Insights | China beer industry collective price hikes, Yanjing gave three reasons
Editor: Communications Department
On the 1st of January 2018, Qingdao, Snowbeer, Yanjing and many other beer companies simultaneously increased the price of their products. For the first time ever, the beer industry is seeing a collective price hike. What is the reason for this?
For some time, several beer companies have been raising the issues of the rising costs of raw materials, labour, packaging. Yanjing Beer shed some light on three other reasons for this price hike:
Firstly, the current retail price of beer is low;
Secondly, consumers are less sensitive to the price of beer compared to other products;
Finally, with the increasing concentration ratio of industry, the influence of big business will get stronger.
In recent years, both the instant noodle and beer industry have been seen a sluggish decline, but in the first half of 2017, several beer company giants like Qingdao, Snowbeer and Yanjing, reported double growth in revenue and profit.
Yanjing said that the future of the Chinese beer industry has a lot of room for consumer growth, particularly in the central and western regions of China. According to Guosen's data research the average Chinese person drinks 35.77 litres, whereas in the USA and Japan it stands at 74.59 litres/person and 47.69 litres/person respectively.
The ‘green bottle’ has had a market price of ¥3.00 for over 10 years; you can even find ads like "meals with unlimited beer" in most restaurants. Due to its low cost, consumers are led to believe that the drink is not of high quality, which for many years has damaged the beer’s image. Additionally, beer companies have suffered lower profit margins because of its low pricing.
According to the "Analysis of Concentration and Profitability of China's Beer Industry in 2017", the tonnage of Chinese beer produced is only about half of the world's mainstream. Yanjing has a tonnage of 2,413 yuan/ton and Tsingtao that of 3,260 yuan/ton. In contrast, Carlsberg tonne price is 5254 yuan/ton, and ABInbev recently reached 6383 yuan/ton.
For domestic beer companies, raising prices to transform to high-end products is an important way to enhance profitability. Alongside this, contemporary trends show that consumers are demanding for diversification and high-end and personalized products. Consumers are less sensitive to price and they are willing spend more on high-quality products. SUN Mingbo, chairman of Qingdao, said that in the past the large distribution channel was a key player. However, consumers nowadays are more and more powerful, and beer production is gradually changing from large-scale, standardized production more personalized brands and limited varieties.
However, the reason why both Chinese beer giants and smaller companies are working together on this price hike is to promote the upgrading of the entire industry. This is despite the fact that the top 5 beer companies Snowbeer, Qingdao, ABInBev, Yanjing and Carlsberg already accounting for 73.7% market share, where we can see an accelerating industry concentration ratio. In the past, competition in the domestic beer industry mainly relied on who offered the lowest price, but now there is wider price margin, which allows for more benign competition, in mid-to-high end products and against imported brands.
From 2011 to 2016, the sales volume of domestic medium and high-end beers was 4% and 22% respectively, while beer of a lower standard showed a negative growth. MAGI believes that a quality-oriented beer industry will drive the development of middle and high-end products which will gradually replace the low-end products. With "price in second place" and a quality consumption market, has given beer industry a better "quality growth and development" transformation opportunities.
In 2018, the beer industry will see a further re-shuffle.
