COVID can’t seem to touch China’s beer industry

China’s beer industry is thriving despite COVID lockdowns and may even emerge from the crisis stronger. Following decades of slow development and a homogeneous product range, the domestic market is now flooded with a wide variety of choices and flavors, such as high-, low-, and zero-alcohol (the latest of which is Chongqing Brewery’s 重庆啤酒 Chongqing Gold that was launched in April), fruity, wheat-brewed, craft, customized, and a host of sizes.

And business has been very good:

• In 2021, according to National Bureau of Statistics data, domestic beer companies reported total profits of 18.68 billion yuan ($2.74 billion), a year-on-year increase of 38% — exceeding even the 33% growth rate of the liquor industry as a whole.
• In the first quarter of this year, beer companies reported revenue and profit growth across the board, and some reported double-digit growth figures, including Chongqing Brewery 重庆啤酒, Beijing Yanjing Brewery 燕京啤酒, Tsingtao Brewery 青岛啤酒, and Fujian Yanjing Huiquan Brewery 惠泉啤酒.

The context

Despite the good profit numbers, beer consumption levels have not yet returned to pre-pandemic levels. According to National Bureau of Statistics data, domestic beer consumption in March decreased by 1.5% year-on-year to 8.16 million kiloliters.

Nor has China’s beer industry been left unaffected by the general trend of surging raw material prices, notably for barley, malt, hops and materials used in packaging: In March, the price of imported barley was $334.8/ton, 25.7% higher year-on-year, while the import volume was 550,000 tons, 48.6% lower year-on-year. The prices of aluminum cans and glass bottles have increased by as much as 50% from the start of 2021.

Tsingtao Brewery, one of China’s most iconic brands, is feeling the heat. A company executive last week stated that the cost of production per thousand liters increased by 6.9% year-on-year in the first quarter to 2,688 yuan ($395.62), and this is taking a big swig of the company’s profit margins. Tsingtao Brewery’s 2021 annual report states that almost 70% of the company’s procurement costs are devoted to packaging materials, and 30% to brewing raw materials.

But Chinese consumers have already been growing accustomed to higher beer prices. High-end products are maintaining high growth rates, despite the general decline in consumption.

All this means is that beer is now more expensive than ever in China: Most of the new products on the market exceed 8 yuan ($1.17) in price, widely regarded by local producers as the average price of an average beer (think Heineken in the European and American markets).

Tsingtao Brewery’s ultra-premium Legend of the World series this year smashed the all-time record with a price tag of over a thousand yuan a bottle, and all beer producers have engaged in recent rounds of price increases. Innovation is now a key concept for domestic producers: Chongqing Brewery, for example, has an R&D team of nearly 1,500 people, accounting for a fifth of the total workforce, and a budget of nearly 200 million yuan ($29.43 million).

The takeaway

Chinese consumers’ increasing predilection for more expensive high-end beer products has carried domestic beer companies through the worst of COVID’s impact so far. If the pandemic and associated pressures on the economy can be overcome sooner rather than later, China’s beer companies are well placed for a golden age — at least for the leading brands (and those who can afford to produce and market high-end products).