISWorld forecasts that the Beer Manufacturing Industry in China will experience milder growth in the next five years with increasing industry output and revenue. This is expected to be driven by strong demand determinants and large market potential. Chinese people are changing their drinking habits with declining preferences for the consumption of high-alcohol drinks and spirits, and at the same time increasing beer consumption. The Chinese government will continue to encourage exports and beer output growth is expected to be driven by both domestic and foreign demand. The Beer Manufacturing Industry in China will enter into a new development phase in the next five to 10 years with higher industry concentration levels and more rationalized production. The competition will further intensify and focus on improving sales and gaining market share. From 2008 to 2013, ACMR-IBISWorld estimates that industry revenue will increase at an annualized rate of 8.1%, from $13.91 billion to $20.51 billion. Value added is expected to increase from $5.77 billion to $9.39 billion during the same period. This represents an annualized increase of 10.2%. A higher level of profitability is expected in the outlook period as competition mitigates due to the growing dominance of industry leaders. The industry is expected to experience its fastest growth in 2008, which will be driven by strong demand associated with the Beijing Olympics. Both per capita and total beer consumption are expected to increase in this year. Industry revenue is forecast to reach $14.17 billion in This strong growth will be due to expected improvements in profits driven by greater demand for high-end products, and final pricing increases in specific market segments. Beer products will become more diversified and new products will come onto the market. The traditional beer products will remain as the mainstream, but there is expected to be a trend towards product specialization and individualization. New products expected to satisfy niche markets in consumer markets in China include low-alcohol beer, alcohol-free beer, ciders, stouts, etc. Industry concentration will increase in the future. The top three market leaders will continue improving their market positions and brand value. The competition situation of the national beer industry will change from scale competition to brand competition, and the market share will concentrate towards only a handful of brands in the future. In addition, the Copyright 2008, IBISWorld Inc., All China Marketing Research Co., Ltd. 36