High-end beer is losing young people

  Although the extension of luxury goods has been expanding in recent years, the public has never thought that luxury goods will one day be linked to beer.
  Open the official Tmall flagship store of Budweiser Beer, and in the category of “Pure Selection”, there is a 798mL “Budweiser Master Zhenzang” priced at 218 yuan per bottle. The propaganda poster emphasizes the “Master’s Courtesy”: looking around/I can’t wait for the one I like/It’s better to be reckless/Maybe, this is the time to fall in love.

  Looking through the few reviews, “it’s the best beer I’ve ever had, no one, the beer foam is particularly fine”, “the taste is great, the foam is fine, the best Budweiser”. Although the price is high, the feedback from wine tasters who are pursuing the perfect taste of beer emphasizes that this beer is of great value for money, which arouses the desire of beer lovers to buy.
  In fact, high-end beer is far more than Budweiser. China Resources and Tsingtao Brewery have also launched high-end products, which together raise the price ceiling of beer. Price changes don’t happen overnight, so how did this round of beer price hikes begin? How will high-end beer develop in the future?
Why are beer brands raising prices?

  The emergence of high-end beer has to start with the increase in the average price of beer. In fact, beer prices have been raised for a long time. In the past two years, different brands have made more or less price adjustments to their products.
  In the second half of 2021, the price of China Resources Beer’s Brave World Series will increase by about 10%; Budweiser Asia Pacific will adjust the price of some products by about 3%-10%; in the price increase stage from 2018 to 2019, the price of China Resources Beer and Tsingtao Beer per ton of wine will increase respectively. 11.92% and 5.02%; in the price increase stage from 2008 to 2009, the average prices of China Resources Beer and Tsingtao Beer increased by 13.59% and 9.48% respectively.
  The reason is mainly to cope with the rising cost of beer raw materials. In 2021, the average prices of imported barley and wheat in my country will increase by 19.70% and 13.11% respectively, and the annual increases of corrugated paper and LME aluminum will be 16.60% and 41.86% respectively. Some institutions have made predictions on the gross profit margin after barley and aluminum prices rise, and the rise of the two in the past year will reduce the gross profit margin of the beer industry by nearly 8%. Therefore, many beer brands have successively introduced price increase policies.
  But even against the backdrop of rising raw material cost pressures, beer brands have been upgrading high-end and high-priced products. In 2021, China Resources Snow launched a high-end beer, priced at 999 yuan per box (a box of 2 bottles), or about 500 yuan per bottle. After a heated discussion in the market, Hou Xiaohai, chairman and general manager of China Resources Snow (China) Co., Ltd., said that beer can not only be high-end, but also very high-end. He also predicted that China will soon have a 1,000 yuan bottle of beer.
  Perhaps it was a “vaccination” laid by China Resources Snow. Everyone is no stranger to the fact that beer broke the price ceiling. Even Hou Xiaohai himself may not have expected this prediction to become reality so quickly. At the beginning of this year, Tsingtao Brewery released the legend of a century of high-end products. In the official flagship store of Tmall, the price of this product is 1,399 yuan for a 1.5L bottle, while the price for a 1.5L two-bottle is 2,698 yuan.
  Beer brands are so obsessed with launching high-end products. In the author’s opinion, it is because the past strategy of exchanging low prices for volume and staking the market has failed, which has led to the industry entering the competition for stock, so the brand must change its thinking from incremental to quality.
  On the one hand, the industry structure has basically stabilized. China’s beer industry has experienced a period of “chaotic wars between princes” and two rounds of mergers and acquisitions. The five major groups of China Resources Beer, Tsingtao Beer, Yanjing Beer, Anheuser-Busch InBev and Carlsberg have a market share of 92% in the domestic beer market, and it is difficult for other brands to squeeze space.
  On the other hand, the market growth has reached a ceiling. In 2013, China’s beer reached its peak with a total output of 50.62 million tons. After 2015, the situation turned sharply and the output continued to decline. By 2020, the national beer output will be 34.11 million tons, a year-on-year decrease of 7.04% and a decrease of 1/3 from the peak in 2013. Corresponding to the decline in production is the decline in sales. As of 2020, the sales of Chinese beer have never returned to the peak in 2013, and the overall trend has shown a downward trend.
  The launch of high-end beer by beer companies can not only improve brand power, but also pave the way for the price increase of basic products, and become a means to increase profits. Budweiser Asia Pacific’s 2021 financial report shows that its revenue was US$6.788 billion, a year-on-year increase of 14.9%, and its net profit was US$980 million, a year-on-year increase of 75.9%. The annual ton wine price increased by 6.1% year-on-year, and its total sales volume increased by 8.3% year-on-year. The strong performance was driven by double-digit growth in sales of high-end and above products.
  The battle for beer in the high-end market has been fully opened, and at the same time, high-endization has also led to a general increase in the price of beer products. Will more people pay for it in the process?
Raised beer, still no one drinks it

  From the perspective of sales, high-end beer still lacks market education, at least for most people, high-end beer does not have much appeal. As of March 16, the sales data on Tmall showed that the monthly sales of Budweiser Beer Craft Master Collection 798mL bottle was 83%; the monthly sales volume of China Resources Snow Liquor 999mL two bottles was 100+; the monthly sales of Tsingtao Beer Centennial Journey I Legend 1.5L bottle 31.
  The sales of high-end beer products are mediocre, and they are always the choice of a small number of people. In the eyes of this part of consumers, the main purpose of purchase is obviously to give gifts, and for beer companies, they do not care about the sales of high-end beer, but take the opportunity to make a splash, showing that their beer can also be high-end and high-priced.
  More importantly, it suddenly became reasonable for various breweries to adjust the price of their basic beer. And this kind of publicity method can be said to be an old routine for consumer goods. We can also find a familiar feeling in the high-end price increase of sports shoes and down jacket brands.
  After the high-end and high-priced beer, will more and more people drink it? the answer is negative.
  On February 24, Budweiser Asia Pacific released the earliest 2021 financial report for the domestic beer industry. The financial report shows that both revenue and profit, Budweiser Asia Pacific achieved double-digit growth year-on-year, catching up with the profit level in 2019 before the epidemic. While revenue and profits have caught up, sales growth has fallen far short. In 2021, Budweiser Asia Pacific’s beer sales volume was 8.78 million kiloliters, an increase of 8% year-on-year, and did not return to the level of 9.31 million kiloliters in 2019.
  There are many reasons why the beer industry has experienced price increases but not volume. To explain them, we might as well compare the “beer-drinking group” to “water in a pool”. Then, these reasons can be divided into the following points:
  1. The inflow of “water” decreases, and the beer demand side has a ceiling
  This phenomenon specifically refers to the fact that the demand side of the Chinese beer market has a ceiling, and the demographic structure has changed. In layman’s terms, the number of young adults who drink is not as many as before.

  For a long time, the main consumer groups of beer are 20-50 years old, but under the trend of aging, the proportion of the population in this age group has been declining in recent years. Statistics show that the proportion of the population aged 20-34 in China has dropped from 27.3% in 2000 to 21.8% in 2020. Therefore, even such a huge domestic beer market has inevitably come to the stock stage, and beer companies will compete with each other for consumers.

  2. More scoops of “water” and other alcoholic beverages are entering the competition
  In addition to the important first point, other alcoholic beverages are also entering the competition, transforming beer-drinking consumers. For example, the rise of fruit wine, sparkling wine and other low-alcohol wines in recent years has caused an impact on traditional beer companies.
  Data show that in the first half of this year, the sales of fruit wine on Taobao, Tmall, Tmall International and platforms reached 324.3 million yuan, a year-on-year increase of 1626.2%; sales exceeded 3.6 million pieces, a year-on-year increase of 1944.6%.
  According to Tmall data, the customer group of low-alcohol wine owners is 18-34 years old, and the proportion of new white-collar workers is much higher than that of the entire network. According to this situation, the growth momentum of low-alcohol alcohol will not dissipate in the short term, but will be further strengthened by this group of people. Coupled with the properties of liquor and beer and the already solidified drinking environment, consumers are more willing to choose low-alcohol wines such as fruit wine.
  In addition, in addition to being at home, new-style bars such as Helens have also become new places for young groups. With the increase in consumption scenarios and changes in consumption choices, it is inevitable for low-alcohol wine to share the market share of beer.
  3. The “pool” pattern has been set, and it is difficult for beer companies to increase prices. The market share of
  China’s beer has stabilized. The five major suppliers of China Resources Beer, Tsingtao Beer, Yanjing Beer, Anheuser-Busch InBev and Carlsberg have been solidified, and the industry concentration rate is early. Just over 90%. Then, the strategy of low-cost staking in the past is no longer useful now. At this time, beer companies must take advantage of the trend to pursue maximizing profits.
  However, the homogenization and low-end marketing war and price war for more than ten years have caused most beer companies to have no breakthroughs and upgrades in the quality of the product itself, such as formula and taste. Compared with fashionable and trendy categories such as low-alcohol wine and fruit wine, beer does not have a great advantage in attracting young people in terms of products. The sudden rise of craft beer has also taken part of the cake away from traditional beer brands, and transformed some consumers who pursue beer quality, have strong spending power, and are willing to pay for high-end products.
  So to sum up, the high-priced and high-end gameplay of beer companies may increase profit margins, but it cannot expand the market. In a market with a very high industry concentration rate and an increasing volume, the beer business is not easy to do.
The future of beer companies

  2021 is the first year for the high-end upgrade of beer, ushering in an era with profit as the core. Raising prices is inevitable, and we don’t need to question the determination of beer companies to create profits. Since beer companies dare to take out high-end wine of 1,000 yuan to guide the market, they must be full of confidence in themselves.
  The data shows that the proportion of high-end beer continues to increase, and the growth rate is much higher than that of low-end beer. In 2025, high-end beer sales are expected to reach 14% of the overall beer sales. Under the established market structure, it is naturally no problem to increase the ratio to 14% to bring profits higher than the current level.
  According to the “14th Five-Year Plan” for the beer industry disclosed by the China Alcoholic Drinks Association, it is estimated that the profit of the beer industry is expected to reach 30 billion yuan in 2025, an increase of 100.0% compared with the end of the “13th Five-Year Plan”, and an average annual increase of 14.9%. The profit growth rate is expected to be excellent. In terms of production and sales, the industry is expected to enter a period of accelerated profit release.
  But only raising prices to create profits is always temporary, and raising prices blindly may also bring about “reverse growth” in profits. Therefore, for beer companies, it is particularly important to cultivate internal skills.
  First, the choice of flavor. Beer companies need to work hard to get rid of the homogeneity and similar taste in the past, and fundamentally reduce consumers’ doubts about high-priced wine.
  Second, grasp the attitude of young consumers to life. Make consumers feel that this high price is worth the money, such as co-branding with other brands to develop customized models. The recent trend of headphone brand Skullcandy and Budweiser to create a joint headphone is a good example. Join hands with music and wine, and imagine a novel scene of drinking, which is easy for young consumers to pay for.
  Finally, promote other categories. Taking Budweiser Asia Pacific as an example, it has launched a variety of fruit-flavored beers, including Fujia fruit-flavored beer and Corona sea-salt guava fruit-flavored beer, in response to the expanding “she economy”. At the same time, Budweiser Asia Pacific also significantly increased Red Bull’s distribution points and cross-border investment in the ready-to-drink beverage brand MissBerry, which creates a variety of fruit wines for women and Gen Z consumers. Last year, Budweiser Asia Pacific also announced plans to build a new craft brewery in Putian, Fujian.
  In the craft beer track, there are both powerful traditional beer companies such as Qingdao, Budweiser, and Yanjing, as well as cross-border players such as Haidilao and Wanglaoji. Perhaps craft beer is a feasible way for many beer companies to move towards high-end.
  In general, the beer market has entered an era of “price rises but not volume rises”, and the stability of the market structure is difficult to be shaken. But this is not the long-term survival of beer companies. At the root, they still have to work hard to cultivate their internal skills and finally gain the recognition of young consumers.

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