Now double the size of its American counterpart, China's beer market is an exciting place to be for international brewers in spite of protectionist controls put in place by its authorities.
This is according to a new study released by Euromonitor, the London-based market research agency, to mark the year when China will assume the role of the world’s biggest economy.
The economic milestone will occur later this year, when China will overtake the US to become the global economic leader in purchase power parity.
According to the white paper: “[This year] is a landmark year for the world economy; one when the dominance of the USA appears to be over as China becomes the world’s largest economy.
“The two countries together account for one in three dollars spent globally, thus a well-researched China strategy, along with a carefully considered USA strategy, is crucial to success.”
While contrasting several key economic and consumer segments in China and the US, the Euromonitor study highlighted the differences between the two countries’ beer markets, and their differing future potential.
The research agency revealed that Chinese consumption was more than double that of the US in 2013, following years of mid-single-digit to low-double-digit volume growth rates.
And while China has traditionally lagged behind in value sales, the country is now anticipating another leapfrog on the back of an anticipated 45% growth to assume the leading position by 2017.
This will be due to a number of factors, including a growing legal drinking age population and increasing affordability.
“When comparing the affordability of a 330ml can or bottle of beer, one observes a converging relationship between the two markets,” wrote Euromonitor analyst Amin Alkhatib.
“This degree of affordability, in hours worked, is primarily derived from rising disposable incomes, which are forecast to grow in double-digit terms over 2013-18.”
Based on the prediction that the legal drinking age population will grow faster in China than in the USA over the next five years, the white paper suggests that Chinese brewers will capture prospective demand that has been dormant for years.
“This will derive from expansion in the consumer base due to demographic and market-related dynamics such as urbanisation and the spread of modern retail channels,” it said.
China is also seeing growing consolidation, compared to the US’s highly consolidated market, where 88% of volume sales came from its top five breweries last year.
“In the USA, saturation in acquisition activity was significantly affected by anti-trust laws and the growth of the craft beer market that slightly reversed the consolidation trend between 2008 and 2013,” said Euromonitor.
“In China, the attractiveness of volume sales growth rates prompted major Chinese and multinational brewers to pursue wider provincial coverage. Exciting prospects for volume sales attracted the biggest brewers in the world to China, with them entering various provincial markets.”
Because of protectionism, whereby the Chinese government will actively apply policies to prevent non-Chinese companies from gaining corporate control, brewers like Carlsberg and SABMiller have been forced to enter and expand in the beer market via strategic alliances or joint-ventures.
For this reason, SABMiller was technically China’s fourth biggest brewer by volume sales in 2013, although it did not register as such because of its 49% minority share in China Resources Enterprise and Snow, the biggest beer brand by volume in China and the world. Carlsberg’s fifth place, meanwhile, comes from its provincial associates and its acquisition of local brewers.
Last year, economy lager accounted for more than four-fifths of overall beer sales in China, compared to just 25% in the US. In the future, though, Euromonitor predicts that increasingly wealthy Chinese consumers will opt to trade up to superior brands, bringing about pricing changes across all segments.
“China’s current prominence in terms of economy lager highlights the significant potential of the premium space, alongside further volume growth in the economy segment,” wrote Alkhatib.
“By 2018, Euromonitor expects economy lager to account for 76% of standard lager volume sales [in China]. Whereas in the USA, slower dynamics will see the premium lager segment grow to a 27% share of standard lager volume sales.”
Although there are opportunities for multinational brewers in China’s premium beer segment, they should not dismiss the continued potential in economy lager, warns Euromonitor.
“With ever increasing affordability both within and beyond urban centres, and with the increasing penetration of retailing channels, global brewers can capture a consumer base in provincial China that was previously beyond their reach.
“As these new consumers’ incomes increase and macroeconomic conditions improve, brewers will also be able to encourage consumers to trade up.”