Beer companies tend to start off as, well, small beer. But around the world there is a history of consolidation of what tend to be fragmented industries to create national and international brewing giants. China is no more immune from that cycle than anywhere else. The six largest brewers in the country now account for more than half the volume of domestic beer sales. The other 500-plus share the rest.
The number two brewer, Hong Kong-listed Tsingtao Brewery is well beyond the small-beer phase. It has a seventh of the Chinese market and international recognition that way exceeds that of the domestic market leader, Snow, a joint venture between state-owned China Resources and the international brewing behemoth SABMiller. Snow has a sixth of the Chinese market, which, at 43 billion liters a year consumed, is, inevitably, the world largest in sheer volume. Tsingtao’s 1.87 billion yuan ($281 million) acquisition of Shandong Xin Immense Brewery — Silver Wheat is its beer you might recognize — is just another turn of the consolidation wheel, and Tsingtao’s third acquisition in two years. In the past 15 years, Tsingtao has gone from four breweries to more than 50.
Shandong Xin is the second largest brewer in Shandong behind Tsingtao itself. It will give Tsingtao 55% of the Shandong market, one of the biggest local markets. Domestic brands dominate across the country, in part thanks to a long legacy of protectionism that has only recently eased.
Less than 30 million liters a year of beer are imported, accounting for less than 1% of consumption, although imports jumped 44% last year, with German and Mexican brews accounting for more than half of all imports. A decade ago, foreign brewers abandoned a failing strategy of trying to establish niche premium brands in favor of joint ventures with local producers of the cheap lagers and beers that are overwhelmingly most popular. Apart from SABMiller, Japan’s Asahi Brewery owns 20% of Tsingtao (renewing historical ties between both partners’ predecessor companies) and Denmark’s Carlsberg raised its stake in Chongqing Brewery to 30% in June.
Chinese drink barely five liters of beer a year on average. The world’s thirstiest beer drinkers, Germans, quaff more than 100 liters a year each. Consumption per capita in China is less than half the average levels found in rich countries. Even though in the past couple of years the growth of the market has slowed to 5% a year from the 10% a year seen earlier in the decade, perhaps due to exceptional circumstances — economic slowdown, Sichuan earthquake and severe cold and wet weather — that suggests there is scope for the market to continue to grow and to move up market. At least, until it reaches the next inevitable phase of the industry cycle when wealthy young urbanites cut back on drinking beer in favor of wines and spirits and artesian microbreweries emerge to re-fragment the market.