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East Meets Yeast: Shanghai Beer Culture Bubbles
By Zhihong Jin
With the Chinese government fearing food shortages and actively discouraging the production of spirits that are distilled from food grains, U.S. joint venture breweries in Shanghai are finding a unique opportunity for market development.
The Chinese do not eat barley or hops, thus beer production provides a politically correct alternative to an economically undesirable use of the food grains needed to produce distilled spirits.
Since economic reforms began, China has been nurturing a "beer culture," a term coined by the industry and promoted by the press. Both print and electronic media have expounded the virtues of the "wonder brew," despite the disapproval of temperance groups. Fortunately for the beer industry, any criticism has been decidedly mild.
The Chinese consider beer more nutritious that any other alcoholic beverage, except for tonic spirits. Chinese who drink beer refer to it as "liquid bread." They also believe it to be less intoxicating, so it attracts occasional drinkers and women.
Five Breweries Dominate Market
Shanghai maintains its immense beer production strength with the top five joint-venture breweries: Shanghai Mila Brewery Co., Ltd.; Shanghai Foster's Brewery, Ltd.; Shanghai Brewery Co., Ltd.; Shanghai Donghai Brewery Co., Ltd., and Shanghai Suntory Brewery Co., Ltd.
These companies brewed most of the 3.3 million hectoliters of beer produced in Shanghai in calendar year 1996. Shanghai residents consumed a total of 4.15 million hectoliters in 1996--850,000 hectoliters came from other provinces.
Shanghai Mila Brewery Co., Ltd., produces Reeb, the most popular beer in the Shanghai market. With yearly sales of more than 1.44 million hectoliters, Reeb enjoys a comfortable 30-percent share of the beer sales market.
Per capita beer consumption in Shanghai is 31.92 liters yearly. Of the beer consumed, lager occupies 98 percent of market share. The remaining types include draft, dry and dark.
Due to the complicated nature of distribution channels in China, most breweries have their own wholesalers and agents who sell to retail outlets or food services. Some have established an outlet at restaurants or beer bars for direct selling and on-site consumption. Usually, the low- and medium-priced beers are sold for family use and the high-priced beers are sold at restaurants, hotels and bars.
Three trends readily reflect the changing Shanghai beer market: the prevalence of joint ventures, linking world-famed breweries with state-owned or collective breweries, which produce 95 percent of all beer; the emergence of draft (fresh) beer sold not only at exclusive restaurants and hotels but also at bars and fast-food restaurants; and the increasing consumption of beer by women.
Beer bars and beer plazas have sprung up all over Shanghai. The largest, Shanghai Lan Gwui Fong Beer Plaza, occupies 1,800 square meters and boasts advanced German brewery equipment that produces beer onsite.
On its fourth anniversary in August 1996, the Shanghai Beer Festival attracted over 200,000 people. The festival provides breweries with the opportunity to introduce their beers to consumers.
Survival of the Fittest
Several ambitious large producers are trying to dominate the entire Chinese market. Dozens of lesser breweries are aiming for regional dominance. Many small bottlers are simply struggling to stay in business. While the costs of materials continue to rise, beer prices must hold steady or people will cut their consumption.
Past top sellers like Tsingtao and Wuxing are no longer the best-selling beers.
Many drinkers have turned to the brews of newly established joint ventures. Well-known foreign names like Carlsberg, Heineken, Beck's, Pabst Blue Ribbon, Budweiser and Miller command many new adherents.
Most consumers with a fondness for imports are young coastal urbanites with the cash to support their preferences. These foreign brands are popular not necessarily because they taste better than domestic brews but because the breweries that make them advertise more effectively.
With a 100-percent tariff on imports, joint ventures appear particularly appealing to breweries vying for market share. They are welcomed by local businesses that appreciate the financial and technical resources of foreign brewers.
Local breweries unable to raise their products to international standards will not survive the coming competition. Some of the world's leading breweries believe this is the best time to bring their products into the largest market on the earth.
Zhihong Jin is an agricultural assistant with the Agricultural Trade Office in the American Consulate General, Shanghai, China. Tel. (011-86-21) 6279-8622; fax (011-86-21) 6279-8336.
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