E-Malt.com News article: China: Premiumisation set to transform China’s high-volume but low-profit beer market - analysts
China’s high-volume, low-profit beer market is set to be transformed, with increased “premiumisation” providing opportunities for imported and licensed foreign beer brands, says Rabobank.
In a new report on the Chinese beer market, the Dutch bank’s analysts claim that the world’s biggest beer market suffers from relatively low profitability, though this will change through increasing consolidation and an influx of premium products will provide a platform for profit growth.
To grasp opportunities, the bank suggests that local brewers could consolidate the mainstream beer segment or expand their super-premium portfolios by importing beers or licensing overseas brands.
Meanwhile, exporters from countries with strong beer cultures would be most likely to succeed in China by forging partnerships with local brewers, says Rabobank, adding that global brewers with international brands could either enter the Chinese market quickly through a partnership with a Chinese brewer with distribution power, or through a greenfield operation.
According to the report, China has been the main driver of growth in global beer consumption, accounting for more than half of total volume increases. However, the profitability of beer in China is relatively low due to two important reasons.
“First, the Chinese market is very fragmented, resulting in fierce price competition among brewers and low levels of selling power,” said Francois Sonneville, who authored the report.
“Secondly, the Chinese beer market is dominated by mainstream beer, which has a much lower profitability than premium or super-premium beer.”
While volume growth has started to slow, and even showed a decline over the past five quarters, growth in profitability per hectolitre has accelerated over the past two years.
Rabobank estimates that the profit pool has grown from US$1 bln to US$1.6 bln over the past six years, and will rise further as consolidation and premiumisation continue.
“The premium and super-premium segments in China are small in volume, but much more significant in profit terms. A premiumisation strategy can be successful for both Chinese and foreign brewers,” added Sonneville.
03 February, 2016