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Zebra Consumption Yang Wei

The summer is hot, and it's time to drink beer.

Amid all the price cuts, beer is almost the only mainstream consumer product that has developed an independent trend. Not only has the price not dropped, but it has actually increased. The low, medium and high-end price range has evolved from the 358 model 10 years ago to the 5810 model today.

This is mainly because, in previous years, beer missed the period of moderate price increases due to market adjustments and industry competition, and the price increases in recent years are actually compensatory increases; moreover, the beer market is highly concentrated, with the top five beer companies accounting for more than 90% of the market share. As long as the leading companies do not compete, the market will not be able to compete; in addition, the high-endization of beer is accompanied by quality improvement, and the quality-price ratio of the beer industry is increasing, so users are more accepting.

The key channels of the beer market are almost all occupied by various types of pure draft beer, craft beer, fresh beer and white beer; the green stick water beer that was once sold in boxes is almost gone.

After all, beer is more of a fast-moving consumer product, which means that its price range will not continue to rise significantly, and it is expected to form a spindle-shaped market. The core is that all major brands are digging for the 8 yuan price range that takes into account both the mass and sub-high-end. This is also the most comfortable range in the symbiotic relationship between beer brands and consumers.

Reject involution

In recent years, a trend of internal competition has swept across all major industries, especially the catering and fast-moving consumer goods markets, which are closest to and most exposed to consumers.

In the catering market, new tea drinks have been reducing their prices one after another, Luckin Coffee has rewritten the price system of the coffee market, and Kudi is going to fight the 9.9 yuan war for another three years; even the hot pot giants that were originally high and mighty are lowering their standards in their own ways.

In the fast-moving consumer goods industry, there have been waves of price cuts in the dairy, snack, bottled water, sugar-free tea and other market segments. This has even accelerated the development of the mass-market snack model. Who would have thought that in just a few years, the mass-market snack segment would give birth to two super brands with tens of thousands of stores, Mingminghenmang (Zhao Yiming + Snackshenmang) and Haoxianglai.

However, at the intersection of the two major markets of catering and fast-moving consumer goods, the beer industry, which is advancing into the summer peak season, seems to show no signs of involution.

In recent years, you probably haven't heard of any major beer company lowering the price of its core product. On the contrary, it has been raising prices.

There are two main ways to raise prices: one is to directly increase product prices. For example, in 2022, China Resources Beer raised the terminal price of its core product, Yongchuang Tianya, the best-selling Chinese beer product, from 6 yuan to 7 yuan; the other way is to launch more mid-to-high-end new products and replace traditional low-priced products with channels. The most intuitive feeling is that the "green sticks" that were previously popular all over the country have almost disappeared and can only be encountered occasionally in the sinking market.

Beer marketing expert Fang Gang recently summarized the price range of Chinese beer: 30 years ago, the 123 model; 20 years ago, the 235 model; 10 years ago, 358; today, 5810.

From 2019 to 2023, the average price per ton in the Chinese beer market will be around RMB 4,264, RMB 4,306, RMB 4,449, RMB 4,907, and RMB 4,917 respectively. Among them, the most obvious increase is in Tsingtao Beer, where the price per ton was less than RMB 3,500 in 2019 and exceeded RMB 4,200 in 2023.

Beer giants guard their respective core markets and make money peacefully. Even if the total market sales volume does not increase much, the leading beer companies can still achieve a significant increase in profits through the increase in gross profit margin brought about by price increases and the price reduction of major raw materials such as malt, cartons, and aluminum.

From 2019 to 2023, China's beer production only increased by 3%, but the industry's revenue increased by 19% and total profits increased by 95%.

The effect was more obvious in the first half of this year. Data showed that from January to June 2024, the cumulative beer output of China's large-scale beer companies was 19.088 million tons, a year-on-year increase of only 0.1%; among them, the output in June fell by 1.7% year-on-year.

However, several listed companies that have disclosed their performance have all recorded substantial growth. Yanjing Beer's net profit attributable to its parent company increased by 40%-55% year-on-year in the first half of the year, and its non-net profit increased by 60%-77% year-on-year; during the same period, Zhujiang Beer (002461.SZ)'s performance increased by 30%-45%.

No one expected that beer would become the vanguard of anti-involution in the catering and fast-moving consumer goods sectors.

Improved quality-price ratio

In fact, in the early years, beer was the hardest hit by price wars and positional warfare. At that time, major brands lowered the price of beer to one or two yuan, which was lower than the price of bottled water. In order to compete for offline locations, many manufacturers confronted each other and even fought each other.

Compared with this, the current involution of milk tea and coffee is simply child's play.

Why is the change so big?

At that time, the Chinese beer market was in a period of rapid growth. In the incremental market, scale became the core pursuit of major brands. If you don’t open breweries in major regions and let your products firmly occupy the market and the minds of users, it will be difficult to survive until now.

With the support of capital, the five giants, Anheuser-Busch InBev, China Resources Beer, Tsingtao Brewery (600600.SH), Carlsberg and Yanjing Beer, have been conquering the Chinese market for several years, ending the situation of one city, one beer in the beer market. The five giants have concentrated more than 90% of the market share.

At the same time, the five major beer giants have formed a relatively stable market structure. In most provinces and regions, there is a single oligopoly, a super and a strong, or a dual oligopoly, and a state of balanced competition among multiple brands is extremely rare.

China Resources Beer has absolute say in Liaoning, Sichuan, Guizhou and Anhui; Shandong people almost only recognize Tsingtao Beer, but they didn’t expect that Shaanxi and Shanghai are also dominated by Tsingtao Beer; Yanjing Beer is firmly in Beijing and looks south to Guangxi; Carlsberg is in Chongqing and Ningxia, and Budweiser (01876.HK) is also firmly in the Diaoyutai in Jiangxi. These beer manufacturers account for more than 65% of their core markets.

In the context of lack of incremental growth, everyone sticks to their respective core markets. There is no all-out war to fight and no soil for internal circulation.

After enduring the adjustment period from 2013 to 2015, the beer industry started a round of industry recovery with high-end development as the main line, so there is naturally no need for internal circulation.

Mediocrity leads to involution. Price wars are launched only when an industry has no other way to increase its value. Beer doesn’t need it yet.

Even though prices have been rising in recent years, beer prices are still not high. The price of a mid-range liquor product is 100-300 yuan per unit; the price of a mid-range red wine product is 80-300 yuan per unit; the price of a yellow wine product is 20-60 yuan. The price of a mid-range beer product is 5-8 yuan.

In the past few years, with the moderate increase in CPI, the prices of mainstream alcoholic beverages such as liquor and red wine continued to rise. However, beer missed the price increase cycle due to market competition and industry adjustments. It was not until recent years that it realized a catch-up increase.

From a long-term perspective, the increase in beer prices is not surprising. Thirty years ago, the average price of liquor was only a few yuan, but now it is over 60 yuan; in the same period of time, beer has only changed from a 123 model to a 5810 model.

Moreover, in many other consumer goods industries, the price increase is simply a matter of price. The room for improvement in dairy products is getting smaller and smaller; liquor is almost the same product that has remained unchanged for decades, but the price can be increased many times. As for beer, the price increase is accompanied by the improvement of product quality, which is equivalent to the improvement of the quality-price ratio of beer, which is more acceptable to consumers.

When you go to a barbecue restaurant for a party, ordering a bottle of liquor costs hundreds or thousands of dollars; a box of beer costs tens or hundreds of dollars. Drinking a bottle of Snow Beer is basically the same price as Dayao soda, which is definitely not expensive.

Dumbbell type structure

The beer industry has enough confidence and consensus to refuse involution.

After a round of comprehensive high-end development since 2016, the beer industry finally has the conditions to upgrade its products. The mainstream beer market is gradually bidding farewell to "watery beer", and in core channels, the technology and hard work of adding beer syrup and hop extract are no longer seen.

Next, the comprehensive, top-down high-endization of the beer industry has basically ended. The industry has entered the mid-term change and is about to enter the second half of the high-endization.

At this time, the liquor industry entered a vicious cycle of weak consumption and inverted prices due to the excessive top-down high-end efforts, which brought revelation to the beer industry.

Liquor has no shelf life and has some financial attributes, so it can still trade time for space. Beer cannot bear this kind of torment.

If the future of liquor is dumbbell-shaped, with high-end and mass-market flying together, then the future of beer must be spindle-shaped, large in the middle and small at both ends.

The beer market is usually divided into four levels according to retail prices: high-end (≥10 yuan), mid-high-end (8-10 yuan), mainstream (6-8 yuan), and low-end (≤6 yuan).

The market space for ultra-high-end beer is extremely limited. As for the single products of local beer manufacturers that cost hundreds or even thousands of yuan, they are purely brand mascots.

Beer that is too low in quality and low in price will be abandoned by beer manufacturers and the distribution system behind them because the profit margins are too limited.

Around 8 yuan, a popular price range that covers both mainstream and mid-high-end prices, will become the golden price range for the beer market in the next period of time.

The beer market is unlikely to produce its own Moutai, but it already has its own Fenjiu, for example, Yongchuang Tianya under China Resources Beer (00291.HK) and U8 under the rising Yanjing Beer.

Yanjing U8 is the vanguard of Yanjing Beer's (000729.SZ) transformation and upgrading. In order to promote this big single product, the company has spent a huge amount of money to hire popular stars such as Cai Xukun as spokespersons. In 2023, U8 sales increased by 35%, becoming the biggest driving force for the company to become the king of beer growth, and a million tons can be expected in the long run.

Although, under the lipstick effect, low-priced beer still retains the potential for consumption upgrade. However, the beer industry is shifting from comprehensive high-end to structural adjustment. The overall increase in the price range will weaken, but the increase in ton price will continue.

The beer market does not have to follow others, it already has its own route.