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21st Century Business Herald reporter Xiao Xia reports from Chongqing

The downward trend in consumption is affecting the global wine and beverage industry.

On August 1, Budweiser Asia Pacific (00291.HK) disclosed its first half results for 2024. In the first half of the year, Budweiser Asia Pacific achieved revenue of nearly US$3.4 billion, a year-on-year decline of 4.3% (endogenous basis, the same below), and normalized EBITDA of US$1.1 billion, a year-on-year decline of 1%. Both figures were lower than analysts' expectations. In addition, sales volume was 4.66 million kiloliters, a year-on-year decline of 6.2%.

This performance continues the downward trend of sales declines reported recently by Moët Hennessy, Remy Cointreau and Diageo, as well as Heineken Group's loss in the first half of the year.

In the second quarter of this year, Budweiser Asia Pacific's revenue, profit and sales volume all declined year-on-year due to the slowdown in China's industry performance and the impact of rainy weather in important markets such as Guangdong and Fujian.Fortunately, South Korea and India performed strongly in the first half of the year, offsetting the decline in the Chinese market.

At the media communication meeting that day, Budweiser Asia Pacific CEO Yang Ke responded to a question from a 21st Century Business Herald reporter and pointed out thatThe decline in the Chinese market is also partly due to the cyclical impact of the reopening of channels last year.In the second quarter of last year, with the full recovery of offline channels, Budweiser Asia Pacific achieved double-digit growth in revenue and sales in China.

However, due to the lack of the positive impact of the liberalization of offline consumption last year, the beer production of China's large-scale enterprises increased by less than 1% year-on-year in the first half of this year, and the share prices of the five major beer stocks continued to decline.

But Yang Ke told 21st Century Business Herald,Compared with other consumer industries, the beer industry remains resilientBudweiser Asia Pacific remains confident in the Chinese market and its high-end potential, and will continue to promote its high-end strategy and digital transformation. In addition, there is still a lot of room for the expansion of Budweiser's high-end and super-high-end products in China's non-ready-to-drink channels.

China's market led the decline due to weak consumption and rainy weather

In the first half of this year, Budweiser Asia Pacific's revenue, profit and sales volume all declined, and the decline in all data in the second quarter increased.

In terms of revenue, Budweiser Asia Pacific's revenue fell 0.4% year-on-year in the first quarter, and widened to a year-on-year decline of 7.8% in the second quarter. Budweiser Asia Pacific's sales volume fell 4.8% year-on-year in the first quarter, and accelerated to a year-on-year decline of 7.3% in the second quarter. Normalized EBITDA in the first quarter still increased by 4.3% year-on-year, but turned into a decline of 6.2% in the second quarter.

Among the major markets in the Asia-Pacific region, Budweiser's performance in China was poor in the first half of the year. In the second quarter of this year, Budweiser's sales in China fell by 10.3% year-on-year, revenue fell by 15.2%, and revenue per hectoliter fell by 5.4%.

“We did encounter some difficulties in the Chinese market in the first half of this year. According to data from the National Bureau of Statistics, consumer confidence is lower than historical levels."Yang Ke told the 21st Century Business Herald reporter,"However, the industry's weak performance is also partly due to cyclical effects and weather impacts after the reopening of sales channels last year, not just a matter of consumer confidence.”

In the first half of last year, Budweiser Asia Pacific's performance growth in China led all markets in Asia Pacific, especially in the second quarter, when both revenue and sales achieved double-digit growth.

On the other hand, the rainy weather in the second quarter also had a significant impact on Budweiser's core market.

“We don’t usually talk about the weather, but this year the impact of adverse weather factors has been very obvious.In the second quarter of this year, Budweiser's most important markets such as Guangdong and Fujian were mainly affected by floods, typhoons and other weather conditions," said Yang Ke.

The Indian and Korean markets played the role of saviors this year.

In the first half of the year, Budweiser's business performance in India continued to lead the industry, with high-end and super-premium beer achieving double-digit growth, accounting for more than two-thirds of its revenue; Budweiser achieved single-digit sales growth in South Korea in the first half of the year, with both revenue and revenue per hectoliter achieving double-digit growth, and EBITDA and EBITDA margin expanding significantly.

The balance formed by the growth and decline of various markets has to some extent smoothed out the fluctuations in Budweiser's performance.

"Strong growth in South Korea and India helped offset our performance in China and even expanded EBITDA margins across the Asia-Pacific market. This balanced geographical distribution strategy gives us a unique advantage among our peers," Yang Ke told a reporter from 21st Century Business Herald.

As it said, in the first half of the year, not only did Budweiser Asia Pacific's normalized EBITDA margin increase to 32.4%, but its revenue per hectoliter also increased by 2% year-on-year.

As the beer sector has experienced a round of continuous decline this year, the market has already expected the data in this financial report. After the results were released on August 1, Budweiser Asia Pacific's stock price fell nearly 7% at the opening, but then recovered and closed down 1.26%. It continued to fall slightly on the morning of the 2nd.

Beer is still pretty resilient

In response to market concerns about China's consumer demand and the beer industry, Yang Ke also responded at a media communication meeting.

“The entire consumer industry, including the beer industry, has clearly faced challenges recently. However, beer as a whole remains quite resilient, and high-end beer is still an accessible luxury.Compared with the beer industry, other industries may be more affected." Yang Ke told the 21st Century Business Herald reporter.

Yang Ke emphasized that Budweiser Asia Pacific is full of confidence in the Chinese market and its high-end potential, and will continue to be committed to executing its existing strategy, focusing on promoting high-end strategies and digital transformation throughout China to achieve future growth.

In the Chinese market, Budweiser leads the market in high-end beer and super-premium beer. Promoting further high-endization has been the core strategy of Budweiser Asia Pacific in the Chinese market in recent years.

"As the sales volume of high-end beer increases, although the cost will increase, it is still beneficial to our gross profit margin because the high-end products bring higher profits," Yang Ke pointed out. He mentioned,In the first half of the year in the Chinese market, Budweiser's EBITDA margin has returned to pre-epidemic levels.

While continuing to move towards high-end and digitalization, Budweiser also proposed to vigorously develop non-ready-to-drink channels.

When Budweiser entered the Chinese market, it first entered the ready-to-drink channels such as nightclubs and high-end restaurants, which often guarantee a relatively higher profit margin. However, in the past few years, Budweiser has noticed that as the Chinese market matures and develops, non-ready-to-drink scenarios have become increasingly important.

“There are more than 5 million stores in the off-trade channel in China, which is very large, so we need a large number of distributors to help us distribute the brand to more stores.Although Budweiser is a well-known brand in China, only one in three stores sells Budweiser beer. Less than one in ten stores sell our super-premium products, such as Corona, Blue Girl or Hoegaarden.Therefore, we still have many opportunities for expansion." Yang Ke believes.

In this regard, the cooperation between Budweiser and Swire Coca-Cola in Anhui and Hubei provinces has brought certain results.

Yang Ke introduced that Budweiser's market share in Anhui and Hubei provinces was relatively low in the past. With the help of Swire Coca-Cola's complete local market channels, Budweiser focused on expanding non-ready-to-drink channels, thereby accelerating distribution. In the first half of this year, Budweiser has expanded its market share of high-end and super-high-end brands in the two provinces.

also,The positive effects on the cost side will continue to be reflected in the financial statements.

Yang Ke told 21st Century Business Herald that thanks to cost management measures and favorable commodity markets,Budweiser Asia Pacific's sales cost per hectoliter actually decreased by 0.6% in the first half of the year. Similar favorable conditions are expected in the second half of the year and the full year as aluminum and barley prices have improved.

Packaging materials and barley raw materials are the bulk of beer production costs. However, since mid-2022, barley prices have continued to fall. The cost of aluminum was about $2,200 in the first half of this year, and continued to improve in the second half.