China has its own mass-production breweries who sell 88% of the country’s beer. These products are fine for drinkers who don’t want to dwell on the complexities of flavour, but there is still that premium 12% of the non-mainstream market for domestic and international companies to supply, and the segment is growing fast.
Last year, China’s beer consumption was roughly double that of the United States, according to research by Euromonitor, and it is forecast to grow in double figures up to the end of this decade. While China has traditionally lagged behind other countries in value sales, bigger salaries mean that consumers can now splash out on premium beer imports in staggering numbers.
As craft brewers, we sense a trend is developing there whereby more and more beer drinkers are willing to pay a little bit extra for something they can enjoy—something that stands out from the pack, like speciality ales or wine.
I think if you draw a comparison to how the wine industry has grown its market into China, the first entry of wine was fairly basic and then it became more complex, more developed. Wine importers were forced to educate consumers to increase their margins, and I think craft beer is very much aligned to that.
The Asian consumer is crying out to be educated on why we in Australia are enjoying so much craft beer because they want to share in that. And their economy is allowing them to do so.
I recently met with someone heavily involved in the brewing industry in China. With his connections in Hong Kong, he sees potential for Balmain Brewing Company to enter the market there with our pilsner, pale ale, award-winning bock and soon-to-be-released summer ale. We hope to have an agreement in place in time for the Chinese new year.
As we know, there are a lot of expats in Hong Kong, and a lot of people looking for alternatives to the regular, mass produced beers that are widely available. It’s also a gateway to China.
I think if we can be successful in Hong Kong, which is only just over the road from the wider Chinese market, this trend towards craft beers can catch on with the right marketing.
The Chinese market isn’t one where you want to go full steam ahead until you find you aren’t capable of meeting demand. It’s a gently-gently process: going into Hong Kong, getting access along with some understanding of what that market is looking for, and then stepping over the border into China and developing the brand through local companies.
You also have to hold the consumers’ hands and walk them through the joys of craft beer so they understand the culture behind it and the methodology of Australian small-batch brewing. It’s all about the ingredients, the taste, the volume; we want them to embrace the “drink less, drink better” theme that we preach for our beers. All this is very much a part of the strategy.
With anything, though, there is always an element of gut feeling, but there is also some science behind it. From talking to a lot of people based in that region, including expats, we are getting valuable feedback. Also, a large number of expat Chinese in Australia are currently engaging in our craft beer culture, and you can see it from those people that this would work in their former country.
If Balmain, for instance, is seen in a key location like Hong Kong, and then over the border in Shanghai or some of those big-end markets, the locals will engage that brand. Our bottles get seen as trendy, cool, and more importantly they draws in drinkers to indulge in all those wonderful flavours.
Balmain is a small player, and craft beer is a small market, and there is a real possibility that we will see our main growth coming from overseas to the point that international sales might exceed domestic demand.
Therefore the available capacity in Australia to brew large volumes to meet the overseas demand is something we are desperately working on. We are expanding, and the facilities we use to brew our beers also have to grow in volume, especially as mainstream companies will not brew our beers.
We have to rely on our own brew houses or contract brewers who are investing many millions of dollars to build new, state-of-the-art brewhouses to make small-batch beers to our recipes.
These contract brewers are starting a new market segment in this regard, which is good for the industry as it is so important for craft brand owners to have facilities where their beer can be brewed as often as they need to while growing their names.
If we are limited by available production capacity, we can’t grow. In our case, when there are opportunities to take our product overseas, we have to gear up now to meet that demand, and we have to look at this at least 12 months in advance.
It’s nice to enter a market with real potential, but I always remember the saying that you always have to be careful about what you ask for. If we are successful, as we believe we will be in greater China, the demand can cause all sorts of problems. We must be sure in our planning that we have the ability to meet fast-paced growth very quickly.