The article today is about Chinese craft breweries and how AB InBev compete in the same markets. But there’s some important happy news I’d like to report first…
Today we learned that Anheuser-Busch InBev (AB InBev) opened their production facility in Wuhan, China. This is great news for China and Wuhan in particular. Which was the center of the Covid-19 outbreak. Furthermore it’s a sign that China is getting back to normal.
Now we’re aware everyone isn’t a fan of Anheuser-Busch InBev. However, after recent events to say nothing of Wuhan, having one of the cities largest employers back in action is a cause for celebration. So why are some* people not fans of AB InBev?
Why Do Chinese Craft Breweries Frown Upon AB InBev
There are several reasons that craft beer producers in China don’t look on to fondly ABI InBev. They have targeted the China craft beer market so are active competitors of Chinese craft breweries. AB InBev can compete as they take advantage of the economies of scale.
Chinese craft breweries mostly supply their local area be it city or within their province. AB InBev can reach all local markets as part of their nationwide campaign. China considers AB InBev products premium and their purchase of them has status. Thus they compete with small craft beer breweries for the disposable income of working professionals.
AB InBev can use ingredients sourced from around the world. Although to be fair they use local raw materials too. They are buying in large quantities so can negotiate a lower price. However, Chinese craft breweries use premium ingredients bought in smaller quantities. They are paying a much higher price for their raw materials.
AB InBev – The Economies of Scale
The net effect is that AB InBev can produce their beer for cheaper than Chinese craft breweries. This makes it hard for Chinese craft breweries to sell to a wider audience as they often can’t compete on price. Without squeezing their margins.
AB InBev also have the ability to advertise nationwide. In addition to this, the way AB InBev sells some of their products annoys small craft breweries. AB InBev in several years acquired around 10 craft breweries. They have bought among others:
-> Devils Backbone
-> Goose Island
-> Blue Point
-> Wicked Weed
-> Boxing Cat
-> Karback Brewing
Goose Island, Boxing Cat and new brand Kaiba (created specifically for Asia) are being sold in China. AB InBev market these brands as “craft beer” when clearly they are produced by an multi-national company. These brands are sold at premium prices on a par if not at a higher price than local craft breweries.
In the main cities such as Beijing, Shanghai and Guangzhou these beers can be sold at 13.9 euros per liter. See our article about imported/craft beer for more info on the premium beer market in China. Now AB InBev are targeting the markets once the domain of small breweries selling “craft beer”. You can see the annoyance of the small independent producers.
These small breweries using high quality and more expensive ingredients are losing customers to a competitor using cheaper raw materials. AB InBev craft beers are produced in large volumes on state of the art equipment. What if I asked you to explain to me what you considered craft beer?
What is Craft Beer?
Craft beers to most people is a small producer say brewing less than 5,000 liters at a time. They are using high quality ingredients and there is still something manual “hand-on” about the process. The beers they produce are flavorful and often experimental.
I am not saying that AB InBev cannot produce great beers. They have some of the best brewers in the world working for them and they care about what they produce. However I think the exert below explains it better than I could do:
What’s keeping one of the big guys from making a truly awesome craft product? They have the best equipment, the best brewers, and the best quality control on earth. No one can say with a straight face that the big guys aren’t capable of brewing a great craft beer. Of course they are.
However, their world is based on huge volume. The more you sell, the more revenue you generate to offset those massive overhead costs. Craft brewers want to sell their beer and make money, too, but their modest overhead costs don’t require that kind of tonnage to thrive and survive. They can be more experimental and play around with crazy flavors.
The big guys are targeting session drinkers—the guzzlers who gather around the big screen to watch Monday Night Football—and that’s not really a craft thing. In my opinion, the big guys are capable of brewing a Ballast Point Sculpin or a Deschutes Fresh-Squeezed IPA. They just choose not to because it’s not a priority. It doesn’t pay the bills, and it doesn’t appeal to their customer base.Taken from the Universty of Vermont website: https://learn.uvm.edu/blog/blog-business/what-is-craft-beer
Yes AB InBev are producing hoppy or fruit flavored beers. I have a huge respect for the way they pull their operations together more so the people that work for AB InBev are dedicated and talented. However for example they fruit flavored beers in the Kaiba range use flavorings. They keep the costs down.
The small craft breweries will use real fruit or fruit purees which come at a higher cost. The line blur and the small producers are annoyed at AB InBev targeting the craft beer sector in China. When AB InBev aren’t craft considering the volumes produced or raw materials used.
China has been hit by a virus and we write this on March 24th 2020 we hope the worst is behind us. It’s a different country to the one that stopped for Chinese New Year just over 2 month ago.
People have less money to spend. The market is cautious and I predict many local craft breweries will not survive joining those that already have gone.
This is a testing times and one where AB InBev certainly have the upper hand with their cash reserves, ability to advertise to the market and compete on price. I wish the craft brewers of China all the best and I hope they can all rebound for the remainder of 2020.
* I used the word “some” as this isn’t the view of all small craft breweries in China.