Implementing Partners

The imported and craft market in

1 A project financed by the European Union Today’s speaker

Contact Bio

• Director of Eibens Consulting • Living and working in China since 2005 • Strong focus on food and beverage import and distribution processes and trade barriers Pablo Recio Gracia • Previously worked for public agencies including ICEX (Spanish Institute for Foreign Trade) and Extenda (Trade [email protected] Promotion Agency of Andalusia) as well as private companies • Bachelor in Business from the Pablo Recio Gracia University and Granada and Masters in Quality Management and Business www.eibens.com Internationalisation

2 Agenda

• The alcoholic market • Retail channels

• Market segmentation • Case studies

• Regulatory environment • Opportunities and next steps

• Market size

• Geographical distribution

• Main players

• Consumer 3 The Alcoholic Drinks Market The alcoholic drinks market

bl litres 250 Trends Other - World Spirits - World

• The volume of the Chinese beer Spirit market is stagnating 200

Wine - World Wine

• China’s consumption per capita is comparable to the world’s average 150 BEER – Other – 76.1 • This average and China’s enormous population makes it the largest beer

100 Beer market in the world BEER - – 8.4 BEER - Russia – 8.6 BEER - – 12.0

• It is twice the size of the US beer BEER - USA – 24.1 50 market in volume

BEER- China – 45.7 0 Alcoholic drinks market overview

Breakdown Alcohol Market China by Volume

70000 60000 50000 40000 30000

Million liters Million 20000 10000 0 2010 2011 2012 2013 2014 2015 2016 2017

Cider, Perry and Wine Wine Spirits Beer Source: Statista, 2018 Breakdown Alcohol Market China by Revenue 300,000 250,000 200,000 150,000

100,000 Million USD Million 50,000 0 2010 2011 2012 2013 2014 2015 2016 2017 Cider, Perry and Rice Wine Wine Spirits Beer Source: Statista, 2018 6 Market Segmentation Market segmentation

Instead of the commonly used Standard, Premium and Super-Premium segmentation for beer markets, we have used a different one that represents in a more accurate way the Chinese market.

We have divided the market into 3 segments: • Mass-consumed Chinese beer • Leisure beer • Craft beer and foreign brands on tap

8 Some example graphics

1 Mass-consumed Chinese beer

2 Leisure beer

3 Craft beer and foreign brands on tap

1 2 3

9 Market segmentation

Mass-consumed Chinese beer

• Chinese brands domestically brewed. • Low-priced – Beginning at circa 1.0 Euro per liter* both in foodservice and retail. • 600 ml returnable bottles the most common format in foodservice. 330 ml and 500 ml cans in retail. • Consumed by people across all income levels, everywhere in China • Homogeneous pale with low alcohol percentage (around 3%) • Largest brands: , Tsingtao, Yanjing and • Mature market, decreasing 3% annually for the last 3 years • Consumed along with meals *EU SME Centre research 10 Market segmentation

Leisure beer

• Foreign brands, domestically and internationally brewed • High-price – Price on average 12.6 Euro per litre* in bars • Served in 330 ml bottles, or 500 ml if produced abroad (e.g. Franziskaner) • Consumed by urban and high-income consumers • Consumed mostly in T1 and T2 cities • All sorts of beer types • Many brands competing in this segment • Growing market. Largest part of the import total that grew 38% in 2017 corresponds to this segment. • Stand-alone consumption or with finger food, at home and bars

*EU SME Centre research 11 Market segmentation

Craft and foreign beer on tap

• Domestically and internationally brewed • Very high-prices – 13.8 Euro average per litre in bars* • Typically served in 400-500 ml glass • Consumed by urban, young, high-income consumers • Mostly T1, then T2 • Many different beer types, though prevail • There are few options yet, more widely available are acquired and distributed by AB InBev • Market is growing exponentially • Consumed either with Western-style meals or stand-alone.

*EU SME Centre research 12 Market segmentation

Craft Craft ~0.1% ~0.4%

Leisure Leisure ~10%

Mass ~35%

Mass

~ 90%

~65%

Volume Value 13 Market size The beer market trends in China

Beer production and import volume in China

52000 10%

8% 8% 184 8% 50000 338 49830 5% 64 49360 6% 111 4% 48000 48350 538 47790 4% 47160 46000 646 2% 47

0% Millionliters 0% 44900 44000 45060

-1% -1% -2%

42000 41 28 -4% -4% -4% 41570 41620

40000 -6% 2008 2009 2010 2011 2012 2013 2014 2015 2016

Domestic Production Import volume Growth YOY Production

Source: National Bureau of Statistics of China, 2016. China Customs, 2018 15 Imported beer

Beer import China volume and value 800 90% 84% 750.4 700 80% 76% 716.2 665.7 646.4 70% 600 67% 59% 61% 575.1 60% 500 538.3 50% 400 407 41% 40% 300 337.8 30%

200 231.5 20% 20% 183.7 16% 13% 100 10% 11%

0 0% 2013 2014 2015 2016 2017

Volume (x1000 hl) Value (millions USD) Growth Volume YOY Growth Value YOY

Source: China-customs, 2018 16 Imported beer by country

TOTAL 2203

Imported Beer by country in Value (million USD) in 2017

0.0 50.0 100.0 150.0 200.0 250.0

Germany 209.5

Mexico 110.7

Belgium 69.7

Netherlands 65.9

Portugal 63.4

Spain 51.7

Korea, Rep. 49.8

France 40.7

United Kingdom 25.8 More than 70% of total import comes from Europe Russia 12.8

United States 9.2

Others 41.2

Source: China Customs, 2018 17 Beer imports. Average CIF prices per country

TOTAL 2203

Source: China Customs, 2018 18 Craft beer share

Craft share of total beer market 35 0.07%

30 0.06%

25 0.05%

20 0.04%

15 0.03%

10 0.02%

5 0.01%

0 0.00% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Volume Craft share (%)

Source:Rabobank Canadean, 2016

19 Number of Microbreweries in China

Craft is still small Microbreweries and Brewpubs

• Number of registerd Microbreweries and Brewpubs is circa 80 in 2017 Registered Microbreweries and Brewpubs in China 90 • These breweries combined have a 80 beer count of circa 750 70 60 50

Jing-A Co. 40 Breweries 30 20 Arrow Factory Brewing 10 0 Co. 2010 2011 2012 2013 2014 2015 2016 2017 Registerd Microbreweries

Boxing Cat Brewery Source: Numbers retrieved from Ratebeer, 2018

20 Geographical distribution Geographical distribution

Geographical distribution of beer production in 2017 by quantity

Source: National Bureau of Statistics of China, 2016 22 Geographical distribution

Geographical distribution of imports in 2017 by quantity

Source: China Customs, 2017 data, retrieved in 2018 23 Geographical distribution

Geographical distribution of breweries by beer count

Source: Ratebeer, 2018 24 Main players Main players

Source: Euromonitor, 2015

26 Main brands

Franziskaner Corona Hoegaarden Oranjeboom Tagus Estrella damm Cass Brewdog Kronenbourg Baltika KBC

Erdinger Leffe La Trappe Superbock Lost coast Brooklyn

Wurenbacher Chimay Rogue

Oettinger La Chouffe

Heineken Tiger Paulaner Budweiser Goose Island Stella Artois Asahi Liefmans

Kronenbourg Carlsberg Vedett

Duvel

Available on Tap Duvel Moortgat AB-Inbev

Heineken International Available in Bottle/Can

27 Consumer Chinese consumer - Foreign or Local brands

• Consumer trends are fast changing and worth checking in a separate event

• For beer. The percentage that prefers an imported brand over a domestic brand is in line with the share of Leisure and Craft beer

• Chinese preference for imported beer is concentrated but expanding Preference local or foreign brands

Wine 24% 28% 22% 26%

Beer 8% 7% 35% 50%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Prefer Foreign Brands Somewhat prefer foreign brands Somewhat prefer local brands Prefer local brands Source: Mckinsey China 2017 consumer report

29 Retail Channels Retail channels

Convenience stores They typically cater the mass-consumed and leisure segment. This channel is getting more popular and complements the changing working environment. Beers are often more expensive than in other retail channels and there is a larger proportion of canned beer.

Traditional convenience stores Offering only mass-consumed beer, most commonly in 600 ml returnable bottles. Very low price, circa 1 EUR/litre. This channel is quickly disappearing in T1 cities.

31 Retail channels

Supermarkets and Hypermarkets They all have several options in the mass-consumed segment. Variety of their imported beer portfolio depends on their size, prices are standardised.

Local Chinese Supermarket Wal-Mart 32 Retail channels

E-commerce There are several generalist platforms (JD.com, YHD or Tmall) and some vertical platforms (jiuxian, ichinabeer.com, among others) offering a huge selection of beer, both domestic (competing in price) and imported (competing in price and variety).

33 Retail channels

Hotels Chinese hotels tend to have mass-consumed beer since they are served with meals in a Chinese-style restaurant, normally they have no bars. Foreign chains are usually five-star hotels with several restaurants and bars, with a selection of imported beer as good as any from a bar downtown. Restaurants Traditional Chinese restaurants will only serve mass- consumed Chinese beer in bottles of 600 ml. Western- style restaurants and bars have a wider selection, since they are not as food-centered as Chinese restaurants.

34 Retail channels

Others (Bars, clubs, KTVs) They usually have domestic produced beer and some foreign brands, almost always in bottles. Those located in T1 city will display a wider offer of foreign brands, while those in smaller cities will limit their selection mostly to domestically brewed foreign brands (Budweiser, Carlsberg, Heineken…). Bars with wide selection of beer on tap and Microbreweries Growing exponentially in the last few years, especially in T1 but also in T2. Western-style food is a central part of the offer. There is little perceived difference between bars with a lot of beers on tap and microbreweries from the consumer’s point of view.

35 Case Studies Case studies – Local Craft

Pictures Panda brew came from a tiny room in Beijing and now owns 8 fermenters, a terrace and food accompanying the beers. They are even exporting their beer to the UK.

37 Case Studies – import craft

Pictures Brewdog the successful craft beer international from the UK. Sold 20.000 hl in China in 2017. Looking for opening a craft beer brewery in China and see it as their most important export market

38 Case Studies – Import leisure

Corona is owned by Ab Inbev and brewed in Mexico, from there it is shipped all over the world. Making Mexico the largest beer exporter in the world. The Corona brand is really popular in China.

39 Opportunities and next steps Opportunities for EU SME’s

Narrow product offering among local players

More sophisticated consumer, higher income

Leads to a gap between the needs of a growing consumer base and the domestic production. This gap is filled by imports and domestically brewed craft beer, that is limited to draft consumption due to stringent requirements to bottle .

Unlike in mature markets such as Europe or USA, the craft segment is still in its early stages.

Opportunity for EU SMEs 41 Next steps and key takeaways

• Beer market in China is targeted worldwide Pictures • Exporters normally do not make enough an effort to understand and addapt. Avoid “first doing and then evaluating”

• Getting a first sale is easier than establishing long term agreements

• New technologies complicated multi distributor strategy

• Simple but effective marketing can make a big difference

• On the ground support can also be very relevant

• Different options to find partners in China 42 Events

• China Food and Drinks Fair 2018 (2019) • March 22-24th • Chengdu • Largest food and beverage event • http://www.cfdf.org/ • SIAL China 2018 • May 17-19th • • http://www.sialchina.com/ • Craft Beer China Conference & Exhibition 2018 (CBCE 2018) • Shanghai • 15-18th of May • Most important event for craft beer • http://www.cbcechina.com/en/ • China brew and beverage 2018 • Oct 23-26Th • Shanghai • Focus on Wine, Spirits and Beer • http://www.chinabrew-beverage.com/english/ 43 44

Get Ready for China

www.eusmecentre.org.cn