China’s beer industry has enjoyed impressive growth over the past three decades—ranking first in the world in terms of output in 2010. But despite its achievements, the industry now faces serious challenges, including slowing growth rates and slim profit margins. To break the bottleneck, the industry must look to new growth sources.
Promising strategies to move forward could include introducing high-end products in China’s urban markets and launching low-cost but still high-quality products in rural areas. To make these strategies work, Chinese beer companies will need to strengthen their operations on three fronts: brand positioning, distribution and cost control.
Since 1980, the Chinese beer industry has seen steady escalations in production as well as consumption. Despite its achievements, the industry has encountered several obstacles. For one thing, spectacular growth rates from earlier decades have recently lost steam.
The industry also has meager profit margins, in part because low-end products account for 85 percent of the domestic market. Fluctuations in prices for critical raw materials such as barley and hops; soaring promotion costs aimed at launching higher-end offerings; and relentless price wars have whittled margins to 6.4 percent—3.9 percentage points lower than the industry average. How might Chinese beer companies surmount the obstacles confronting them?