China beer market loses fizz as spendthrift drinkers opt for cheaper brews

For years, beer brands have been pushing premium products in China, thirsty to tap the consumption power of the growing middle class. But the effort seems to have hit a bottleneck as the world’s second-largest economy grapples with a nationwide spending decline and the number of beer fans shrinks.

State-backed China Resources Beer (CR Beer) said on Monday that its overall sales volume declined 3.4 per cent year on year in the first half of 2024 amid a “significant contraction in consumer goods”, even as the company, holding the largest market share in China, eked out a 1.2 per cent gain in profit to 4.7 billion yuan (US$658.5 million).

The APAC subsidiary of Belgian-Brazilian brewing giant AB InBev, known for Budweiser and Corona, also reported a 13 per cent decline in net revenue and an 8.5 per cent decline in volume in China in the first six months amid a “soft industry”.

Premiumisation was once a sure-fire way for brewers to boost profit margins and gain market share, especially amid a decline in consumption that began in 2013. By last year, production had shrunk to just 35.6 billion litres, down 30 per cent from its peak a decade earlier.

But the upmarket strategy has hit a snag in recent years as consumers tighten their wallets in search of products that offer greater value for money.

“When the economy was strong and salaries were rising, people were more inclined to spend on more expensive, higher-quality beer,” said Richard Lin, chief consumer analyst at SPDB International. “However, in the current situation – where growth and jobs are uncertain – consumers are becoming more cautious, and the confidence companies once had in premiumisation can no longer be taken for granted.”

The trend is moving beyond its initial phase of raising prices and enhancing product quality towards a “new phase” that is characterised by a focus on “value, experience, and personalisation”, CR Beer chairman Hou Xiaohai said during a press conference on Monday.

“There is a clear segmentation emerging in terms of consumer trends,” he said. “Previously, premiumisation was the way to go, but now we’re seeing a bifurcation: high-end and more affordable, mass-market options are both gaining traction, meaning that both upgrading and downgrading are occurring simultaneously in the market.”

On top of the spending decline that is rewriting brewers’ playbooks, an ageing population could further alter the sector’s landscape, according to analysts.

China’s population aged between 20 and 60 – the main beer-drinking demographic – is expected to shrink by around 150 million people over the next decade, an 18.8 per cent decrease compared to 2023, according to estimates by Miaotou APP, a Chinese data intelligence provider. Over the next 40 years, the number could drop by around 480 million, representing a 60 per cent decline from 2023 levels.

“An ageing population and declining proportion of young people could put a dent on beer consumption,” said SPDI International’s Lin. “But it’s important to note that the growth of the beer industry hinges not just on volume, but also on the structure of the market and beer prices.”

Compared with younger consumers, older generations enjoy greater financial stability and place greater importance on the quality of their purchases, he added. As more consumers from this segment turn to beer, demand for higher-end products will rise, driving the overall premiumisation of the beer market.

Despite the current headwinds, going upmarket still appears to be the way forward. In fact, sales volume for CR Beer’s high-end brands grew more than 10 per cent year on year in the first half, with Heineken leading the charge with more than 20 per cent growth.

“Experience from mature international markets shows that premiumisation can take place even when per capita consumption is declining,” said Jacky Tsang, equity analyst at Morningstar. “Beer premiumisation takes the form of growth in selling price and a growing mix of premium beer volume, which cannibalises low-end beer volume.”