What Beer Drinkers Can Tell Us About China's Economic Woes

As nightclubs and karaoke bars go out of business in China, big brewers are changing their game plan.

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Episode Transcript

Speaker 1 (00:00):
China's beer lovers are spending less and staying home. By
Bloomberg News read by Mark Lee. It's been more than
a year since Jason Huang entertained clients at his favorite
Shanghai karaoke bars, talking business between raucous turns on the
microphone and binge drinking late into the night. Salespeople still

(00:20):
need to connect with clients, said Huang, forty two, a
manager at an auto parts company in China's largest city.
But with business poor and little profit, entertainment now usually
ends with a modest dinner. The pullback in corporate hospitality
is just another sign of the prolonged slump in consumption
that has entangled China's economy in a deflationary spiral. Fancy bars, nightclubs,

(00:44):
and high end restaurants across Shanghai and other top tier
cities are being forced to close as consumer sentiment fails
to recover post pandemic. For big brewers who've counted on
such venues to sell premium beers long seen as a
key to profit growth, the night life'slown is part of
a perfect storm that's also hitting Western markets such as
the US and Europe. Increasingly health conscious customers are drinking less,

(01:08):
opting for cheaper options, and staying home to save money.
All of those factors are prompting a strategy rethink in China.
Carlsburg as Heineken Envy, Chintao Brewery Co Ltd and Budweiser
Brewing Co APAC Ltd have been betting on top end
beer for years after market volume peaked in China in
twenty thirteen. The so called premiumization push saw the company's

(01:32):
marketing beverages for as much as eighteen yuon or two
dollars fifty cents a bottle. The cheapest domestic brands in China,
such as Snow and Harbin's Economy offerings, costs as little
as four yuon. In a sign of the slowdown, Budweiser
APAX outgoing chief executive officer Yawn Craps announced last month
that the firm will shift to resources from its super

(01:54):
premium segment to sub premium core plus to adapt to
current trends, stripping out the industry jargon. That means the
company will come down the quality curve a little, with
bottles priced at eight to ten yuan. Incoming ceo Yan
Joung Cheng will have to navigate a weaker Chinese market.
Sales volume slit eleven point eight percent last year, and

(02:15):
Budweiser Apac posted a net loss of sixteen million dollars
in the fourth quarter. The company plans to cut thousands
of jobs to reduce costs, according to people familiar with
the matter, who has not to be identified discussing private deliberations,
a Budweiser Apac spokesperson denied any plan to cut jobs.
China's consumer market, affected by macroeconomic volatility, is overall sluggish.

(02:40):
Send Marta Jiang, senior research analyst of food and drink
at Mintel, China premium bure as a discretionary item is
inevitably impacted. China's night life has never fully recovered from
the country's COVID lockdowns, which were among the strictest in
the world and eviscerated many businesses in major cities. Downtown Shanghai, bars,

(03:00):
restaurants and nightclubs used to pulsate with customers throughout the week,
is now significantly quieter. Rubbish is piled at the front
door of one former karaoke bar that now stands dark
and empty, no longer bathe than a glow of bright
yellow neon lights. Jackielu, a booking agent for karaoke bars
in Shanghai, said trade has dropped off markedly with much

(03:22):
less drinking by business people. I didn't really calculate, but
several dozen venues I knew of have shut down in
the past two years, he said. In the boom years,
customers as such establishments would spend as much as one
hundred yuan on a premium Budweiser beer, including the steep
markup from the bar owner, with dozens of bottles consumed
per room each night. He said. Bud wazzer Apak isn't

(03:45):
alone in feeling the impact. China Resources Beer Holdings Co.
The largest local beer maker which distributes Heineken in its
premium portfolio, has also been hit. Sales volume growth of
premium beer and the category just below it slow to
single digits in twenty twenty four from a robust eighteen
point nine percent in twenty twenty three. Chung Cheng Brewery Co.

(04:07):
Controlled by Danish producer Carlsburg, posted a one percent year
over year decline in revenue from premium beer in the
first nine months of last year. Qingtao also reported declining
sales volume from its mid to high priced products, and
the first half of twenty twenty four compared with fifteen
percent growth in the same period a year earlier. China's

(04:27):
government has tried repeatedly to persuade wary customers to open
their wallets with stimulus such as home appliance, trade in
programs and shopping coupons. In a special action plan published
earlier this month, policymakers promised to support the nighttime economy
with measures including better transport infrastructure. While there are some
signs that sentiment is improving, the slumping property market, which

(04:49):
is eaten into household wealth, has largely steinny the much
needed bounce back. Other consumer facing businesses, like fast food
chains and bottled water producers have slash prices in an
attempt to lure back frugal shoppers, but so far, brewers
have resisted the race to the bottom. That's partly because
people are still drinking at home, a habit foster during

(05:10):
pandemic restrictions on social gatherings, and while they may be
drinking less, millennials and younger generations are still willing to
pay more for better quality beer. Brewers are trying to
tap into that shift with a greater focus on what
the industry calls the in home channel. China Resources Beer,
for example, recently teamed up with why My, a drinks

(05:31):
delivery platform. Wang Bo, who lives in Inner Mongolia and
works in the tourism industry, says he's cut back on
drinking at restaurants with friends, but during movie nights at home,
he's going for mid range Chintao and Heineken beers price
between eight and twelve yuan rather than switching to the
cheapest brands. How much can you drink by yourself? As

(05:52):
the thirty six year old who says his favorite brew
is Heineken Original due to its refreshing tastes and the
aroma of the malt. Guo Qi, who works in the
import export industry in eastern Jiangsu Province, also enjoys the
comfort of drinking by himself at home and is a
fan of Heineken Original. It tastes crisp with the perfect
scent of malt and hops, said the forty year old.

(06:13):
You won't have a headache even if you're drinking too
much of it. Top brewers will likely focus on mid
to premium price beers, and the near term, according to
Ada Lee, an analyst with Bloomberg Intelligence, but despite weak
consumer sentiment, they'll continue the premiumization strategy in the medium
term as the middle class grows. She said. Premium beer

(06:34):
made up about thirty seven percent of China's market by
sales value last year, compared with twenty five percent and
twenty fifteen. She said Budweiser, Carlsberg and Heineken held just
under fifty percent of that market in twenty twenty three,
while domestic brand ching Tau had a mid single digit
percentage share. Jiang of Mintel China see steady progress in

(06:54):
the premiumization trend. The concept of drinking less by drinking
better continue used to gain traction among Chinese consumers. She
said that seems to be the case for Huang, whose
midnight drinking in karaoke bars is a thing of the past.
He now finds comfort and a five hundred millilter can
of Hoho Garden, which retails for as little as seven
yu want online while eating dinner at home