alcoholic drinks in china

Alcoholic Drinks in China

Euromonitor

March 2004

Alcoholic drinks China

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List of Contents and Tables

1. INTRODUCTION .......................................................................................................................1

2. EXECUTIVE SUMMARY .........................................................................................................2

3. OPERATING ENVIRONMENT................................................................................................ 3

3.1 Consumer Expenditure on Alcoholic Drinks..................................................................3Table 1 Consumer Expenditure on Alcoholic Drinks 1998-2003 .....................4

3.2 Taxation and Duty Levies .............................................................................................. 4Summary 1 Taxation and Duty Levies on Alcoholic Drinks in 2002......................5Table 2 Selling Margin of a Typical Beer Brand 2003 .....................................5Table 3 Selling Margin of a Typical Spirits Brand 2003 ..................................5

3.3 Legislation .....................................................................................................................5Table 4 Number of On-trade Establishments 2002...........................................6

3.4 Breweries, Wine-makers and Distillers..........................................................................6Table 5 Number of Alcoholic Drinks Producers 2003......................................7

3.5 Contraband/Parallel Trade............................................................................................ 7

3.6 Duty-Free.......................................................................................................................7

4. ALCOHOLIC DRINKS.............................................................................................................. 8

4.1 Sizes ............................................................................................................................... 8Table 6 Sales of Alcoholic Drinks by Sector: Total Volume 1998-

2003 .....................................................................................................9Table 7 Sales of Alcoholic Drinks by Sector: Total Value 1998-2003 .............9Table 8 Sales of Alcoholic Drinks by Sector: % Total Volume

Growth 1998-2003............................................................................. 10Table 9 Sales of Alcoholic Drinks by Sector: % Total Value Growth

1998-2003.......................................................................................... 10

4.2 Sizes by Region ............................................................................................................10Table 10 Sales of Alcoholic Drinks by Region: Total Volume 1998-

2003 ...................................................................................................11Table 11 Sales of Alcoholic Drinks by Region: Total Value 1998-2003..........11Table 12 Sales of Alcoholic Drinks by Region: % Total Volume

Growth 1998-2003............................................................................. 11Table 13 Sales of Alcoholic Drinks by Region: % Total Value Growth

1998-2003.......................................................................................... 12

4.3 Competitive Environment............................................................................................. 12

4.4 Company Profiles – Leading Companies.....................................................................12Summary 2 Beijing Yanjing Beer Group Operational Indicators 2002................. 13Table 14 Beijing Yanjing Beer Group Shares of Alcoholic Drinks by

Subsector 2000-2002 ......................................................................... 13

4.5 Company Profiles – Leading Companies.....................................................................13Summary 3 Tsingtao Brewery Co Ltd Operational Indicators 2002 ..................... 14Table 15 Tsingtao Brewery Co Ltd Shares of Alcoholic Drinks by

Subsector 2000-2002 ......................................................................... 14

4.6 Company Profiles – Emerging and Niche Companies ................................................. 14

4.7 Distribution.................................................................................................................. 16Table 16 On-trade vs Off-trade Sales of Alcoholic Drinks by Sector:

Volume 2003 .....................................................................................17Table 17 On-trade vs Off-trade Sales of Alcoholic Drinks by Sector:

Value 2003......................................................................................... 17Table 18 On-trade vs Off-trade Sales of Alcoholic Drinks by Sector: %

Volume 2003 .....................................................................................18Table 19 On-trade vs Off-trade Sales of Alcoholic Drinks by Sector: %

value 2003 ......................................................................................... 18Table 20 Off-trade Sales of Alcoholic Drinks by Sector and

Distribution Format: % Analysis 2003 .............................................. 19

4.8 Forecasts......................................................................................................................19


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Table 21 Forecast Sales of Alcoholic Drinks by Sector: Total Volume2003-2008.......................................................................................... 21

Table 22 Forecast Sales of Alcoholic Drinks by Sector: Total Value2003-2008.......................................................................................... 21

Table 23 Forecast Sales of Alcoholic Drinks by Sector: % TotalVolume Growth 2003-2008 ...............................................................21

Table 24 Forecast Sales of Alcoholic Drinks by Sector: % Total ValueGrowth 2003-2008............................................................................. 21

4.9 Forecasts by Region.....................................................................................................22Table 25 Forecast Sales of Alcoholic Drinks by Region: Total Volume

2003-2008.......................................................................................... 22Table 26 Forecast Sales of Alcoholic Drinks by Region: Total Value

2003-2008.......................................................................................... 23Table 27 Forecast Sales of Alcoholic Drinks by Region: % Total

Volume Growth 2003-2008 ...............................................................23Table 28 Forecast Sales of Alcoholic Drinks by Region: % Total Value

Growth 2003-2008............................................................................. 23

5. BEER 23

5.1 Sizes and Shares...........................................................................................................23Table 29 Sales of Beer by Subsector: Total Volume 1998-2003 ......................27Table 30 Sales of Beer by Subsector: Total Value 1998-2003 .........................27Table 31 Sales of Beer by Subsector: % Total Volume Growth 1998-

2003 ...................................................................................................27Table 32 Sales of Beer by Subsector: % Total Value Growth 1998-

2003 ...................................................................................................28Table 33 Company Shares of Beer by National Brand Owner 2000-

2002 ...................................................................................................28Table 34 Company Shares of Beer by Global Brand Owner 2000-2002 ..........29Table 35 Brand Shares of Beer 2000-2002.......................................................30

5.2 Sizes and Shares by Region.......................................................................................... 30Table 36 Sales of Beer by Region: Total Volume 1998-2003 .......................... 32Table 37 Sales of Beer by Region: Total Value 1998-2003.............................. 32Table 38 Sales of Beer by Region: % Total Volume Growth 1998-2003 .........33Table 39 Sales of Beer by Region: % Total Value Growth 1998-2003 ............33Table 40 Brand Ranking of Beer by Region 2002 ............................................34

5.3 Pricing .........................................................................................................................35Summary 4 Lager by Price Band 2003 .................................................................36Table 41 Typical Beer Prices 2003...................................................................36

5.4 Lager by Origin ...........................................................................................................36Table 42 Sales of Lager by Origin: Total Volume 1998-2003.......................... 37Table 43 Sales of Lager by Origin: Total Value 1998-2003............................. 37Table 44 Sales of Lager by Origin: % Total Volume Growth 1998-

2003 ...................................................................................................37Table 45 Sales of Lager by Origin: % Total Value Growth 1998-2003............37Table 46 Brand Shares of Domestic Lager 2000-2002 .....................................38Table 47 Brand Shares of Imported Lager 2000-2002......................................39

5.5 Packaging .................................................................................................................... 39Table 48 Sales of Beer by Packaging Format: % Analysis 1998/2003 ............. 40

5.6 New Product Developments .........................................................................................40Summary 5 Beer: New Product Launches 2002-2003 ..........................................41

5.7 Distribution.................................................................................................................. 42Table 49 On-trade vs Off-trade Sales of Beer: Volume 1998-2003.................. 43Table 50 On-trade vs Off-trade Sales of Beer: Value 1998-2003 ..................... 43Table 51 On-trade vs Off-trade Sales of Beer: % Volume Growth

1998-2003.......................................................................................... 43Table 52 On-trade vs Off-trade Sales of Beer: % Value Growth 1998-

2003 ...................................................................................................43Table 53 Off-trade Sales of Beer by Distribution Format: % Analysis

1998/2003 .......................................................................................... 44

5.8 Forecasts......................................................................................................................44


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Table 54 Forecast Sales of Beer by Subsector: Total Volume 2003-2008 ...................................................................................................45

Table 55 Forecast Sales of Beer by Subsector: Total Value 2003-2008 ...........46Table 56 Forecast Sales of Beer by Subsector: % Total Volume

Growth 2003-2008............................................................................. 46Table 57 Forecast Sales of Beer by Subsector: % Total Value Growth

2003-2008.......................................................................................... 46

5.9 Forecasts by Region.....................................................................................................46Table 58 Forecast Sales of Beer by Region: Total Volume 2003-2008............47Table 59 Forecast Sales of Beer by Region: Total Value 2003-2008 ............... 47Table 60 Forecast Sales of Beer by Region: % Total Volume Growth

2003-2008.......................................................................................... 48Table 61 Forecast Sales of Beer by Region: % Total Value Growth

2003-2008.......................................................................................... 48

6. WINE 48

6.1 Sizes and Shares...........................................................................................................48Table 62 Sales of Wine by Subsector: Total Volume 1998-2003 ..................... 52Table 63 Sales of Wine by Subsector: Total Value 1998-2003 ........................52Table 64 Sales of Wine by Subsector: % Total Volume Growth 1998-

2003 ...................................................................................................53Table 65 Sales of Wine by Subsector: % Total Value Growth 1998-

2003 ...................................................................................................53Summary 6 Major Wine Companies 2003 ............................................................ 53Summary 7 Major Brands of Wine 2003 .............................................................. 54

6.2 Sizes by Region ............................................................................................................54Table 66 Sales of Wine by Region: Total Volume 1998-2003 .........................55Table 67 Sales of Wine by Region: Total Value 1998-2003 ............................ 55Table 68 Sales of Wine by Region: % Total Volume Growth 1998-

2003 ...................................................................................................55Table 69 Sales of Wine by Region: % Total Value Growth 1998-2003 ...........56

6.3 Sizes of Non-grape Wine by Region ............................................................................. 56Table 70 Sales of Non-grape Wine by Region: Total Volume 1998-

2003 ...................................................................................................57Table 71 Sales of Non-grape Wine by Region: Total Value 1998-2003...........57Table 72 Sales of Non-grape Wine by Region: % Total Volume

Growth 1998-2003............................................................................. 57Table 73 Sales of Non-grape Wine by Region: % Total Value Growth

1998-2003.......................................................................................... 58

6.4 Price Segmentation ......................................................................................................58Table 74 Sales of Red Wine by Price Segment 1998/2003............................... 59Table 75 Sales of White Wine by Price Segment 1998/2003 ........................... 59Table 76 Sales of Rosé Wine by Price Segment 1998/2003 ............................. 59

6.5 Non-grape by Type.......................................................................................................59Table 77 Sales of Non-grape by Type: Total Volume 1998-2003 .................... 60Table 78 Sales of Non-grape by Type: Total Value 1998-2003 .......................60Table 79 Sales of Non-grape by Type: % Total Volume Growth 1998-

2003 ...................................................................................................60Table 80 Sales of Non-grape by Type: % Total Value Growth 1998-

2003 ...................................................................................................61

6.6 Packaging .................................................................................................................... 61Table 81 Off-trade Sales of Wine by Packaging Format: % Analysis

1998/2003 .......................................................................................... 61

6.7 Distribution.................................................................................................................. 61Table 82 On-trade vs Off-trade Sales of Wine: Volume 1998-2003................. 62Table 83 On-trade vs Off-trade Sales of Wine: Value 1998-2003 .................... 62Table 84 On-trade vs Off-trade Sales of Wine: % Volume Growth

1998-2003.......................................................................................... 62Table 85 On-trade vs Off-trade Sales of Wine: % Value Growth 1998-

2003 ...................................................................................................63Table 86 Off-trade Sales of Wine by Distribution Format: % Analysis

1998/2003 .......................................................................................... 63


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6.8 Forecasts......................................................................................................................63Table 87 Forecast Sales of Wine by Subsector: Total Volume 2003-

2008 ...................................................................................................65Table 88 Forecast Sales of Wine by Subsector: Total Value 2003-2008..........65Table 89 Forecast Sales of Wine by Subsector: % Total Volume

Growth 2003-2008............................................................................. 66Table 90 Forecast Sales of Wine by Subsector: % Total Value Growth

2003-2008.......................................................................................... 66

6.9 Forecasts by Region.....................................................................................................66Table 91 Forecast Sales of Wine by Region: Total Volume 2003-2008...........67Table 92 Forecast Sales of Wine by Region: Total Value 2003-2008 .............. 67Table 93 Forecast Sales of Wine by Region: % Total Volume Growth

2003-2008.......................................................................................... 68Table 94 Forecast Sales of Wine by Region: % Total Value Growth

2003-2008.......................................................................................... 68

7. SPIRITS68

7.1 Sizes and Shares...........................................................................................................68Table 95 Sales of Spirits by Subsector: Total Volume 1998-2003 ................... 72Table 96 Sales of Spirits by Subsector: Total Value 1998-2003.......................73Table 97 Sales of Spirits by Subsector: % Total Volume Growth 1998-

2003 ...................................................................................................74Table 98 Sales of Spirits by Subsector: % Total Value Growth 1998-

2003 ...................................................................................................75Table 99 Company Shares of Spirits by National Brand Owner 2000-

2002 ...................................................................................................76Table 100 Company Shares of Spirits by Global Brand Owner 2000-

2002 ...................................................................................................76Table 101 Brand Shares of Spirits 2000-2002 .................................................... 77

7.2 Sizes and Shares by Region.......................................................................................... 77Table 102 Sales of Spirits by Region: Total Volume 1998-2003 .......................78Table 103 Sales of Spirits by Region: Total Value 1998-2003........................... 78Table 104 Sales of Spirits by Region: % Total Volume Growth 1998-

2003 ...................................................................................................79Table 105 Sales of Spirits by Region: % Total Value Growth 1998-2003 .........79Table 106 Brand Ranking of Spirits by Region 2002 .........................................80

7.3 Sizes and Shares of Other Spirits by Region ................................................................ 81Table 107 Sales of Other Spirits by Region: Total Volume 1998-2003 ............. 82Table 108 Sales of Other Spirits by Region: Total Value 1998-2003................. 82Table 109 Sales of Other Spirits by Region: % Total Volume Growth

1998-2003.......................................................................................... 83Table 110 Sales of Other Spirits by Region: % Total Value Growth

1998-2003.......................................................................................... 83

7.4 Pricing .........................................................................................................................83Table 111 Blended Scotch Whisky Pricing 2003 ............................................... 84Table 112 Canadian Whisky Pricing 2003 .........................................................84Table 113 Brandy and Cognac Pricing 2003 ......................................................85Table 114 Vodka Pricing 2003 ...........................................................................85

7.5 Packaging .................................................................................................................... 85Table 115 Sales of Spirits by Packaging Format: % Analysis 1998/2003 ..........86

7.6 New Product Developments .........................................................................................86Summary 8 Spirits: New Product Launches 2002-2003........................................87

7.7 Distribution.................................................................................................................. 87Table 116 On-trade vs Off-trade Sales of Spirits: Volume 1998-2003............... 88Table 117 On-trade vs Off-trade Sales of Spirits: Value 1998-2003 .................. 88Table 118 On-trade vs Off-trade Sales of Spirits: % Volume Growth

1998-2003.......................................................................................... 88Table 119 On-trade vs Off-trade Sales of Spirits: % Value Growth 1998-

2003 ...................................................................................................88Table 120 Off-trade Sales of Spirits by Distribution Format: % Analysis

1998/2003 .......................................................................................... 89

7.8 Forecasts......................................................................................................................89


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Table 121 Forecast Sales of Spirits by Subsector: Total Volume 2003-2008 ...................................................................................................90

Table 122 Forecast Sales of Spirits by Subsector: Total Value 2003-2008 ...................................................................................................91

Table 123 Forecast Sales of Spirits by Subsector: % Total VolumeGrowth 2003-2008............................................................................. 92

Table 124 Forecast Sales of Spirits by Subsector: % Total Value Growth2003-2008.......................................................................................... 93

7.9 Forecasts by Region.....................................................................................................93Table 125 Sales of Spirits by Region: Total Volume 2003-2008 .......................94Table 126 Sales of Spirits by Region: Total Value 2003-2008........................... 94Table 127 Sales of Spirits by Region: % Total Volume Growth 2003-

2008 ...................................................................................................94Table 128 Sales of Spirits by Region: % Total Value Growth 2003-2008 .........95

8. CIDER/PERRY .........................................................................................................................95

8.1 Sizes and Shares...........................................................................................................95

9. FABS 95

9.1 Sizes and Shares...........................................................................................................95Table 129 Sales of FABs by Subsector: Total Volume 1998-2003 .................... 96Table 130 Sales of FABs by Subsector: Total Value 1998-2003........................96Table 131 Sales of FABs by Subsector: % Total Volume Growth 1998-

2003 ...................................................................................................96Table 132 Sales of FABs by Subsector: % Total Value Growth 1998-

2003 ...................................................................................................96Table 133 Company Shares of FABs by National Brand Owner 2000-

2002 ...................................................................................................97Table 134 Company Shares of FABs by Global Brand Owner 2000-

2002 ...................................................................................................97Table 135 Brand Shares of FABs 2000-2002 ..................................................... 97

9.2 Packaging .................................................................................................................... 97Table 136 Sales of FABs by Packaging Format: % Analysis 1998/2003 ...........98

9.3 New Product Developments .........................................................................................98

9.4 Distribution.................................................................................................................. 98Table 137 On-trade vs Off-trade Sales of FABs: Volume 1998-2003 ................ 98Table 138 On-trade vs Off-trade Sales of FABs: Value 1998-2003 ................... 98Table 139 On-trade vs Off-trade Sales of FABs: % Volume Growth

1998-2003.......................................................................................... 99Table 140 On-trade vs Off-trade Sales of FABs: % Value Growth 1998-

2003 ...................................................................................................99

9.5 Forecasts......................................................................................................................99Table 141 Forecast Sales of FABs by Subsector: Total Volume 2003-

2008 ...................................................................................................99Table 142 Forecast Sales of FABs by Subsector: Total Value 2003-2008 .......100Table 143 Forecast Sales of FABs by Subsector: % Total Volume

Growth 2003-2008........................................................................... 100Table 144 Forecast Sales of FABs by Subsector: % Total Value Growth

2003-2008........................................................................................ 100

10. APPENDIX .............................................................................................................................. 100

10.1 Industry Statistics.......................................................................................................100Table 145 Beer: Production, Imports and Exports: Total Volume 2000-

2002 .................................................................................................101Table 146 Wine Production, Imports and Exports: Total Volume 2000-

2002 .................................................................................................101Table 147 Domestic Brandy Production: Total Volume 1998-2002.................101Table 148 Whisk(e)y Production, Imports and Exports: Total Volume

2000-2002........................................................................................ 102Table 149 Brandy And Cognac Production, Imports and Exports: Total

Volume 2000-2002 .......................................................................... 102Table 150 Vodka Production, Imports and Exports: Total Volume 2000-

2002 .................................................................................................102


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ALCOHOLIC DRINKS IN CHINA

1. INTRODUCTION

This report analyses the market for alcoholic drinks in China. The review period covered is 1998-2003, and forecasts are made to the year 2008. For the purposes of the study, the market has beendivided into the following sectors:

• Beer

• Wine

• Spirits

• Cider/Perry

• Flavoured Alcoholic Beverages (FABs)

The People’s Republic of China is divided administratively into 23 provinces (P), five autonomousregions (AR), four municipalities (M) and two special administrative regions (SAR). This reportcovers mainland China only, and therefore excludes the two SARs, Hong Kong and Macau, as wellas one province, Taiwan. Both Hong Kong and Taiwan are analysed separately by Euromonitor.

In order to give clearer insight into the Chinese market, analysis is given at both regional andnational levels. For the purposes of this study, China has been broken down into six broad regions:

East China

• Includes Shandong (P), Jiangsu (P), Anhui (P), Shanghai (M) and Zhejiang (P).

• The coastal provinces, containing 220 million people, are perfectly positioned to take fulladvantage of the policies of market reform, and have benefited accordingly.

• Shanghai, China’s most populous city, is the economic centre of both the region and thecountry.

Mid China

• Includes Henan (P), Hubei (P), Hunan (P) and Jiangxi (P).

• This is the most populous region in China, with over 323 million inhabitants. The economy islargely agricultural, except for Hubei province, which is heavily industrialised.

• Per capita income is low and the region is a major source of migrant workers for the majorcoastal cities.

North and Northeast China

• Includes Heilongjiang (P), Jilin (P), Liaoning (P), Tianjin (M), Beijing (M), Hebei (P) andShanxi (P).

• With a population of 226 million, this region is rich in natural resources (crude oil, iron andmanganese) and agriculture. However, its development is constrained by a weak transportationinfrastructure.

Northwest China

• Includes Xinjiang (AR), Qinghai (P), Gansu (P), Ningxia (AR), Shaanxi (P) and InnerMongolia (AR).


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• The least developed of the six regions, Northwest China has a population of 113.5 million.Farming is the main industry; however, output is still insufficient to feed the population.

• Poverty is widespread and Xinjiang shows a degree of political instability due to tensionsbetween separatist Uygurs and the Chinese authorities.

South China

• Includes Fujian (P), Guangdong (P), Guangxi (AR) and Hainan (P).

• Located on the South of China’s “golden coast”, this is a strong economic region in China.With a population of 160 million people, the provinces have very close ties with Taiwan, HongKong, Macau and Southeast Asia.

• The region is a gateway for international trade and, as such, represents a major source ofincome for the Chinese government.

Southwest China

• Includes Tibet (AR), Sichuan (P), Yunnan (P), Guizhou (P) and Chongqing (M).

• The economic gap between this region and coastal regions is dramatic. The Chinese centralgovernment is now taking a more hands-off and market-oriented approach to compensate forthis imbalance. Tourism, the so-called “green industry”, is booming rapidly and becoming theprincipal economic activity.

Explanations of Chinese words and/or terminology used in this report are as follows:

Yellow wine – also called shaoxing wine, traditional wine made of rice and sorghum, with about15% alcohol by volume.

Other terminology:

• GBO: refers to Global Brand Owner, which is the ultimate owner of a brand.

• NBO: refers to National Brand Owner, which is the company licensed to distribute a brand onbehalf of a GBO. The NBO may be a subsidiary of a GBO or it may be a completely separatecompany. Share tables at both GBO and at NBO level are provided in the report. Reference toshares in the report analysis is at NBO level.

2. EXECUTIVE SUMMARY

Consolidation taking place

In 2003, the alcoholic drinks market in China stood at an estimated 31,313 million litres, and wasworth RMB339,216 million, having increased by 4.9% in volume and by 2.2% in value on theprevious year. The increasing health consciousness of consumers has translated into purchases ofdrinks with a lower alcohol content or even non-alcoholic drinks. At the same, consolidation istaking place in the beer, wine and spirits sectors, due to intense competition brought about by thehealth trend and China’s entry to the WTO.

Mergers and acquisitions – key to success in the beer sector

Many mergers and acquisitions took place over the 2002-2003 period in the Chinese beer sector,including the deals between Tsingtao and Anheuser-Busch, and SABMiller and Haerbing, whichwere examples of strategic alliances between major foreign players and local manufacturers. Inaddition, there were also local mergers and acquisitions, such as China Resources Enterprise’spurchase of Sichuan Blue Sword, and Heilongjiang Harbin’s purchase of Ballantine ManagementLtd. Both foreign-local and local-local acquisitions have been beneficial to the parties involved.Having witnessed the success of this strategy, many foreign and local beer manufacturers are


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following suit. Further consolidation is expected, and the impact is likely to be positive for thealcoholic drinks market as a whole.

Red wine dynamic performance to continue

Still red wine saw strong growth over the review period, and is projected to continue its dynamism.In 2003, off-trade volume sales grew by 13.6%, continuing its double-digit growth since 1998. Redwine demonstrated an impressive performance in both the off- and on-trade, largely because of thechanging drinking habits of many Chinese consumers, and the fact that wine is widely consumed onspecial occasions and during festive seasons. The share of still red wine sales as a proportion oftotal wine sales continued to increase in 2003, and growth showed no signs of abating, underpinnedby increased awareness of the alleged health benefits to be derived from moderate red wineconsumption. Beer and spirits manufacturers are entering the wine sector in order to exploit itssubstantial potential.

Spirits on the way to being healthier and trendier

Sales of local spirits continue to fall, though the rate of decline is slowing. In terms of taste andprice, local spirits still occupy a unique position compared to imported products. Most local spiritsmanufacturers are endeavouring to gain a healthier image for their products and thus win backconsumers. To achieve this, the alcohol content has been reduced, with 40-49% ABV becoming thenorm. Alcohol content is expected to drop to below 39% ABV in the forecast period. Distributorsof imported spirits are, meanwhile, endeavouring to promote their products as fashionable toyoungsters who are not the traditional consumers of spirits. In spite of tariff reductions followingChina’s entry into the WTO, imported spirits are still not as affordable as local spirits. By attractingyounger consumers with greater purchasing power, imported spirits are likely to enjoy positivegrowth in the near future in both volume and value terms.

Outlook positive despite SARS

The alcoholic drinks industry is poised for continued growth despite the SARS outbreak in thesecond quarter of 2003, which killed 339 people out of the 5,322 cases reported. The virus epidemichas now been brought under control. Prospects for alcoholic drinks are bright, with new productsbeing developed and introduced onto the market. Continued consolidation will strengthen theindustry and improve production and distribution, making alcoholic drinks more affordable andaccessible to Chinese consumers. As a result, volume growth of almost 30% is predicted for theindustry over the forecast period.

3. OPERATING ENVIRONMENT

3.1 Consumer Expenditure on Alcoholic Drinks

The alcoholic drinks industry in China continued its growth in 2003, in line with the economy as awhole, with consumer expenditure reaching RMB76 billion. The wine sector outperformed theothers, registering double-digit growth.

Large alcoholic drinks manufacturers and distributors consolidated their positions over the reviewperiod through acquisitions of local players or joint ventures with foreign enterprises, especially inthe beer sector. Adopting such strategies has put domestic companies in a stronger position tocompete with foreign players as the market liberalises.


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Table 1 Consumer Expenditure on Alcoholic Drinks 1998-2003

RMB million1998 1999 2000 2001 2002 2003

Beer 22,693.3 25,365.1 27,723.8 32,896.0 34,702.5 37,007.8Wine 10,416.6 11,889.9 13,303.7 16,094.5 16,616.5 19,018.6Spirits 15,252.9 15,456.8 16,115.1 17,934.5 18,860.0 20,365.4

TOTAL 48,362.8 52,711.8 57,142.6 66,925.0 70,179.0 76,391.8

Source: Official statistics (National Bureau of Statistics of China), Euromonitor

3.2 Taxation and Duty Levies

Domestic breweries and distilleries continued to be subject to heavy taxes levies in 2003. Generallyspeaking, a 33% tax on income and 17% valued added tax were imposed on manufacturers.Consumption tax of around 10% is imposed on all alcoholic beverages.

Following approval from the State Council, China has begun to adjust consumption taxes onalcohol. New regulations were published and have been implemented since 1 May 2001.

Under the new system, tax on local spirits is levied based on volume as well as price. Generallyspeaking, the tax rate for spirits was set at 25% plus RMB1,000 on each tonne of spirits sold: paidtax = sales value × 25% + sales volume (measurement unit: tonnes) × RMB1,000.

Consumption tax on beer was also adjusted, with the tax level related to the price (manufacturer’sprice) of the products. RMB250 per tonne (one tonne is generally equal to 988 litres) is imposed onbeers priced at RMB3,000 per tonne and over, while RMB220 per tonne is imposed on beers pricedbelow RMB3,000 tonne. For unbranded beers (for example, products brewed by individual pubs orrestaurants), RMB250 per tonne is the standard tax level.

New tax policy does not benefit big manufacturers

The consumption tax rate is a levy based on volume as well as price, which means the more themanufacturer sells, the higher tax rate it is going to pay.

Local spirits distilleries were much more negatively affected by the new tax regulations than beerand wine producers.

The government’s original intention in implementing this policy was to regulate the industry,bridging the gap with international practice and also to restrain spirits manufacturers from adoptingstrategies on the pricing of their products to dodge the tax. However, it turned out that the profitmargin for large manufacturers was reduced; indeed, small manufacturers gained an advantage interms of cost as the big manufacturers had to follow the tax policy strictly, and paid more tax thanbefore.

Wu Liang Ye alone contributed one fifth of its revenue to paying the tax levied on volume in 2002,which decreased its total annual net profit by more than 4%.

However, many small provincial producers were protected by local government through a fixed taxpolicy (that is to say the amount of tax is fixed and not related to volume sales). Consequently, thebig manufacturers have to operate under a heavier tax burden, and small distilleries thus enjoyedgreater profit margins and continued to flood the market with inferior products.

The new taxation likely to be modified


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Taking into consideration the negative effect of the new taxation policy on local spirits output, therelevant authorities are, according to trade sources, considering modifying the policy. Theadjustment of the taxation policy aims at creating a fairer competitive environment for all localspirits manufacturers.

Summary 1 Taxation and Duty Levies on Alcoholic Drinks in 2002

Consumption tax Import duty

Beer with msp exceedingRMB3,000/tonne

RMB250/tonne RMB3.50/litre

Beer with msp less thanRMB3,000/tonne

RMB220/tonne RMB3.50/litre

Unbranded beer RMB250/tonne RMB3.50/litre

Wine RMB240/tonne 35%

Cider and perry 10% 65%

Local spirits made from grain RMB1/kg+25% ad valoremtariff

Local spirits made from sweetpotato

RMB1/kg+15% ad valoremtariff

Imported spirits RMB1/kg+25% ad valoremtariff

Source: Trade associations (China Brewery Association)

Table 2 Selling Margin of a Typical Beer Brand 2003

% share2003

VAT 14.53Excise 10.00Retailer 11.15Distributor 7.37Manufacturer 56.96TOTAL 100.00

Source: Trade interviews, store checks, Euromonitor estimatesNote: based on Yanjing, RMB2.20, 355ml, supermarket

Table 3 Selling Margin of a Typical Spirits Brand 2003

% share2003

VAT 14.53Excise 10.00Retailer 11.15Distributor 8.55Manufacturer 55.77TOTAL 100.00

Source: Trade interviews, store checks, Euromonitor estimatesNote: based on Tuo Pai Da Qu, RMB12.90, 480ml, supermarket

3.3 Legislation

Legislation on advertising


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A series of regulations regarding the advertising of liquors was implemented in January 1996.According to these regulations, advertising time of liquors is restricted. Firstly, for mediaadvertising on each TV channel, no more than two commercials, either on brand or manufacturer,are allowed during the period 19.00-21.00hrs and no more than ten a day. Secondly, on each TVchannel, no more than two commercials are allowed per hour. Thirdly, for newspapers andperiodicals, no more than two pieces of advertising are allowed in one issue, and the advertisementscannot appear on the first page of the newspaper or on the cover of a periodical.

The State Administration of Industry and Commerce (SAIC) revised the above regulations in 1999,and the limitations on numbers of advertisements, time shown and page space have not appliedacross the board since January 2000. However, the revised policies only apply to low-alcohol liquorof no more than 24% ABV and not to all kinds of alcoholic drinks. According to this definition,low-alcohol liquors only include beer and wine. It is clear that through the revision of theadvertising legislation, the Chinese government is promoting the consumption of beer and wine anddiscouraging consumption of spirits.

CCTV is the key TV channel with the largest audience, as its coverage is nationwide. In 1 July2003, the advertising fee for the four minutes before 19:00hrs prime time news reachedRMB30,000 per five seconds. Since January 2002, their has been a 10% surcharge foradvertisements for alcoholic products.

Drink driving

The punishment for drink driving can be very severe in China. According to the PunishmentRegulations of Security Administration of PRC, the driving licence of a driver convicted of drinkdriving can be revoked for up to six months. If an incident is very serious, the licence can berevoked for up to 12 months.

However, this policy is frequently not enforced as the number of Chinese people with cars is stillsmall, so local police stations do not see drink driving as a significant problem.

Opening hours

Bars within hotels

In big cities such as Beijing, Shanghai and Guangzhou, hotels usually have at least one bar. Thesebars generally open from 20.00hrs to 02.00hrs, and mainly serve drinks rather than meals.

Bars outside hotels

In Beijing, there are several streets, such as Sanlitun, Guanghualu, which are full of theme bars andpubs, for example, Irish, Scottish or American. The same applies to the Sunday drinking centre inShanghai. Xi’an, as a tourist attraction, also receives millions of foreign visitors each year, whichaccounts for the high penetration of on-trade outlets there. Bars outside hotels usually open from18.00hrs to 02.00hrs or 03.00hrs, and serve both drinks and meals.

Table 4 Number of On-trade Establishments 2002

Number of establishments (registered restaurants and catering places)2002

TOTAL 3,500,000

Source: Trade associations (China Cookery Association)

3.4 Breweries, Wine-makers and Distillers


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The spirits industry is very fragmented, with a vast number of small concerns with only a limitedlocal presence, due to the difficulties of wider distribution in a large country with anunderdeveloped transport infrastructure. China currently has about 38,000 companies distillinglocal spirits. The leading company, Sichuan Yibin Wu Liang Ye Distillery Co Ltd, accounted forless than 4% of the market in volume terms in 2002.

Over the review period, the number of breweries in China declined, as the beer sector has excessproduction capacity. Towards the end of review period, many small breweries ran at a loss due toprice competition in the sector. Price wars led to low profit margins or even losses, and this forcedsmall breweries to close down. Moreover, many big international breweries aggressively merged oracquired local beer manufacturers, which was another reason for the decline in the number ofdomestic breweries.

On the other hand, the number of wine-makers increased over the review period, reflecting thehealthy development of the sector. The number of suppliers has grown from 400 in 1996 to over600 in 2002. However, with the abolition of half juice grape wine in 2003, many small wineriesmay not survive and will be forced to close or be acquired by the large wine companies in 2004.

Table 5 Number of Alcoholic Drinks Producers 2003

2003Beer 600Wine 650Spirits 38,000TOTAL 39,250

Source: Trade associations (China Brewery Association)

3.5 Contraband/Parallel Trade

Black and grey markets notable

Compared with 2002, black and grey market activity in 2003 changed little. Parallel trade is stillcommon, especially for imported alcoholic drinks. In 2002 and 2003, there were hundreds of smalldistributors of imported alcoholic drinks into China.

For domestic alcoholic drinks, parallel trade has been discouraged. Most leading players have eitherset up sales companies across China or have established close relationships with local distributors.In this way, parallel trade is largely avoided or more effectively controlled.

Since off-trade outlets are not allowed to import liquor directly, foreign products have to enterChina via agents possessing import/export licences. However, especially in coastal cities,distributors work closely with overseas agents or manufacturers to bypass the supervision ofNational Sugar and Liqueur Corp (NSLC), which was set up to control the distribution of liquorwithin the country.

Lack of efficient control of distributors makes it possible for counterfeit and smuggled goods to bebrought into the country. Grey imports are the most common, but due to deficiencies in theimplementation of regulations, the practice continues to occur through a combination of legal andillegal means. All statistics relating to illegal products or trading are excluded from the data usedfor the purposes of this report.

3.6 Duty-Free

Duty-free sales in China are insignificant, for a number of reasons. Firstly, an overwhelmingmajority of Chinese consumers are still more used to the flavours of local products, hence importedalcoholic drinks only have a limited market share. Secondly, owing to the development of


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distribution channels, imported spirits available in retail channels are often no more expensive thanthose in duty-free shops. Lastly, it is often the case that US dollars rather than renminbis have to beused when purchasing in the duty-free shops.

During the review period, duty-free products were only available in duty-free shops located inairports. Duty-free shops in Northeast and Northwest China are not as popular as they are in Easternor Southern China. Travellers from abroad are permitted to bring one to two bottles (less than750ml per bottle) of duty-free liquor into China.

4. ALCOHOLIC DRINKS

4.1 Sizes

The alcoholic drinks market in China was valued at an estimated RMB339 billion in 2003,representing an increase of 2.2% in current value terms on 2002.

However, the performance of the different sectors comprising the alcoholic drinks market wasmixed over the review period. Spirits sales performed poorly, having been dampened byunfavourable government policy. Volume sales of spirits declined by 7.6% in 2003, with a 3.3%fall in current value terms. Beer and wine performed rather better, increasing by 5.5% and 6.8%,respectively, in current value terms.

Standard lager increasingly popular

With sales worth over RMB150 billion in 2003, beer has strengthened its position as the largestsector of the alcoholic drinks market, with a value share of 45%, compared to 38% for spirits. Beercontinued its steady growth in 2003 on the back of increasing consumer demand, which was drivenby rapidly rising levels of consumer income and thus spending power.

Consumers in urban areas switched from economy lager to standard lager in China over the reviewperiod as a result of increasing disposable incomes and greater concern about product quality asopposed to price. Although economy lager is the predominant choice in China, sales have shownsigns of saturation. In fact, the profit margin on economy lager declined over the survey period and,as a result, beer manufacturers, after gaining brand recognition among consumers with theireconomy products, began to develop the more profitable standard lager.

Consumers tend to choose different products for different occasions. Economy products are oftenchosen to consume at home; however, when dining out with friends, consumers often preferstandard or premium lager with a better brand image. Moreover, due to variations in regionalstandards of living and regional breweries’ different rankings, different types of beers attractdifferent consumption groups. For example, standard lagers from Tsingtao and Yanjian dominate inthe East and Northeast regions, while imported beers dominate in on-trade outlets.

Grape wine outperforms non-grape wine

In 2003, total sales of wine in China increased by nearly 7% in volume terms, to reach a total of1.76 billion litres. As a result of the growing sophistication of alcoholic drinks consumers, wine isseeing massive growth in China. As consumers are tending to be more influenced by Westernlifestyles, many have adopted Western drinking habits.

Among all grape wines, red wine registered the highest volume growth in 2003, of 13.5%, and italso accounted for the majority of grape wine sales. Still red wine remains the most popular grapewine due to its perceived health benefits, and saw growth of 13% in value terms in 2003. Rosé wineis only popular in the South and East regions, where consumers are more knowledgeable and arewilling to pay a higher price for imported wine, while in contrast, rosé wine is not well received inother regions due to a lack of product knowledge and promotions.


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Demand for local non-grape wine is on a downward trend due to the diminishing number ofconsumers, which mainly comprise elderly people and blue-collar workers. Due to regionalpreferences, non-grape wine is more often sold in the East region. Low profit margins have causedmany non-grape wine producers to withdraw from the subsector, which resulted in a reduction inthe number of brands on the market in China over the review period.

Spirits’ declining is slowing down

The decline in sales of spirits in volume terms continues, but slowed down in 2003. Followingyears of adjustment to the government’s new taxation policies, local spirits, which account for thebulk of spirits sales, are approaching a stage of stable development. Demand is moving towardshigher quality spirits with a healthier image (ie lower alcohol content) and greater variety.

Imported spirits witnessed a downturn in demand due to increasing sales of rival drinks, such aswine, beer and even local spirits. Gin, rum, vodka and other imported spirits are mainly consumedin on-trade establishments. Sales continued to drop in 2003, although the decline is again slowingdown.

Table 6 Sales of Alcoholic Drinks by Sector: Total Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003

Beer 18,466.1 19,866.3 21,264.3 22,708.2 24,309.7 25,964.6Cider/perry - - - - - -FABs (flavoured - - - - 0.6 0.7

alcoholic beverages)Wine 1,204.0 1,300.8 1,414.1 1,539.8 1,645.9 1,757.0Spirits 6,192.0 5,314.1 4,776.6 4,310.8 3,884.3 3,590.9Alcoholic drinks 25,862.2 26,481.1 27,455.0 28,558.7 29,840.6 31,313.1

Source: Trade interviews, Euromonitor estimates

Table 7 Sales of Alcoholic Drinks by Sector: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

Beer 109,691.1 116,748.4 124,714.7 133,352.9 142,554.7 150,415.1Cider/perry - - - - - -FABs (flavoured - - - - 108.0 120.0




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Table 8 Sales of Alcoholic Drinks by Sector: % Total Volume Growth 1998-2003

% total volume growth2002/03 1998-03 CAGR 1998/03 TOTAL

Beer 6.8 7.1 40.6Cider/perry - - -FABs (flavoured alcoholic beverages) 15.0 - -Wine 6.7 7.9 45.9Spirits -7.6 -10.3 -42.0Alcoholic drinks 4.9 3.9 21.1


Table 9 Sales of Alcoholic Drinks by Sector: % Total Value Growth 1998-2003

% local currency, current value growth2002/03 1998-03 CAGR 1998/03 TOTAL

Beer 5.5 6.5 37.1Cider/perry - - -FABs (flavoured alcoholic beverages) 11.1 - -Wine 6.8 7.5 43.5Spirits -3.3 -7.4 -31.9Alcoholic drinks 2.2 0.0 -0.1


4.2 Sizes by Region

Changing habits key to low growth in spirits drinking

Due to different drinking habits across the country, different regions demonstrated significantdifferences in performance over the review period. North and Northeast China, Northwest Chinaand Southwest China, the regions that consume the most spirits, all registered lower volume growthover the review period than the other regions.

Changing drinking habits, with an increasing number of consumers switching from spirits to drinkswith a lower alcohol content, such as wine or beer, contributed to the decline of spirits sales. Thefall can also be attributed to price reductions due to high levels of competition and excessproduction capacity, particularly in the aforementioned regions, which are fairly saturated.

Increasingly sophisticated consumption in more developed regions

East, South, North and Northeast China register the highest levels of per capita consumption ofalcoholic drinks. Since these regions opened to the outside world earlier than the other regions ofChina, they tend to be more influenced by Western lifestyle trends, and are thus more likely toadopt Western drinking habits. With living standards and levels of disposable income much higherthan the national average, and with an ethos leaning towards the enjoyment of life, consumers inthese regions are more likely to purchase higher quality and branded products.

At the same time, the fever for imported alcoholic drinks has faded among these consumers, andthey tend to prefer products offering value for money. Therefore, the leading domestic wine brandsare favoured because they are much cheaper than imported wine, yet their quality is reasonablygood.

Developed regions registered higher on-trade sales


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The high level of growth in on-trade consumption was another reflection of the improving economyand rising living standards in 2003. The rapid development of bars and pubs contributed to growth.Well-paid younger consumers use bars and pubs as places for gatherings and relaxation. Also, asthe people in the East, South, North and Northeast regions can afford more expensive products, on-trade sales are greater than in other regions in both volume and value terms.

Table 10 Sales of Alcoholic Drinks by Region: Total Volume 1998-2003

bn litres1998 1999 2000 2001 2002 2003

East China 6.5 6.8 7.2 7.7 8.2 8.6Mid China 3.8 4.0 4.2 4.5 4.7 5.0North and Northeast China 8.1 8.2 8.3 8.5 8.7 9.0Northwest China 2.0 1.9 1.9 1.8 1.8 1.8South China 3.2 3.4 3.5 3.8 4.0 4.3Southwest China 2.2 2.2 2.3 2.3 2.4 2.5TOTAL 25.9 26.5 27.5 28.6 29.8 31.3


Table 11 Sales of Alcoholic Drinks by Region: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

East China 96,561.7 95,415.0 97,626.4 100,995.6 105,291.9 109,222.4Mid China 54,198.4 51,250.8 50,529.7 50,758.8 51,436.6 52,193.2North and Northeast China 77,815.7 75,112.1 73,828.1 73,604.5 74,434.0 75,511.0Northwest China 17,676.9 15,902.8 14,890.1 14,457.6 14,255.6 14,152.0South China 45,823.7 44,241.5 44,380.8 45,861.3 47,679.3 49,707.7Southwest China 47,404.6 42,771.4 40,542.6 39,294.9 38,691.6 38,429.8TOTAL 339,481.0 324,693.7 321,797.7 324,972.7 331,789.1 339,216.2


Table 12 Sales of Alcoholic Drinks by Region: % Total Volume Growth 1998-2003


East China 5.8 6.0 33.7Mid China 6.8 5.5 30.6North and Northeast China 3.6 2.1 10.9Northwest China -0.3 -1.9 -9.1South China 6.7 6.1 34.5Southwest China 4.1 2.4 12.7TOTAL 4.9 3.9 21.1



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Table 13 Sales of Alcoholic Drinks by Region: % Total Value Growth 1998-2003


East China 3.7 2.5 13.1Mid China 1.5 -0.8 -3.7North and Northeast China 1.4 -0.6 -3.0Northwest China -0.7 -4.4 -19.9South China 4.3 1.6 8.5Southwest China -0.7 -4.1 -18.9TOTAL 2.2 0.0 -0.1


4.3 Competitive Environment

More foreign beer producers to enter the market

More foreign beer manufacturers are entering the Chinese market, especially now that China hassurpassed the US as the largest beer market in the world, although per capita consumption was only19.8 litres in 2003. Competition will intensify since big local brewers are moving from producingeconomy lagers to the more profitable standard and premium lagers, which are traditionally thestrongholds of foreign producers. Foreign and local beer manufacturers will essentially be fightingover the same pie. The saving grace is that the pie is likely to grow with the continuing economicboom in China, resulting in consumer demand for better quality products. Consumers will gain,with a wider choice of brands and value-for-money products.

To avoid the high entry cost of starting from scratch, foreign companies will look to acquisitions oflocal brewers as the way to enter the Chinese market. At the same time, local brewers are adoptingthe same strategy to strengthen their current positions and to expand into other regions where theydo not have a strong foothold. Thus, it is inevitable that competition will become increasinglyfierce, and small players will find it difficult to survive.

Mergers and acquisitions ahead for wineries

As the wine industry moves to adhere to international standards for wine-making, many of thesmall wineries which previously produced half juice grape wine will not be able to sustain theirbusinesses without merging with or being acquired by the bigger players. Big players, on their part,will further consolidate their positions by forming partnerships with other major players, both localand foreign, in order to improve their product mixes and know-how in wine-making and marketing.This is to prepare themselves for more competition, as tariffs will fall to 10% by 2005, andimported wines will rush into the market.

Local spirits manufactures experience product range restructuring

The new taxation policy on local spirits unexpectedly marginalised low-end products. Profit-drivenmanufacturers are now focusing on mid- to high-end new product launches. Rising unit prices havenarrowed the gap between premium local spirits and low-end imported spirits.

4.4 Company Profiles – Leading Companies

Beijing Yanjing Beer Group

Company Background

Beijing Yanjing Beer Group, which sells high quality beer and beverage products, was started in1980. Its key brand, Yanjing beer, has been the number one brand in China for seven consecutive


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years, with a sales volume of 1,106 million litres in 2002. Yanjing beer is ranked at number 13among Chinese branded products, with its brand valued at RMB6 billion. The company has beenselected as one of China’s top 100 enterprises.

Summary 2 Beijing Yanjing Beer Group Operational Indicators 2002

Sales 2002 RMB2,767 million

% growth over 2001 21

Net profit 2002 RMB201 million

% growth over 2001 -29Source: Company research, trade interviews, Euromonitor estimates

Competitive Positioning

Beijing Yanjing Beer Group has pursued something of a buying spree, with its latest acquisitionbeing a 38% stake in Huiquan Beer Group Co, the largest beer producer in the eastern province ofFujian, for US$43 million (RMB360 million). The acquisition of Huiquan will give Yanjinganother opportunity to enter the Taiwanese market, with Taiwan located off the Fujian coast. In2002, Yanjing successfully launched its products in Taiwan, selling 2.9 million litres of beer withina few months.

The deal marks a further stage in the aggressive expansion of Yanjing, which has made some 14acquisitions in the last four years.

Yanjing beer has more than an 85% market share in Beijing, as its national headquarters are in thecapital. It also has 45% market share in Northern China; 25% in Shandong; 12% in Hubei; 35% inHunan; 35% in Jiangxi; and 75% in Guangxi. The company has successfully built its distributionnetwork across the country, which has contributed strongly to its being the number one brand ofbeer in China.

In 2002, Yanjing’s sponsorship of NBA Houston Rockets, to which the Chinese basketball star YaoMing belongs, helped Yanjing beer to break into the US market. Yanjing’s exports doubled to 6.8million litres in 2002.

Beijing Yanjing Beer Group has developed very rapidly in recent years by extending its market anddiversifying its products. Its subsidiaries include Beijing Yanjing Beer Co Ltd, Beijing YandaCrown Lid Co Ltd, Beijing Changyi Ginseng Drinks Co Ltd, Beijing Double-Swallow ColorPrinting Works, Beijing Hangxing Seasonings Co Ltd, Yanjing Mineral Water Factory and YanjingZhongke Biological Co Ltd.

Table 14 Beijing Yanjing Beer Group Shares of Alcoholic Drinks by Subsector 2000-2002

% total volume2000 2001 2002

Lager 6.6 7.4 8.5Beer 6.6 7.4 8.5

Source: Company research, trade interviews, Euromonitor estimates

4.5 Company Profiles – Leading Companies

Tsingtao Brewery Co Ltd

Company Background


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Tsingtao Brewery Co Ltd, founded in 1903, is the oldest and largest brewery in China. Tsingtao’sbusiness scope is brewing, distribution and related businesses. Its Tsingtao Beer brand has becomeone of the most well known Chinese beers, and is exported to more than 40 countries.

The company is so far the only enterprise in the food and beverage industry to be awarded theNational Quality Management Award. It recorded a sales volume of 2,951 million litres in 2002,representing a rise of 21% over the previous year. Sales of Tsingtao beer, its key product, reached909 million litres in 2002, up by 42% on 2001.

Tsingtao has successfully introduced Tsingtao beer to the Taiwanese market after China andTaiwan’s accession to the WTO, by working closely with Taiwan’s local beer distributors. In onlyeight months, it exported a total of 31 million litres to the Taiwanese market, out of its total exportvolume of 63 million litres in 2002. It aimed to produce 3,557 million litres of beer, and sell 1,186million litres of its key brand, Tsingtao, in 2003. Its ultimate goal is to be one of the 10 largest beercompanies in the world.

Summary 3 Tsingtao Brewery Co Ltd Operational Indicators 2002

Sales 2002 RMB6,195 million

% growth over 2001 32

Net profit 2002 RMB222.6 million

% growth over 2001 166Source: Company research

Competitive Positioning

Tsingtao has bought about 45 smaller rivals in China in the past four years, of which one third arebelieved to be profitable and one third at the break-even point. After such rapid expansion, thecompany is focusing on integration and consolidation of its businesses across the country.

In response to the rising competition resulting from China’s accession to the WTO andglobalisation, Tsingtao entered into a strategic alliance with Anheuser-Busch in October 2002,whereby Anheuser-Busch will increase its stake in Tsingtao to 27% over seven years, for a totalsum of US$182 million (RMB1.5 billion). Tsingtao believed it is a win-win situation for bothparties. On one hand, it can improve its management effectiveness, profitability and corecompetitiveness through Anheuser-Busch’s marketing expertise, capital and managementresources. Anheuser-Busch, on the other hand, can tap into China’s rapid growth throughTsingtao’s production bases, sales network and operational experience.

Table 15 Tsingtao Brewery Co Ltd Shares of Alcoholic Drinks by Subsector 2000-2002

% total volume2000 2001 2002

Lager 8.6 10.8 12.1Beer 8.6 10.8 12.1

Source: Company research, trade interviews, Euromonitor estimates

4.6 Company Profiles – Emerging and Niche Companies

China Kweichow Moutai Co Ltd

China Kweichow Moutai Co Ltd is a leading manufacturer of high-end local spirits. The companyis located in Guizhou province (Southwest China), with 6,000 employees and annual productioncapacity of more than 6,000 tonnes. The company developed brand extensions over the reviewperiod, and launched lower alcohol spirits (29% and 33% ABV) catering to the health trend in


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spirits consumption. Unlike other local spirits manufacturers, which have different brands anddiversified products, China Kweichow Moutai Co Ltd concentrates on its flagship brand Moutai,which has been traditionally perceived as a high-prestige brand in both the domestic market andabroad.

Under its market strategy of “One focus brand (Kweichow Moutai) complemented by multi-branddevelopment”, Kweichow Moutai launched its beer products in Southwest China in May 2003.

China Resources Enterprise Ltd

China Resources Enterprise is the second largest brewer in China, with volume sales of 2,343million litres in 2002. Its national brand, Snowflake, reached 442 million litres in volume sales in2002. China Resources Enterprise Ltd’s strategy is to expand production capacity throughacquisitions in targeted regions. Recent acquisitions include a new brewery in Wuhan City in April2002, and another new brewery in Panjin in December 2002, bringing the total number of breweriesto 28, with a combined annual production capacity of approximately 4 billion litres.

The company has concentrated on taking over leading regional breweries across the country whileretaining its own brand names, which have established consumer loyalty and leadership positions intheir local areas. For example, China Resources has Zero Point and Xing Yin Ge in Mid China,Snow Flake in Northeast China and Blue Sword in Southwest China.

COFCO (China National Cereals, Oils, Foodstuffs Imp & Exp Corp) InternationalLimited

COFCO International Limited produces and sells wine under the brand Great Wall in China,through its subsidiaries China Great Wall Wine Co Ltd, Huaxia Winery Co Ltd and Yantai COFCOWinery Co Ltd. The group has an extensive distribution network which covers over 300 leadingdistributors. It is dedicated to the development of an enterprise integrating grape planting and wine-making.

China Great Wall Wine Co Ltd is a wine producer created by COFCO in 1983, and developed thefirst domestic line of Dry White Wine and Great Wall Sparkling Wine. These filled the vacuum inChinese wines at that time. Great Wall white wines have won numerous awards at both national andinternational levels.

Huaxia Winery Co Ltd, founded by COFCO in 1988, is the first “dry red” winery in China. It islocated in Changli, Hebei Province. Acclaimed as the “Bordeaux of China”, Changli is an idealplace for grape growing since it has an excellent climate. Huaxia has built the largest vineyard offine grape varieties in China, in an area of around 667 hectares. Like the company’s white wines,Great Wall Dry Red Wine, its main product, has won many prizes at national and internationalevents.

COFCO Yantai Winery Co Ltd was established by COFCO in 1999 to produce and market GreatWall wines.

Dynasty Winery Co Ltd

Dynasty Winery Corp, founded in 1980, is a Sino-France joint venture, one of the earliest Chinese-foreign joint ventures ever set up in China, and was also the first such joint venture in Tianjin.

The company produced more than 23 million bottles of wine in 2002, a substantial increase fromthe 100,000 bottles produced when it was founded in 1980. It produces 16 varieties of wine in threeranges. Dynasty wines have won numerous awards nationally as well as at the international level.The company’s products are exported to over 20 countries and regions, including the US, the UK,Canada, Japan, France, Australia, Singapore, Denmark, Hong Kong and Macau.


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Montrose Food & Wine Ltd

Montrose Food & Wine Ltd has been supplying premium wines in the Chinese market since 1992.It was China’s first foreign wine importer and has since expanded into hotels, restaurants andsupermarkets, as well as online sales.

Montrose now exclusively carries over 700 wines from 16 countries across the globe, and itsimported wines include selections from France, Italy, the USA, Spain, Portugal, Austria, Australia,Chile, Argentina, New Zealand, South Africa and Canada.

Over the review period, Montrose expanded its business through a variety of projects, such as theestablishment of Montrose Food & Wine Hong Kong Ltd, in order to compete in the wine marketof Hong Kong, a joint venture with the Great Wall Winery Group, and a partnership with StMaarten Spirits to import a full range of premium spirits into China and Hong Kong.

Montrose entered the retail market in 2001, by opening China’s Premier Wine Boutique in the heartof Beijing’s Kerry Center Mall. This was followed by its expansion into the Tianjin metropolitanmarket in 2002, by opening up a sales office in the city to further develop and serve customers inthat area.

Shanghai Haolaixi Co Ltd

Founded in 1995, Shanghai-based Haolaixi, a distributor of imported spirits and premium localspirits, has established a strong sales network in China, reaching most of the capital cities of theprovinces. Haolaixi mainly distributes various brands of brandy, whisk(e)y, vodka, rum and tequila,ranging from mass to premium. The brands distributed include Hennessy, Rémy Martin, Camus,Courvoisier, Ballantine’s, J&B and Chivas Regal.

Sichuan Tuopai Group Co Ltd

Sichuan Tuopai Group Co Ltd is located in the Shehong County of central Sichuan, and is one ofthe leading local spirits manufacturers in China. With total assets near RMB2.8 billion, it employsmore than 5,000 people, with a total annual production capacity of over 200,000 tonnes. It was thesecond largest spirits producer in China in 2002, behind Wu Liang Ye.

Tuopai has been promoting its “modern enterprise system” since 1995. Market-oriented, thecompany has been making efforts to optimise its internal operations system and adjust the productstructure, in order to enhance net profits.

Sichuan Yibin Wu Liang Ye Distillery Co Ltd

The Wu Liang Ye Distillery is the leading spirits manufacturer in China, with registered capital ofRMB2 billion. The company is located in Yibin, Sichuan province (Southwest China), employs10,000 people and has a production capacity of 200,000 tonnes.

The company boasts 11 family brands and 42 different local spirits products, including Wu LiangYe Spirits, Jianzhuang, Wu Liang Chun, Wu Liang Purity and Ampenas Whisky, and fruit wines.Wu Liang Ye Spirits is its leading brand, and is exported to over 100 countries. The speciallypackaged supreme quality Wu Liang Ye Spirits product sells well in both domestic andinternational markets.

4.7 Distribution

On-trade vs Off-trade Sales


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The off-trade accounted for the larger proportion of both volume and value sales in 2003, withshares of 70% and 62%, respectively. The dominance of the off-trade is a result of the vast demandfor economy products in China, which are mostly sold via off-trade outlets.

The increasing number of off-trade outlets such as hypermarkets and convenience stores alsocontributed to increased sales of alcoholic drinks. This channel is increasingly important as suchoutlets are able to offer lower prices due to their strong buying power. Despite this, traditional foodoutlets remain strong, as they are conveniently located in residential areas.

Restaurants account for the majority of on-trade sales. Chinese people like to form closerelationships with their business partners, and thus prefer to talk business at the dining table ratherthan in the office. However, due to an anti-corruption campaign across the country, corporatehospitality has decreased dramatically, hitting sales in on-trade establishments to some extent. Thisanti-corruption campaign also affected consumption of premium wines and spirits. Consumersadopted more practical consumption habits, and switched to more economical drinks as a result.

Another increasingly popular on-trade channel is night-spots such as pubs, bars and lounges. Withmore exposure to the West, many people are turning to such places to socialise and relax. Thepartying lifestyle is particularly attractive to the young and those in cosmopolitan cities likeShanghai.

Table 16 On-trade vs Off-trade Sales of Alcoholic Drinks by Sector: Volume 2003

Off-trade On-trade TOTAL

Beer (Million litres) 17,738.9 8,225.6 25,964.6Cider/perry ('000 litres) - - -FABs (flavoured alcoholic beverages) - 690.0 690.0

('000 litres)Wine (Million litres) 1,023.0 734.0 1,757.0Spirits ('000 litres) 3,018,487.2 572,378.5 3,590,865.8Alcoholic drinks (Million litres) 21,780.4 9,532.7 31,313.1

Source: Store checks, trade interviews, Euromonitor estimates

Table 17 On-trade vs Off-trade Sales of Alcoholic Drinks by Sector: Value 2003

RMB millionOff-trade On-trade TOTAL

Beer 87,078.5 63,336.6 150,415.1Cider/perry - - -FABs (flavoured alcoholic beverages) - 120.0 120.0Wine 29,685.7 31,500.0 61,185.7Spirits 90,921.5 36,573.9 127,495.4Alcoholic drinks 207,685.7 131,530.5 339,216.2



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Table 18 On-trade vs Off-trade Sales of Alcoholic Drinks by Sector: % Volume 2003

% volume analysisOff-trade On-trade Total

Beer 68.3 31.7 100.0Cider/perry - - -FABs (flavoured alcoholic beverages) - 100.0 100.0Wine 58.2 41.8 100.0Spirits 84.1 15.9 100.0Alcoholic drinks 69.6 30.4 100.0


Table 19 On-trade vs Off-trade Sales of Alcoholic Drinks by Sector: % value 2003

% value analysisOff-trade On-trade Total

Beer 57.9 42.1 100.0Cider/perry - - -FABs (flavoured alcoholic beverages) - 100.0 100.0Wine 48.5 51.5 100.0Spirits 71.3 28.7 100.0Alcoholic drinks 61.2 38.8 100.0


Retailer Activity

Advent of new distribution channels

Spain’s Dia Group joined forces with Lianhua Supermarket Holdings Co Ltd, China’s largestretailer, to open the first discount store in Shanghai in July 2003. It is expected that 300 outlets willbe opened by 2006 in Shanghai and Beijing, respectively.

In cooperation with Sinopec, China’s largest petroleum retailer, Lianhua Quik, a subsidiary ofLianhua Supermarket Holdings Co Ltd, opened the first G-store in four petrol stations in Shanghaiin early June and announced that 400 more are to come.

The development of more distribution channels suggests that competition in the retail market willbecome increasingly fierce.

Convenience stores still on the rise

Convenience stores have been experiencing significant growth for several years, especially in bigcities such as Shanghai and Beijing. There is on average one convenience store per 4,200 residentsin Shanghai, close to the ratio of one store per 3,800 residents in Taiwan. This level of penetrationwas achieved in only a few years. Although experts have warned of over-supply of conveniencestores, which may result in mergers and acquisitions, the expansion is continuing.


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Table 20 Off-trade Sales of Alcoholic Drinks by Sector and Distribution Format: %Analysis 2003

% off-tradeB C/P FABs W S

Supermarkets/hypermarkets 18.0 - 90.0 55.0 50.0Independent food stores 76.0 - - 15.0 20.0Convenience stores 5.0 - 5.0 10.0 7.0Discounters - - - - -Specialists - - 5.0 10.0 15.0Direct sales - - - - -Others 1.0 - - 10.0 8.0Total 100.0 - 100.0 100.0 100.0

Source: Store checks, trade interviews, Euromonitor estimatesKey: B = beer; C/P = cider/perry; FABs = flavoured alcoholic beverages; W = wine; S =spirits

Private Label Trends

In 2003, the only private label found in alcoholic drinks was Carrefour cider. Consumers are morelikely to buy familiar brands than private labels of unknown quality. It will be some time beforeconsumers accept private label alcoholic drinks widely.

Internet Sales

Although there are hundreds of alcoholic drinks websites in China, very few alcoholic drinks aresold via the Internet. Firstly, most consumers do not have access to the Internet. Secondly, whenpeople buy alcoholic drinks, especially spirits and wine, most prefer to examine the product prior topurchase. Thirdly, Internet infrastructure and delivery systems would have to further develop beforee-shopping can take off in China.

4.8 Forecasts

Healthy growth of wine and beer to continue

Alcoholic drinks are predicted to grow by 29% in volume terms and at a lower rate of 20% inconstant value terms over the forecast period. Overall, beer is expected to achieve the highestgrowth rate, with volume growth of 35% and value growth of 36% over the period. Red wine is thestar in the wine sector, with projected volume growth of 31% and value growth of 25% between2003 and 2008.

Growth will be driven by several key factors. Firstly, in line with positive economic growth,consumer spending is expected to increase. Secondly, manufacturers will be very aggressive in theiradvertising and marketing programmes to capture consumers’ growing disposable incomes.Thirdly, distribution of alcoholic drinks will benefit from the growing number of new off-tradeoutlets in the form of supermarkets/hypermarkets, as well as more on-trade outlets, as lifestyleschange with more social activities taking place in pubs, bars and other entertainment outlets.

The growing independence of Chinese women and greater acceptance of female drinking hasresulted in a new niche for manufacturers. In the forecast period, FABs, which saw negligible salesover the review period, are expected to expand as these flavoured drinks with low alcohol contentand interesting packaging designs tend to appeal to women.

Increased competition throughout forecast period

China’s entry to the World Trade Organisation (WTO) will result in increased foreign imports. Thepotential reduction in import duties will reduce the costs of raw materials in general. The relaxation


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of controls over foreign-funded enterprises will allow more foreign players to enter the market, andexisting multinationals to expand their operations in the country.

Local manufacturers will continue to dominate sales, although foreign manufacturers will find iteasier to get their brands into the Chinese market after the country’s accession to the WTO. Theuntapped rural areas will be developed to some extent as big breweries solve transportationproblems and manage costs more effectively.

Fierce competition means that branding will become more important than price in the purchasingdecision. An increasing variety of products will become available. Lighter-tasting drinks such asdraft beer will become increasingly popular, as will “healthier” products, such as low-calorie beer.

Wine to register dynamic increase

The State Economic and Trade Commission, in its Tenth Five-Year Plan, has identified grape wineas the focus for the development of China’s alcoholic drinks industry over the next five years. Withstrong governmental support, wine sales are expected to demonstrate a dynamic performance overthe forecast period, with total sales increasing by 31% in volume terms. This will be underpinnedby increased sales of still red wine, which is predicted to see growth of 31% over the forecastperiod.

With China’s accession to the WTO, an increasing amount of foreign wine, made more competitivedue to much lower tariffs, will enter the Chinese market. With government education, increasedawareness of health issues and wine producers’ marketing campaigns, an increasing number ofconsumers will shift from spirits consumption to wine. With the continued strong growth of theChinese economy, more foreigners will also come to work or travel in the country, which willfurther contribute to increasing wine sales.

Spirits to continue to suffer

Spirits is likely to emerge as the poorest performer, with forecast declines of 14.5% and 2.5%, involume and constant value terms, respectively.

The widespread shift in consumer preferences from spirits to wine, beer and soft drinks will be themajor factor contributing to the poor performance of spirits over the forecast period.

The value decline is expected to be lower than the decrease in volume terms due to a rise in thequality of spirits being purchased. Lower alcohol content spirits are also likely to see growth.

2008 Olympic Games to boost alcoholic drinks consumption

Sales of alcoholic drinks are expected to see a boom in 2008, when the Olympic Games take placein Beijing, as fans gather together with friends at home or in on-trade outlets to support theirfavourite athletes, with live TV coverage. However, the rate of growth will be different for differenttypes of alcoholic drinks, with beer likely to see a greater increase than wine and spirits.

Based on past experience, such as the Soccer World Cup in 2002, when sales of beer in Korea andJapan soared by 30-40% during the tournament, the Olympic Games will be a golden opportunityfor beer companies. Whilst it will be a short-lived one, given that the games take place over aperiod of only around three weeks, it does provide a chance for local brands to make themselvesknown to the thousands of overseas visitors who are expected to turn up for the event.


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Table 21 Forecast Sales of Alcoholic Drinks by Sector: Total Volume 2003-2008

Million litres2003 2004 2005 2006 2007 2008

Beer 25,964.6 27,660.3 29,385.4 31,154.5 32,959.6 35,052.5Cider/perry - - - - - -FABs (flavoured 0.7 0.8 0.9 1.1 1.3 1.5


Source: Euromonitor estimates

Table 22 Forecast Sales of Alcoholic Drinks by Sector: Total Value 2003-2008

RMB million2003 2004 2005 2006 2007 2008

Beer 150,415.1 159,262.4 169,071.5 179,897.8 191,450.7 204,655.5Cider/perry - - - - - -FABs (flavoured 120.0 134.4 151.9 173.1 199.1 230.0



Table 23 Forecast Sales of Alcoholic Drinks by Sector: % Total Volume Growth 2003-2008

% total volume growth2003-08 CAGR 2003/08 TOTAL

Beer 6.2 35.0Cider/perry - -FABs (flavoured alcoholic beverages) 17.0 119.2Wine 5.5 30.9Spirits -3.1 -14.5Alcoholic drinks 5.2 29.1


Table 24 Forecast Sales of Alcoholic Drinks by Sector: % Total Value Growth 2003-2008

% local currency, constant value growth2003-08 CAGR 2003/08 TOTAL

Beer 6.4 36.1Cider/perry - -FABs (flavoured alcoholic beverages) 13.9 91.6Wine 5.2 28.9Spirits -0.5 -2.5Alcoholic drinks 3.8 20.3



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4.9 Forecasts by Region

Premium drinks to offer greater potential

Compared with the review period, premium or imported alcoholic drinks have a brighter future inthe forecast period. With the rise in living standards and greater influence from Western culture,more Chinese consumers will consume more sophisticated drinks, such as wine and spirits. Ingeneral, developed regions like East, South and North China will move away from economy lagersto standard lagers. Also, after China’s accession to WTO, imported wine and spirits will becomemore affordable to local consumers, and thus greater consumption is anticipated.

However, economy lager, non-grape wine and local spirits will continue to dominate the alcoholicdrinks market in China over the forecast period, although their market share will decline. Moreover,low-end products will mainly be sold in rural areas or the least developed regions. As a result,international and domestic alcoholic drink manufacturers will aggressively promote their productson the mainland, with wine continuing to offer the greatest potential.

Western development projects to drive growth

The Southwest and Northwest will experience strong growth in the forecast period, due to thestate’s substantial investment in these regions, in conjunction with the “Go West” policy. Thus,western regions’ transportation and logistic infrastructure will be improved, and thousands ofworkers from all areas will rush into these regions. Therefore, the western regions have a promisingfuture.

More Chinese alcoholic drinks will be exported

Due to tariff reductions after China’s entrance to the WTO, not only will more foreign alcoholicdrinks enter China, but also more local products will be exported to foreign countries. Due tosaturation in domestic non-grape wine and local spirits, Chinese manufacturers are extending theirscope in order to survive, and aiming to build better brand images. Chinese drinks are increasinglypopular in other countries, such as non-grape wine in Taiwan and local spirits in Hong Kong.

Table 25 Forecast Sales of Alcoholic Drinks by Region: Total Volume 2003-2008

Million litres2003 2004 2005 2006 2007 2008




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Table 26 Forecast Sales of Alcoholic Drinks by Region: Total Value 2003-2008

RMB million2003 2004 2005 2006 2007 2008



Table 27 Forecast Sales of Alcoholic Drinks by Region: % Total Volume Growth 2003-2008


East China 5.4 29.8Mid China 5.2 28.6North and Northeast China 5.1 28.4Northwest China 2.2 11.5South China 6.9 39.8Southwest China 4.5 24.5TOTAL 5.2 29.1


Table 28 Forecast Sales of Alcoholic Drinks by Region: % Total Value Growth 2003-2008




5. BEER

5.1 Sizes and Shares

2003 headlines

• Premium beer powers ahead in growth

• Economy lager gripped by price war

• No sign of slowdown in consolidation in the beer sector

• Regional brands lead


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• SARS impacts beer sector

Per capita consumption is still low with much room for growth

As of 2002, China had already overtaken the US as the world’s largest beer market. Total sales ofbeer in China grew by 6.8% and 5.5% in volume and current value terms, respectively, in 2003.Only lager is available in China, with negligible production or sales of dark beer, stout and non-/low-alcohol beers. In 2003, lager sales were worth RMB150.4 billion, on total volume sales of 26billion litres. Total volume sales of beer in China increased by more than 40% over the 1998-2003period.

Beer in China is constituted entirely by lager, and in particular economy brands, with the sectorbeing gripped by an ongoing fierce price war. Despite the fact that China has attained the numberone position in the world’s beer market in volume terms, its per capita consumption is only 18.7litres, far lower than the 85 litres per capita in the US. Therefore, there is still much room forgrowth, especially with the continuing boom in the Chinese economy.

Economy lagers lead in volume and value, but premium beers enjoy highest growth

Economy lager accounts for the lion’s share of beer sales, holding a share of 90% in volume termsin 2003. In value terms, it accounted for nearly 75% of total lager sales in 2003.

Beer is not considered a luxury product, and is consumed by most Chinese on a regular basis. Outof all alcoholic drinks consumed in China, 75% is beer in volume terms. In most of China, beersells at RMB3-4/litre, making it even cheaper than domestically produced bottled water.

For the majority of consumers, price is the first consideration when purchasing beer for everydayconsumption. Thus, the majority of production lines in China, especially in some inland regions,produce economy products.

Underpinned by increasing consumer affluence and a growing willingness to consume premiumlagers in pubs and bars, premium lager experienced the fastest growth in both volume and valueterms in 2003, increasing by 9.5% and 9.9%, respectively. Not only is premium lager perceived tobe of particularly high quality, but the prestige brand names also represent personal status, imageand taste.

Stout and non-/low-alcohol products negligible

Stout is not popular in China because consumers are unfamiliar with the taste. The only brandavailable in 2003 was Guinness, which is available on a limited basis in upmarket off-tradeestablishments and in on-trade outlets. Domestic sales of stout were negligible throughout thereview period.

Sales of non-/low-alcohol beer are negligible, with very little consumer awareness of such products.A few manufacturers have launched low-alcohol beers, such as Carlsberg’s Jolly Shandy. These aretargeted at people who do not like or are unable to consume alcohol. However, sales were very lowat the end of the review period, and it remains too early to speculate on the potential for suchproducts.

Producers plagued by excess production capacity

For many years, the industry has been plagued by excess production capacity, which is about 30%more than production volume. China produced 23,581 million litres of beer in 2002. With excessproduction capacity, many brewers inevitably try to undercut each other in order to retain marketshare. This strategy has been damaging for many companies, resulting in them being acquired bylarge local breweries or foreign enterprises keen to enter the Chinese market. After being takenover, production lines are streamlined to be more efficient and provide a platform for the acquirersto expand regionally through a local production and distribution network.


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Mergers and acquisitions paid off for local brewers

Heilongjiang Harbin Brewery Group acquired Ballantine Management Ltd in August 2002, forHK$70 million (RMB74.4 million) and this strategy of buying out competitors paid offhandsomely. Revenue, profits and volume sales of beers all saw more than 30% growth for thefinancial year ending 2002. This success was attributed by the company to enhanced operatingefficiencies in the newly acquired breweries.

China Resources Enterprise Ltd also attributed a large portion of its more than 50% growth inturnover and profit in 2002 to its acquisitions, including Sichuan Blue Sword in late 2001 and anew brewery in Wuhan City in April 2002. Volume sales of beer in 2002 showed an increase of62% over 2001. Discounting the new acquisitions, volume sales of beer by the company recordedgrowth of about 5.2%. Hence, it is easy to understand why the group has no intention of slowingdown, as it acquired another new brewery in Panjin in December 2002 and bought a 70% equitystake in a brewery in Beijing in January 2003.

Mergers and acquisitions among large beer manufacturers have intensified the concentration of thebeer industry among a small number of large enterprises. In 2002, the top 10 brewers accounted for46% of sector sales in China, up from 39% in 2001. Industry sources expect that China’s beerindustry will continue to undergo consolidation with the emergence of a small number of largebrewery groups.

Strategic alliances continue

Facing stiff local competition and challenges arising from China’s accession to the WTO, manylocal brewers have formed or are open to exploring strategic alliances with large multinationalcompanies. Local brewers look upon such strategic alliances favourably as they will increase theflow of foreign technology, knowledge and investment, leading to an increase in domestic qualityand expertise.

On the other hand, foreign companies are keen to ride on the back of local brewers’ productionfacilities, distribution networks and operational experience instead of going it alone, especially afterlearning from the expensive and painful lessons suffered by their predecessors. Carlsberg enteredthe Chinese market in 1997 with investment of US$80 million (RMB663 million) to build a newplant in Shanghai. However, after suffering severe losses, it was forced to retreat in 2000, sellingthe plant, with its imported Danish production line, to Tsingtao at a substantial loss. Others, likeFosters, the Australian brewer, and UK-based Bass Beers have also exited the Chinese market afterserious losses, whilst Scottish & Newcastle has also tried unsuccessfully to penetrate the market.

In June 2003, the international brewing group SABMiller announced that it had acquired a 30%stake in Harbing Brewery Group, for US$87 million (RMB721 million) in cash. The twocompanies are to explore the potential for further cooperation in a number of areas including sales,distribution and procurement. There are also plans for sharing best practice and the transfer ofexpertise.

The precedent of such alliances was set by Tsingtao, which entered into a strategic alliance withAnheuser-Busch in October 2002, whereby Anheuser-Busch will increase its stake in Tsingtao to27% over seven years, for a total sum of US$182 million (RMB1.5 billion). It is regarded as a win-win situation for both parties. On one hand, Tsingtao aims to improve its managementeffectiveness, profitability and core competitiveness through Anheuser-Busch’s marketingexpertise, capital and management resources. Anheuser-Busch, on the other hand, hopes to tap intoChina’s rapid growth through Tsingtao’s production bases, sales network and operationalexperience.

Other important consolidations and changes of ownership in 2003 included:


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• Carlsberg Asia acquired 100% of Dali Beer, a leading brewer with a market share of 41% inthe Yunnan province. The Dali acquisition followed Carlsberg’s purchase of the KunmingHuashi Brewery, also in Yunnan province, earlier in 2003. Carlsberg now has a market share ofmore than 50%.in the Yunnan province, which is in the southwest of China. The province iscurrently developing its tourism industry, which should boost beer consumption in the longterm. These acquisitions marked the comeback of Carlsberg into the Chinese market, choosingto work with reputable local brewers this time round rather than striking out on its own, as itdid a few years earlier.

• Belgium-based Interbrew has acquired a 70% stake in the KK Group for US$35 million(RMB290 million). KK Brewery is the leading brewer in the province of Zhejiang. Its mainbrands are the standard lagers King Beer and Zizhulin, as well as the premium lagers KK andOne Week.

Local breweries lead but shares highly fragmented

Despite the entry of many foreign brands into China, either through direct import or localproduction, local breweries still lead sales, for two main reasons. Firstly, in order to keep the beerfresh, and given its packaging is largely in bottles, it cannot easily or cheaply be transported overlong distances. A company’s sales radius is usually within 500 km of its brewery. Thus, if acompany does not have a local production base, it is very difficult to be price competitive.Secondly, many provinces practise local protectionism, whereby retailers are not allowed to sellbeer produced outside the province of origin. This is to ensure a steady flow of income for localgovernments, as taxes on beer are high.

As such, the beer sector in China is very fragmented regionally, with regional players capturingsignificant market share. Strong regional players include Harbin in the Northeast; Yanjing in theNorth; Tsingtao in the East; Blue Sword in the West; Zhujiang in the South; and Jinxing in MidChina. Local brand recognition and consumer loyalty are strong.

China’s large size, coupled with cargo transport problems and local protectionism have enableddomestic players to maintain their leading positions in beer on the mainland. However, the sector isstill very fragmented, with no dominant player able to capture a significant share. Tsingtao, ChinaResources and Yanjing, the three largest manufacturers, achieved a total volume share of 30% in2002. Their sector shares were 12.1%, 9.6% and 8.5%, respectively.

SARS has adverse impact on beer sales

The Chinese beer industry experienced slow sales growth in the first half of 2003 due to the SARSoutbreak. Consumers stayed at home and avoided dining out, while night-spots were ordered toclose to prevent the spread of the virus. Transportation of beer was also restricted, as cross-provincetrade was discouraged temporarily to prevent the virus from spreading. Beijing-based YanjingBrewery saw a double-digit drop in beer sales in April relative to the same month in 2002. TsingtaoBrewery, the number one brewer in China, posted sales growth of only 9.7% year-on-year for thefirst four months of 2003. It reported 11% growth for the first three months of 2002.

Beer manufacturers were affected to varying degrees by the SARS outbreak, depending on theirmarket strategies and geographical strongholds. More than 30% of Tsingtao’s sales are to hotels,restaurants and other on-trade outlets, thus its sales were hit as domestic tourism saw a severe slide.Some industry analysts have projected that Tsingtao is unlikely to meet its sales target of 3.5 billionlitres in 2003.

Yanjing Brewery was affected to a lesser degree than Tsingtao, as on-trade channels contribute onlyaround 20% to its total volume sales. At the same time, it carried out aggressive off-tradepromotions and discounts in supermarkets/hypermarkets to make up for the loss of business in theon-trade. Harbin Brewery, China’s fourth largest brewer, did not see its sales affected greatly, as95% of its beer is sold in northern China, where the virus outbreak was less severe compared toBeijing and southern China.


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The peak season for beer sales is traditionally May to October, accounting for 65% of total volumesales for the whole year. Whilst in 2003, volume sales were adversely impacted in April and Maydue to the spread of SARS, business picked up in June as the epidemic was brought under control.While industry sources do not expect the improving sales growth to offset fully the adverse impactexperienced in the second quarter of 2003, nevertheless it is early days yet to predict doom for thebeer industry. Exceptionally hot summer weather in 2003 may contribute to a strong recovery bythe industry.

Table 29 Sales of Beer by Subsector: Total Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003

Lager 18,466.1 19,866.3 21,264.3 22,708.2 24,309.7 25,964.6- Premium lager 328.7 364.1 393.9 431.5 474.4 519.3- Standard lager 1,295.5 1,363.6 1,453.0 1,549.5 1,654.4 1,763.5- Economy lager 16,841.9 18,138.6 19,417.4 20,727.1 22,180.9 23,681.7Dark beer - - - - - -Stout - - - - - -Non-/low-alcohol - - - - - -Beer 18,466.1 19,866.3 21,264.3 22,708.2 24,309.7 25,964.6

Source: Official statistics (National Bureau of Statistics of China), trade interviews, Euromonitor estimates

Table 30 Sales of Beer by Subsector: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

Lager 109,691.1 116,748.4 124,714.7 133,352.9 142,554.7 150,415.1- Premium lager 11,138.3 12,279.5 13,920.6 15,518.4 17,293.7 19,005.7- Standard lager 14,259.6 14,844.6 15,931.3 17,013.7 18,072.9 18,939.7- Economy lager 84,293.2 89,624.3 94,862.8 100,820.8 107,188.1 112,469.8Dark beer - - - - - -Stout - - - - - -Non-/low-alcohol - - - - - -Beer 109,691.1 116,748.4 124,714.7 133,352.9 142,554.7 150,415.1


Table 31 Sales of Beer by Subsector: % Total Volume Growth 1998-2003


Lager 6.8 7.1 40.6- Premium lager 9.5 9.6 58.0- Standard lager 6.6 6.4 36.1- Economy lager 6.8 7.1 40.6Dark beer - - -Stout - - -Non-/low-alcohol - - -Beer 6.8 7.1 40.6



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Table 32 Sales of Beer by Subsector: % Total Value Growth 1998-2003


Lager 5.5 6.5 37.1- Premium lager 9.9 11.3 70.6- Standard lager 4.8 5.8 32.8- Economy lager 4.9 5.9 33.4Dark beer - - -Stout - - -Non-/low-alcohol - - -Beer 5.5 6.5 37.1


Table 33 Company Shares of Beer by National Brand Owner 2000-2002

% total volumeCompany 2001 2002

Tsingtao Brewery Co Ltd 10.8 12.1China Resources Enterprises Co Ltd 6.3 9.6Beijing Yanjing Beer Group 7.4 8.5Heilongjiang Haerbing Brewery Group 3.1 3.7Guangzhou Zhujiang Brewery Group Co 3.8 3.7Yantai Beer Asahi Co Ltd. 0.9 1.9Henan Jinxing Brewery Group 1.8 1.8Fujian Huiquan Brewery Group 1.7 1.7Chongqing Brewery Group 1.3 1.6Hubei Jinglongquan Brewery Group 1.4 1.5Wuhai Budweiser Brewery Co 0.8 0.9Lion Nathan (Suzhou) Brewery Co 0.4 0.4Guangzhou San Miguel Brewery Co Ltd 0.5 0.4Shenzhen Kingway Brewery Co 0.3 0.2Heineken NV 0.2 0.2Hainan Asia Pacific Brewery Ltd 0.2 0.2Guangdong Blue Ribbon Group Co Ltd 0.2 0.1Guangdong Carlsberg Co Ltd 0.1 0.1Shanghai Asia Pacific 0.1 0.1Hubei Wuhan Ouliandong Xihui Brewery Group 1.4 -Sichuan Blue Sword Group - -Others 57.4 51.2Total 100.0 100.0

Source: Company research, store checks, trade interviews, Euromonitor estimates


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Table 34 Company Shares of Beer by Global Brand Owner 2000-2002

% total volumeCompany 2000 2001 2002

Tsingtao Brewery Co Ltd 8.6 10.8 12.1China Resources Enterprises Co Ltd 4.1 6.3 8.7Beijing Yanjing Beer Group 6.6 7.4 8.5Heilongjiang Haerbing Brewery Group 1.9 3.1 3.7Guangzhou Zhujiang Brewery Group Co 3.4 3.8 3.7Asahi Breweries Ltd 0.7 0.9 1.9Henan Jinxing Brewery Group 2.1 1.8 1.8Fujian Huiquan Brewery Group 1.5 1.7 1.7Chongqing Brewery Group 1.6 1.3 1.6Hubei Jinglongquan Brewery Group 1.6 1.4 1.5Danone, Groupe 1.0 1.4 0.9Anheuser-Busch Cos Inc 0.5 0.8 0.9Lion Nathan Ltd 0.4 0.3 0.4San Miguel Corp 0.4 0.5 0.4Asia Pacific Breweries (S) Pte Ltd 0.3 0.3 0.3Shenzhen Kingway Brewery Co 0.3 0.3 0.2Heineken NV 0.2 0.2 0.2S & P Co 0.2 0.2 0.1Carlsberg A/S 0.2 0.1 0.1Sichuan Blue Sword Group 1.8 - -Others 62.7 57.5 51.2Total 100.0 100.0 100.0



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Table 35 Brand Shares of Beer 2000-2002

% total volumeBrand (Global Brand Company 2000 2001 2002

Owner)

Yanjing Beijing Yanjing Beer Group 4.3 4.7 4.6Haerbing Heilongjiang Haerbing 1.9 3.1 3.7

Brewery GroupZhujiang Guangzhou Zhujiang 3.4 3.8 3.7

Brewery Group CoTsingtao Tsingtao Brewery Co Ltd 2.2 2.8 3.5Blue Sword China Resources - 2.2 2.9

Enterprises Co LtdZero Point China Resources 1.2 1.4 2.1

Enterprises Co LtdJinxing Henan Jinxing Brewery Group 2.1 1.8 1.8Snowflake China Resources 2.0 1.8 1.8

Enterprises Co LtdHuiquan Fujian Huiquan Brewery Group 1.5 1.7 1.7Chong Qing Chongqing Brewery Group 1.6 1.3 1.6Jinglongquan Hubei Jinglongquan 1.6 1.4 1.5

Brewery GroupYantai (Asahi Yantai Beer Asahi Co Ltd. 0.5 0.5 1.2

Breweries Ltd)Xing Yin Ge (Danone, China Resources - - 0.9

Groupe) Enterprises Co LtdBudweiser (Anheuser- Wuhai Budweiser Brewery Co 0.5 0.7 0.8

Busch Cos Inc)Asahi Super Dry Yantai Beer Asahi Co Ltd. 0.2 0.3 0.7

(Asahi Breweries Ltd)Dong Beer China Resources - - 0.5

Enterprises Co LtdSan Miguel (San Guangzhou San Miguel 0.4 0.5 0.4

Miguel Corp) Brewery Co LtdTaihushui (Lion Lion Nathan (Suzhou) 0.2 0.2 0.3

Nathan Ltd) Brewery CoKingway Shenzhen Kingway Brewery Co 0.3 0.3 0.2Tsingtao Premium Tsingtao Brewery Co Ltd 0.2 0.2 0.2Heineken Premium Heineken NV 0.2 0.2 0.2Pabst Blue Ribbon (S Guangdong Blue Ribbon 0.2 0.2 0.1

& P Co) Group Co LtdAnchor (Asia Pacific Hainan Asia Pacific 0.2 0.2 0.1

Breweries (S) Pte Ltd) Brewery LtdCarlsberg (Carlsberg Guangdong Carlsberg Co Ltd 0.2 0.1 0.1

A/S)Reeb (Asia Pacific Shanghai Asia Pacific 0.1 0.1 0.1

Breweries (S) Pte Ltd)Rheineck (Lion Nathan Lion Nathan (Suzhou) 0.1 0.1 0.1

Ltd) Brewery CoBlue Sword Sichuan Blue Sword Group 1.8 - -Xing Yin Ge (Danone, Hubei Wuhan Ouliandong 0.7 0.9 -

Groupe) Xihui Brewery GroupDong Beer (Danone, Hubei Wuhan Ouliandong 0.3 0.5 -

Groupe) Xihui Brewery GroupOthers 72.3 69.1 65.0Total 100.0 100.0 100.0


5.2 Sizes and Shares by Region


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Volume growth outpaced value growth across all regions

In 2003, volume growth continued to outpace value growth across all regions due to the intenseprice competition in economy lager. Among all regions, South China saw the highest value growthin 2003, with sales reaching nearly RMB25 billion, up by 7.6% on the previous year. The highvalue growth is a reflection of the shift in consumption towards standard lager from economy lager,especially in the more developed regions where there are higher living standards and greaterdisposable income.

On the other hand, in the less developed regions, such as Northwest and Southwest China, economybeer still remains consumers’ first choice. Per capita consumption of beer in these regions was 11.8litres and 8.5 litres, respectively, in 2003, compared with the national average of 19.8 litres perhead. Beer per capita consumption in China is dominated by the major cities, such as Beijing,Shanghai and Guangzhou, which have benefited most from the economic boom, and see the mostvisitors.

The outlook for beer remains promising as China develops its economy and catches up with worldconsumption on a per capital basis.

Regional players dominate

Tsingtao is one of the top five leading players in all regions except the South. Its major role in beeris due to its aggressive acquisition programme since 1996. In the East and Northwest regions,Tsingtao is the undisputed number one player, which is due to its headquarters being located in theEast, and its having the strongest regional presence in Northwest China relative to other brewers.Moreover, the company’s strategy of buying established breweries and retaining their existing beerbrands, coupled with the introduction of its own premium beers, has been successful. In 2002,Tsingtao had sales of 2,951 million litres and its share increased from 10.8% to 12.1%,strengthening its leading position further.

Meanwhile, China Resources Enterprise has replaced Beijing Yanjing Brewery as China’s secondleading company in beer, with volume sales of 2,343 million litres in 2002. Its national brand,Snowflake, reached volume sales of 442 million litres in 2002. The newcomer, backed by heftycapital support from Hong Kong China Resources Holding Co, has marched into the marketaggressively. The company’s strategy is to expand production capacity through acquisitions intargeted regions. Currently, it has a total of 28 breweries and a combined annual productioncapacity of approximately 4 billion litres. China Resources has the Zero Point and Xing Yin Gebrands in Mid China, Snow Flake in Northeast China, and Blue Sword in Southwest China.

Beijing Yanjing Brewery plays an important role in northern regions. It sold 2,055 million litres ofbeer in 2002, and has more than an 85% market share in Beijing. However, other regions, such asMid, South and Southwest China are dominated by regional players, for example Zhujiang in theSouth; Jinxing in Mid China; Harbin in the Northeast; and Blue Sword in the Southwest.

North and Northeast China leads beer consumption

In terms of volume sales of beer, North and Northeast was the leading region in China throughoutthe review period. In 2003, this region saw sales reach over 7.6 billion litres, representing 30% oftotal sales of beer, almost half billion litres more than the second largest region, East China. TheNorth and Northeast witnessed strong volume growth of 36% over the 1998-2003 period, equal to acompound annual growth rate (CAGR) of 6.4%.

However, the value increase in North and Northeast China was not as strong as volume growth.This is mainly due to the fact that, traditionally, consumers here prefer high alcohol content drinksand are used to drinking large volumes. However, as beer has low alcohol content, such consumersalways choose the heavy tasting beers, which usually belong to the economy range. Hence valuegrowth lags behind volume growth.


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Climatic conditions and customs play a part

Throughout the review period, East China was the second largest region in volume terms, and in2003 beer sales amounted to 7.2 billion litres. Although it has the largest population, with 23% ofthe total, it does not account for the largest volume sales of beer. However, in terms of value, itoutperformed the North and Northeast region, with sales reaching RMB49 billion. Consumers herepay more attention to the quality of the product and prefer light tasting beer. Moreover, theirstronger purchasing power permits the consumption of standard lager and the occasional purchaseof premium beer.

Another important factor is that the climatic conditions in East China do not favour all year-roundconsumption of beer. Sales of beer, especially off-trade sales, are sluggish during the winter due tothe region’s cold and wet weather. Besides, consumers usually do not have heating facilities athome and therefore consider beer too cold to drink in winter. In contrast, in North and NortheastChina, although the winter is also very cold, households have built-in heating facilities andtherefore the indoor temperature is conducive to beer drinking. Therefore, the North and Northeastregion is characterised by greater volume consumption of cheaper beer, while the East ischaracterised by lower consumption of more expensive beer.

The tropical climate in the South extends the summer season beyond that of other regions, so beercan be consumed all year-round. However, consumers in the Southwest region generally prefer highalcohol content liquors, such as local spirits; therefore consumption of beer is low. Specific regionalcustoms in Northwest China also hinder growth in beer consumption. This is because NorthwestChina has the most minorities, which form a large population in western China, and most of themhave their own unique consumption habits. For example, Hui minorities often brew their owndrinks, while Inner Mongolians like to drink Ovine Milk Jiu, and the flavour of beer does not suittheir traditional tastes. Thus, the beer sector in these regions still requires some time to develop.

Table 36 Sales of Beer by Region: Total Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003



Table 37 Sales of Beer by Region: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003




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Table 38 Sales of Beer by Region: % Total Volume Growth 1998-2003


East China 6.7 7.5 43.7Mid China 8.4 8.0 46.6North and Northeast China 6.1 6.4 36.4Northwest China 3.7 3.8 20.2South China 7.7 7.7 45.0Southwest China 7.1 7.4 43.2TOTAL 6.8 7.1 40.6


Table 39 Sales of Beer by Region: % Total Value Growth 1998-2003





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Table 40 Brand Ranking of Beer by Region 2002

Brand (Company) SW S M E NW N&NE

Aoke (Henan Aoke - - X - - -Brewery Co Ltd)

Asahi Super Dry (Yantai - - - - - 5Beer Asahi Co Ltd.)

Baotuquan (Shandong - - - 4 - -Baotuquan Brewery)

Beeb (Asia Pacific - - - X - -Breweries (S) Pte Ltd)

Blue Ribbon (Guangdong - - - - 3 -Blue Ribbon Group Co Ltd)

Blue Ribbon 11P - - - - X -(Guangdong Blue RibbonGroup Co Ltd)

Blue Sword (China 1 - - - - -Resources EnterprisesCo Ltd)

Budweiser (Wuhai X X X X X XBudweiser Brewery Co)

Carlsberg (Guangdong - - - - - XCarlsberg Co Ltd)

Chong Qing (Chongqing 2 - - - - -Brewery Group)

Corona Light (Modelo SA - - - - - Xde CV, Grupo)

Double Deer (Lion - - - X - -Nathan (Suzhou) BreweryCo)

Guang Han Gong - - - X - -(Shandong Guang HanGong Group)

Haerbing (Heilongjiang - - - - - XHaerbing Brewery Group)

Hans Dry Beer (Xi'an - - - - X -Beer Brewery Co Ltd)

Heineken Premium - - - - - X(Heineken NV)

Huiquan (Fujian Huiquan - 2 - - - -Brewery Group)

Huiquan (Huiguan - - - 3 - -Brewery Co Ltd)

Jinxing (Henan Jinxing - - 1 - - -Brewery Group)

King Long (King Long - - 2 - - -Group)

Kingway (Shenzhen - X - - - -Kingway Brewery Co)

Liquan (Guiling Liquan - 5 - - - -Co Ltd)

Nan Tian (Honghu Lan - - X - - -Tian Brewery Co Ltd)

Pabst Blue Ribbon X X - - - -(Guangdong Blue RibbonGroup Co Ltd)

San Miguel (Guangzhou X X - - X -San Miguel Brewery CoLtd)

Shengquan (Shengquan - - 5 - - -Brewery Co Ltd)

Snowflake (China 3 - - - - 4Resources Enterprises


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Co Ltd)Suntory (Jiangsu - - - 5 - -

Suntory (Kunshan)Brewery Co Ltd)

Tsingtao (Tsingtao 5 4 - 1 1 2Brewery Co Ltd)

Tsingtao Dry Beer - - - - 4 -(Tsingtao Brewery Co Ltd)

Tsingtao Shanshui - - - - - 3(Tsingtao Brewery Co Ltd)

Xihu (Lion Nathan - - - X - -(Suzhou) Brewery Co)

Xing Yin Ge (Hubei - - 3 - - -Wuhan Ouliandong XihuiBrewery Group)

Xuejin (Fujian Xuejin - 3 - - - -Brewery Group Co Ltd)

Yanjing (Beijing X X X 2 2 1Yanjing Beer Group)

Yanjing 11P Qingshuang - - - - 5 -(Beijing Yanjing BeerGroup)

Zero Point (China 4 - 4 - - -Resources EnterprisesCo Ltd)

Zhujiang (Guangzhou X 1 X - - -Zhujiang Brewery GroupCo)

Zhujiang Qingshuang 10P - - - - X -(Guangzhou ZhujiangBrewery Group Co)


5.3 Pricing

Intense competition in economy lagers kept prices low

In 2003, the off-trade price for economy lager averaged less than RMB7/litre, whilst standard lagercost RMB7-20/litre and premium lager over RMB20/litre. As in 2002, economy lager accounted formore than 90% of total beer volume sales, with the remaining 10% shared by premium and standardlagers.

As a whole, consumers place price as the first consideration in their purchasing decision. Beer isconsumed frequently by households and, as such, its pricing is kept within reach of the masses.Economy lagers are usually sold for RMB3-4/litre and competition is fierce in this segment becausethere are many breweries operating in it. For some manufacturers, the profit on a 640ml bottle ofbeer with a price-tag of RMB2 is only RMB0.1. This low margin is a result of intense price warsbetween economy lager manufacturers with little product differentiation.

On-trade unit prices for economy lager are only about 1.35 times those in the off-trade, the lowestmark-up among alcoholic drinks. With the razor-thin margins in economy lagers, many beermanufacturers, such as Tsingtao, Yanjing, and Zhujiang are concentrating more on the productionof standard lager, as margins are higher.

Premium beers enjoy strong value growth

Premium beers experienced total value growth of 10% in 2003, compared to 5% for economylagers. This is a result of brand building and positioning efforts by manufacturers and distributors toavoid the overcrowded mass market and target the growing affluent consumers in big cities through


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on-trade channels. According to San Miguel and Heineken, as much as 70-85% of their sales are inthe on-trade.

While economy lagers are consumed at home, standard and premium lagers are more often the firstchoice when dining out with family and friends. For the Chinese, the “face” factor is involved, asnobody wants to be perceived as unable to afford the better quality products. As such, more peoplechose premium beers at on-trade outlets. Since premium lagers are already priced 4-7 times higherthan economy lagers, notwithstanding the mark-ups in on-trade outlets, it is not difficult tounderstand the higher value growth for premium beers.

Summary 4 Lager by Price Band 2003

Sector Price range per litre

Premium Over RMB20/litre

Standard RMB7-20/litre

Economy Below RMB7/litreSource: Store checks, trade interviews, Euromonitor estimates

Table 41 Typical Beer Prices 2003

Pack size PriceBrand name Local company (ml) (RMB)Premium lagerHeineken Heineken NV 330 9.00Corona Light Modelo SA de CV, Grupo 355 9.60Tsingtao Platinum Premium Tsingtao Brewery Co Ltd 355 15.00Bud Ice Wuhan Budweiser Brewery 330 8.00

Co LtdStandard lagerCarlsberg Guangdong Carlsberg Co Ltd 355 4.60Pabst Blue Ribbon Guangdong Blue Ribbon Group 355 3.30

Co LtdBudweiser Wuhan Budweiser Brewery Co Ltd 640 5.00Tsingtao Tsingtao Brewery Co Ltd 355 3.50Economy lagerYanjing Beijing Yanjing Beer Group 640 3.50Asahi Yantai Beer Asahi Co Ltd 355 2.30Snowflake China Resources Enterprises 640 4.00

Co LtdZhujiang Guangzhou Zhujiang Brewery 640 2.80

Group CoOther beerGuinness Diageo Plc 330 9.30

Source: Store checks

5.4 Lager by Origin

Domestic beers dominate

Domestic players maintained their substantial lead in lager sales in 2003, with imported lagerconstituting less than 1% of total volume sales, and about 4% of total value sales.

Lager sales in China are dominated by regional players. While Tsingtao is number one in total salesvolume with all its brands combined, Yanjing continued to be number one brand in China, withvolume sales of 1,100 million litres. The brands has a share of more than 85% in Beijing. In theSouth region, Zhujiang is the leader, with more than 50% of volume sales in the Guangdongprovince, and more than 80% in Guangzhou. Huiquan leads in the Fujian province; Chongqing inthe Chongqing province; and Harbin in the Heilongjiang Province.


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Though China’s economy has grown by leaps and bounds, most consumers are still price sensitive.The price of imported beers is 3-4 times higher than domestic beers, making them affordable onlyto the higher income groups.

Table 42 Sales of Lager by Origin: Total Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003

Lager 18,466.1 19,866.3 21,264.3 22,708.2 24,309.7 25,964.6- Imported 20.9 31.0 45.9 59.6 76.4 94.8- Domestic 18,445.2 19,835.2 21,218.4 22,648.5 24,233.3 25,869.8


Table 43 Sales of Lager by Origin: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

Lager 109,691.1 116,748.4 124,714.7 133,352.9 142,554.7 150,415.1- Imported 1,373.4 2,065.4 3,050.2 3,974.7 5,066.9 6,209.2- Domestic 108,317.8 114,683.0 121,664.6 129,378.2 137,487.8 144,205.9


Table 44 Sales of Lager by Origin: % Total Volume Growth 1998-2003


Lager 6.8 7.1 40.6- Imported 24.2 35.3 353.7- Domestic 6.8 7.0 40.3


Table 45 Sales of Lager by Origin: % Total Value Growth 1998-2003

% current total value growth2002/03 1998-03 CAGR 1998/03 TOTAL

Lager 5.5 6.5 37.1- Imported 22.5 35.2 352.1- Domestic 4.9 5.9 33.1



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Table 46 Brand Shares of Domestic Lager 2000-2002


Owner)

Yanjing Beijing Yanjing Beer Group 4.3 4.7 4.6Haerbing Heilongjiang Haerbing 1.9 3.1 3.7

Brewery GroupZhujiang Guangzhou Zhujiang 3.4 3.8 3.7

Brewery Group CoTsingtao Tsingtao Brewery Co Ltd 2.2 2.9 3.5Blue Sword China Resources - 2.2 2.9

Enterprises Co LtdZero Point China Resources 1.2 1.4 2.1

Enterprises Co LtdJinxing Henan Jinxing Brewery Group 2.1 1.8 1.8Snowflake China Resources 2.0 1.8 1.8

Enterprises Co LtdHuiquan Fujian Huiquan Brewery Group 1.5 1.7 1.7Chong Qing Chongqing Brewery Group 1.6 1.3 1.6Jinglongquan Hubei Jinglongquan 1.6 1.4 1.5

Brewery GroupYantai (Asahi Yantai Beer Asahi Co Ltd. 0.5 0.5 1.2

Breweries Ltd)Xing Yin Ge (Danone, China Resources - - 0.9

Groupe) Enterprises Co LtdBudweiser (Anheuser- Wuhai Budweiser Brewery Co 0.5 0.7 0.8

Busch Cos Inc)Asahi Super Dry Yantai Beer Asahi Co Ltd. 0.2 0.3 0.7

(Asahi Breweries Ltd)Dong Beer China Resources - - 0.5

Enterprises Co LtdSan Miguel (San Guangzhou San Miguel 0.4 0.5 0.4

Miguel Corp) Brewery Co LtdTaihushui (Lion Lion Nathan (Suzhou) 0.2 0.2 0.3

Nathan Ltd) Brewery CoKingway Shenzhen Kingway Brewery Co 0.3 0.3 0.2Tsingtao Premium Tsingtao Brewery Co Ltd 0.2 0.2 0.2Pabst Blue Ribbon (S Guangdong Blue Ribbon 0.2 0.2 0.1

& P Co) Group Co LtdAnchor (Asia Pacific Hainan Asia Pacific 0.2 0.2 0.1

Breweries (S) Pte Ltd) Brewery LtdCarlsberg (Carlsberg Guangdong Carlsberg Co Ltd 0.2 0.1 0.1

A/S)Reeb (Asia Pacific Shanghai Asia Pacific 0.1 0.1 0.1

Breweries (S) Pte Ltd)Rheineck (Lion Nathan Lion Nathan (Suzhou) 0.1 0.1 0.1

Ltd) Brewery CoBud Ice (Anheuser- Wuhai Budweiser Brewery Co 0.0 0.0 0.0

Busch Cos Inc)Steinlager (Lion Lion Nathan (Suzhou) 0.1 0.0 0.0

Nathan Ltd) Brewery CoKirin Ichiban (Kirin Zhuhai Kirin President 0.0 0.0 0.0

Brewery Co Ltd) Brewery CoBeck's (Interbrew NV Lion Nathan (Suzhou) - - 0.0

SA) Brewery CoTiger (Asia Pacific Hainan Asia Pacific 0.0 0.0 0.0

Breweries (S) Pte Ltd) Brewery LtdTiger (Asia Pacific Shanghai Asia Pacific 0.0 0.0 0.0

Breweries (S) Pte Ltd)Blue Sword Sichuan Blue Sword Group 1.8 - -Xing Yin Ge (Danone, Hubei Wuhan Ouliandong 0.7 0.9 -

Groupe) Xihui Brewery Group


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Dong Beer (Danone, Hubei Wuhan Ouliandong 0.3 0.5 -Groupe) Xihui Brewery Group

Beck's (Brauerei Beck Lion Nathan (Suzhou) 0.1 0.0 -GmbH & Co) Brewery Co

Others 72.1 69.0 64.9Total 100.0 100.0 100.0


Table 47 Brand Shares of Imported Lager 2000-2002


Owner)

Heineken Premium Heineken NV 73.5 75.0 64.4Corona Extra Modelo SA de CV, Grupo 13.5 15.0 16.4Corona Light Modelo SA de CV, Grupo 1.0 2.0 2.2Sol FEMSA (Fomento Economico 1.8 2.0 2.0

Mexicano SA de CV)Stella Artois Interbrew NV SA 1.4 1.0 0.7Blue Girl Jebsen International 1.1 0.6 0.4Others 7.7 4.4 13.9Total 100.0 100.0 100.0


5.5 Packaging

Glass bottles still dominate

Glass bottles remain the most popular packaging format, accounting for 75% of total beer volumein 2003. The 640ml glass bottle is the main packaging format, since it is the preferred packaging foreconomy beer.

Most people consume beer at home or in restaurants with family and friends, so the large bottleformat of 640ml is most suitable, given that the consumption volume is large. Moreover, those whopurchased economy beer are more concerned with price than the attractiveness of the packaging.Hence, they do not mind the dark green/brown glass bottles used for economy lagers.

Consumers can return the empty beer bottles of any brands to independent food stores and obtain adiscount of RMB0.20-0.30 per bottle returned off their new purchases of beer. The empty beerbottles are then collected by the distributors, which return them to the manufacturers to be washedand re-used. This practice is adopted mostly by the small players, where new bottles account foronly about 20% of the total number. On the other hand, major players seldom collect used bottles.For example, Tsingtao collects only its own bottles, and only in the region of Tsingtao. Hence, re-used bottles constitute a very small percentage of its total number of bottles. This practice of re-using bottles helps to keep the price of packaging for economy lagers low, making it moreeconomical than the use of cans.

Cans ranging from the 330-355ml are popular in supermarkets and convenience stores because theyare easy to carry and suitable for storage in refrigerators at home. Following the trend of higherconsumption of standard lagers, can packaging increased to 17% of total volume sales in 2003,since most standard lagers are packaged in cans.

Kegs are not widely used as a packaging format in China. They are found mostly in pubs andhotels, and come mostly in 10, 20 and 30 litres. More than 50% of kegs are the 20-litre type,followed by the 30-litre and 10-litre types.


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Packaging is key to premium beer

Small bottles of 330-355ml are the preferred packaging choice for premium beer manufacturers.Premium beers are targeted at the higher income groups and are consumed in on-trade channelssuch as pubs, bars, hotels and restaurants, thus projecting the right image is crucial. To appeal to thewell-heeled young and fashionable, the bottles are designed with attractive labels and are usuallytransparent to make them look more elegant and sophisticated. The bottle is small so that it can beheld in one hand comfortably while chatting with people.

Table 48 Sales of Beer by Packaging Format: % Analysis 1998/2003

% off-trade volume1998 2003

Can 13.0 17.0Glass 80.0 75.0Plastic 0.0 0.0Keg 7.0 8.0Others 0.0 0.0Total 100.0 100.0


5.6 New Product Developments

Fruit flavoured beer for women

Fruit flavoured beer and low-alcohol beer have gained in popularity among consumers, especiallywomen. Beer manufacturers are targeting women because they have higher purchasing power as agrowing number have joined the workforce, and are slowly adopting the habit of drinking socially.The strong bitter taste of beer deters most women, so manufacturers have tried to cater to theirtastes with fruit flavoured beer. Examples include Yanjing Lemon beer and Yanjing Pineapple beer.

Low-alcohol beer for the health conscious

At the same time, consumers are becoming more health conscious with rising affluence, so they areincreasingly looking for low-alcohol beer. In the past, 11% ABV beer was common. Now, there are8% ABV beers and even 3% ABV ones for those who want to enjoy a beer and yet are healthconscious. Heilongjiang Harbin Brewery Group has developed a new product, Qingyidai, which has28% lower alcohol content and less sugar. It is claimed to be suitable for people who are diabetic oroverweight.

Draft beer continues to gain new converts

Draft beer, with its light and refreshing taste, continues to find favour with consumers. It becamepopular in 2002, and the trend has continued with more manufacturers launching draft beer tocapitalise on its rising acceptance. Major brands like Tsingtao, Yanjing and Zhujiang have launcheddraft beer among their ranges of new products.

Switch to standard lager

As the Chinese economy continues to boom, more consumers are drinking standard lagers,especially in the more affluent areas where purchasing power is higher. Moreover, due to fiercecompetition and low margins on economy beer, more manufacturers have begun to introducestandard and premium lagers into their product ranges so as to widen their consumer base anddiversify their sources of revenue.


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Tsingtao’s Banlangen forced to withdraw

In response to the SARS outbreak, Tsingtao developed a new brand of beer laced with Chinesemedicines, called Banlangen, in March 2003, hoping that it would appeal to the many Chinese whobelieve that a dried root with that name can help thwart the deadly respiratory virus. Sales ofBanlangen beer reached nearly 100,000 litres before it was forced to be recalled from the market inApril 2003, as Tsingtao had violated rules barring companies from adding traditional Chinesemedicines to food or beverages, or using the names of traditional Chinese medicines as brands.

Tsingtao has also developed green tea beer, bitter melon beer and chrysanthemum beer, thoughvolume sales remain very small.

China becomes the third country in the world to produce milk beer

Liulutong Dairy Development Corporation Ltd in Hebei province has started the production of milkbeer, a new tonic beverage, after Tianjin Food Science Research Institute invented it by taking freshmilk as the raw material and fermenting it twice. Milk beer is a cross between milk and beer, with alow alcohol content. China was the third country after the United States and Japan to acquire theproduction technology. However, such beers are not widely available in retail outlets.

Summary 5 Beer: New Product Launches 2002-2003

Brand name Company Product type Launch date

Jolly Shandy Guangdong CarlsbergCo Ltd

Low-alcohol lager April 2003

Harbin-Bingshengtai Heilongjiang HarbinBrewery Group

Domestic standardlager

April 2003

Laiyiza Beijing Yanjing BeerGroup

Dark beer April 2003

Yanjing Lemon Beer Beijing Yanjing BeerGroup

Domestic standardlager – lemon-flavoured

March 2003

Yanjing PineappleBeer

Beijing Yanjing BeerGroup

Domestic standardlager – pineappleflavoured

March 2003

Yanjing 8° LowAlcohol Beer


Low-alcohol lager March 2003

Yanjing Fengdu Beer Beijing Yanjing BeerGroup


March 2003

Tsingtao Banlangen Tsingtao Brewery CoLtd

Beer with Chinesemedicine

March 2003

Qingpi Heilongjiang HarbinBrewery Group


December 2002

Qingyidai Heilongjiang HarbinBrewery Group

Low alcohol lager November 2002

Golden WheatZhujiang Beer

Guangzhou ZhujiangBrewery Co Ltd

Domestic premiumlager

July 2002

Zhujiang PremiumDraft Beer

Guangzhou ZhujiangBrewery Co Ltd

Domestic premiumlager

July 2002

Yanjing Light Beer11°P



June 2002

Lion Red Dry Beer Lion Brewing Group Domestic standardlager

May 2002


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Lion Fresh Beer Lion Brewing Group Domestic standardlager

May 2002

Teshuang Suntory Shanghai SuntoryBeer Co Ltd

Domestic economylager

May 2002

Yanjing 12º Ice Beer Beijing Yanjing BeerGroup


March 2002

Yanjing 12º Rose Beer Beijing Yanjing BeerGroup


March 2002

YanjingChrysanthemum Beer


Domestic standardlager –chrysanthemumflavoured

March 2002

Source: Company research, store checks, trade interviews

5.7 Distribution

On-trade vs Off-trade Trends

The off-trade distribution channel, dominates with 68% of total volume sales of beer in 2003. Thisis largely due to the bulk sales of economy lager which make up more than 90% of total volumesales. Economy lager is consumed by the lower and lower-middle income groups, who buy at off-trade outlets such as independent food stores and supermarkets/hypermarkets.

On the other hand, more premium beer is sold through on-trade outlets than in the off-trade. Thiscan be attributed to marketing efforts targeted at the upper-middle and high income groups inrestaurants, bars, pubs and hotels by manufacturers and distributors of premium beer. Most of themposition their beer as a symbol of sophistication and success. Some companies engage beautifulgirls in on-trade outlets to entice customers to choose their brands, while others use promotionssuch as two for the price of one or price discounts during certain periods to drive sales.

Furthermore, with growing affluence and a faster pace of life, more people are dining out. As morepeople are exposed to Western lifestyles, as China opens up to the world, many young people havedeveloped the habit of relaxing and drinking with friends at pubs. At the same time, more womenare drinking outside the home because it has become more acceptable socially, and they havegreater spending power as many have joined the workforce. All these developments contributed tothe higher growth of on-trade sales in both volume and value terms over the review period.

SARS hit on-trade sales

However, due to the SARS outbreak during the second quarter of 2003, on-trade sales weresluggish as many people avoided crowded places. It is estimated that on-trade sales fell by as muchas 50-80% during the second quarter of 2003. Manufacturers were quick to react and carried outaggressive promotions and discounts at off-trade channels to encourage consumption. Though theseefforts did not manage to offset fully the fall in on-trade sales, they arrested the steep dive. Ingeneral, SARS has caused more damage to the premium beer manufacturers because they rely moreon on-trade channels for their sales. With SARS under control, business started to come back in on-trade outlets, and many manufacturers expressed optimism that growth would return to normal inthe second half of 2003, balancing out the negative effects of the second quarter. On-trade volumegrowth stood at an estimated 7.5% in 2003, which will still outpace off-trade volume growth of6.2%.

High entry fees a barrier to on-trade expansion

The payment of entry fees to supermarkets/hypermarkets and entertainment spots such as discos,pubs, nightclubs before brewers can sell and promote their products is common in China. Thispractice has grown to an unhealthy level, with more restaurants entering the fray to demand similar


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selling and promotion rights at their outlets. Distribution costs for brewers have escalated as aresult, thus their profitability is under mounting pressure and their expansion plans for on-tradebusiness are being hampered.

Table 49 On-trade vs Off-trade Sales of Beer: Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003

Off-trade 12,895.0 13,871.9 14,769.4 15,656.5 16,660.0 17,738.9On-trade 5,571.1 5,994.4 6,494.9 7,051.7 7,649.7 8,225.6TOTAL 18,466.1 19,866.3 21,264.3 22,708.2 24,309.7 25,964.6


Table 50 On-trade vs Off-trade Sales of Beer: Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003



Table 51 On-trade vs Off-trade Sales of Beer: % Volume Growth 1998-2003

% volume growth2002/03 1998-03 CAGR 1998/03 TOTAL

Off-trade 6.5 6.6 37.6On-trade 7.5 8.1 47.6TOTAL 6.8 7.1 40.6


Table 52 On-trade vs Off-trade Sales of Beer: % Value Growth 1998-2003

% current value growth2002/03 1998-03 CAGR 1998/03 TOTAL



Off-trade Distribution Patterns

Independent food stores continue to dominate the retail channels, with a 76% share of beer volumesales, as they are conveniently situated in residential areas. However, with moresupermarkets/hypermarkets opening in China, especially in the big cities, sales of beer throughindependent food stores have declined, and are being taken away by supermarkets/hypermarkets,which had an 18% share in 2003.

Consumers have increasingly taken to shopping at supermarkets/hypermarkets as there are manychoices available, given the vast selection of brands and products. Also, consumers are able to getbetter prices because of the economies of scale commanded by such outlets and the constant


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promotions and discounts carried out. However, the share of sales through convenience storesremained stagnant at 5% in 2003, due to their relatively high prices and low penetration rate.

Budweiser succeeds with its distribution chain

While most local brewers must pass through four or five distributors before getting their products toconsumers, Budweiser has succeeded in keeping its distribution chain to three levels. Products gofrom the Budweiser brewery to its regional distributor and then to the retailer. This distributionchain offers the dual advantages of higher profit margins and tighter control. The success ofBudweiser in China can be partially attributed to its ability to build up a stable and loyaldistribution network in 36 cities across China.

Table 53 Off-trade Sales of Beer by Distribution Format: % Analysis 1998/2003

% off-trade1998 2003

Supermarkets/hypermarkets 12.0 18.0Independent food stores 81.0 76.0Convenience stores 5.0 5.0Discounters - -Specialists - -Direct sales - -Others 2.0 1.0Total 100.0 100.0


5.8 Forecasts

International brewers cannot ignore China’s potential

In contrast to mature markets around the world which offer limited growth potential, beer volumesales in China are set to grow by 35% over the 2003-2008 period, such that sales will become largerthan the whole of Western Europe combined, and account for 20% of world volume sales by 2008.In 2003, per capita consumption of beer stood at 19.8 litres, compared to an average of 86 litres inthe US. Hence, there is significant room for growth.

After its accession to WTO, China has become an even more attractive market to multinationals.While the benefits of joining the trade body may not be felt for many years to come, it should leadto greater liberalisation and a decline in protectionism in the long term. International brewers arekeen to access what is now the world’s largest beer market through partnerships, developing localbrands and knowledge on a regional basis; hence the trend of mergers and acquisitions willcontinue.

In the immediate term, there is a concerted push by beer manufacturers to switch consumers’ tastesto higher quality products, such as standard and premium lagers, through strong marketingcampaigns in on-trade channels in the urban areas. Demand for branded lager is currently tiny incomparison to economy lager, but in the long term demand for high quality products will increaseas disposable incomes rise.

Brewers to focus on rural areas next

Beer manufacturers are likely to turn their attention towards consumers in the less developedregions of China, as the urban areas are closer to reaching their maturity, and the strong growthenjoyed in the past cannot continue indefinitely. Rural per capita consumption is about 50% lowerthan in the developed areas, offering significant potential for growth.


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Previously untapped rural areas will develop to some extent as big breweries solve thetransportation problems concomitant with serving such areas, and also seek to manage costs moreeffectively. However, levels of growth will vary, depending on the economic development of theregion.

Japanese producers set their sights on China

Faced with a saturated market back home, Japanese beer producers are now setting their sights onChina, which is now the largest beer market in the world. Suntory Ltd has unveiled plan to establisha research and development base in Shanghai to develop beer and soft drinks to be sold in China. Itwill also release new products and extend its operational and distribution reach to other parts of themainland. Asahi Breweries Ltd is planning to build a new plant in Beijing to produce Super Dry, itsmain draft beer. It hopes to make its operation in China profitable within three years of the launchof the new plant, in spring 2004. Following suit are Sapporo Breweries Ltd, which is planning toincrease local production and expand sales channels into major cities, as well as Kirin Brewery,which is considering making inroads into China through Lion Nathan, its Australian businesspartner.

2008 Olympic Games to boost sales

Brewers are eagerly anticipating the 2008 Olympic Games in Beijing. Beer is traditionally thepreferred alcoholic drink when watching sport live on TV at home or at on-trade outlets, such aspubs or restaurants. Volume sales are expected to increase substantially during the games, more sothan for other alcoholic drinks. Given past experience, such as the Soccer World Cup in 2002, whensales of beer in Korea and Japan soared by 30-40% during the tournament, beer producers canexpect to enjoy a boom in business during the 2008 Olympic Games. Although it will probably be ashort-lived boom, given that the event is held over only three weeks period, it is a significantopportunity for beer companies. This is especially true for local brewers as it provides a chance tointroduce their brands to the thousands of overseas visitors who are expected.

More strategic alliances expected

Local brewers are keen to explore strategic alliances with large multinational companies, in order tosurvive stiff competition arising from China’s accession to the WTO. At the same time, foreigncompanies are eager to sell to the 1.3 billion Chinese, but lack local knowledge. Hence, suchalliances are mutually beneficial as there is an inward flow of foreign technology, knowledge andinvestment, leading to improvements in domestic quality and expertise, while foreign companiescan benefit from local brewers’ production facilities, distribution networks and operationalexperience instead of going it alone. With these clear advantages, more mergers and acquisitionsare expected during the forecast period.

Table 54 Forecast Sales of Beer by Subsector: Total Volume 2003-2008

Million litres2003 2004 2005 2006 2007 2008

Lager 25,964.6 27,660.3 29,385.4 31,154.5 32,959.6 35,052.5- Premium lager 519.3 572.7 631.5 696.6 767.4 852.6- Standard lager 1,763.5 1,893.9 2,041.3 2,206.4 2,390.6 2,604.8- Economy lager 23,681.7 25,193.7 26,712.6 28,251.4 29,801.6 31,595.1Dark beer - - - - - -Stout - - - - - -Non-/low-alcohol - - - - - -Beer 25,964.6 27,660.3 29,385.4 31,154.5 32,959.6 35,052.5



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Table 55 Forecast Sales of Beer by Subsector: Total Value 2003-2008

RMB million2003 2004 2005 2006 2007 2008

Lager 150,415.1 159,262.4 169,071.5 179,897.8 191,450.7 204,655.5- Premium lager 19,005.7 21,065.8 23,403.0 26,025.8 28,928.5 32,400.7- Standard lager 18,939.7 19,936.8 21,047.9 22,226.2 23,476.1 24,919.1- Economy lager 112,469.8 118,259.8 124,620.6 131,645.8 139,046.0 147,335.7Dark beer - - - - - -Stout - - - - - -Non-/low-alcohol - - - - - -Beer 150,415.1 159,262.4 169,071.5 179,897.8 191,450.7 204,655.5


Table 56 Forecast Sales of Beer by Subsector: % Total Volume Growth 2003-2008


Lager 6.2 35.0- Premium lager 10.4 64.2- Standard lager 8.1 47.7- Economy lager 5.9 33.4Dark beer - -Stout - -Non-/low-alcohol - -Beer 6.2 35.0


Table 57 Forecast Sales of Beer by Subsector: % Total Value Growth 2003-2008


Lager 6.4 36.1- Premium lager 11.3 70.5- Standard lager 5.6 31.6- Economy lager 5.5 31.0Dark beer - -Stout - -Non-/low-alcohol - -Beer 6.4 36.1



North and Northeast region will lead volume sales

The largest beer drinking region is expected to remain the North and Northeast region, with forecastsales of 10,400 million litres of beer by 2008. Though the winter in this region is extremely cold,households have built-in heating facilities and thus consumption of beer all year round is nothindered.

The East will maintain its position as the second largest beer region in 2008, with volume sales of9,513 million litres. The climate does not favour all year-round consumption of beer due to the coldand wet winter conditions. In addition, consumers usually do not have heating at home and thus


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regard beer as too cold to drink in winter, and consume yellow wine instead. However, with risingprosperity, premium beer will find more consumers in the East.

Highest growth in South and lowest in West

In South China, rural consumers residing in the Pearl River Delta areas represent a substantialpotential market for standard or even premium products, as wealth trickles down from the moreaffluent urban areas. It is probable that South will continue to experience the highest growth rate inbeer sales over the forecast period.

However, in less developed regions, such as Mid China, where economy beer will continue toaccount for the largest proportion of sales, growth will be dependent on the speed of economicexpansion.

In the western regions, where the climate is harsher, with particularly cold winter months,consumers are traditionally more inclined to consume liquor with high alcohol content. Many ruralconsumers are not fully aware of the health benefits of beer, relative to high alcohol spirits, and thusconsumer education is needed before sales can take off.

Table 58 Forecast Sales of Beer by Region: Total Volume 2003-2008

Million litres2003 2004 2005 2006 2007 2008



Table 59 Forecast Sales of Beer by Region: Total Value 2003-2008

RMB million2003 2004 2005 2006 2007 2008




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Table 60 Forecast Sales of Beer by Region: % Total Volume Growth 2003-2008




Table 61 Forecast Sales of Beer by Region: % Total Value Growth 2003-2008




6. WINE


2003 headlines

• Red wine leads with highest growth rate

• Abolition of half juice grape wine

• Changyu, Dynasty and Great Wall dominate the wine sector

• Robust wine sector attracts many new entrants

• Wine sector plagued by fake products

Non-grape wine leads in volume

Sales of wine in China increased rapidly over the review period, by 46% in volume and by 41% invalue terms. In 2003, total sales of wine reached over 1.7 billion litres, valued at more than RMB61billion, largely dominated by non-grape wine, which consists of locally produced rice wine. Suchnon-grape wines accounted for 75% of total wine sales in volume terms in 2003, with the rest beingaccounted for by imported and locally produced grape wines.

Non-grape wine as defined here is mainly consisted of traditional Chinese rice wine, also called“yellow wine” or shaoxing wine. Its alcohol content ranges from 14% to 20% and it is widelyperceived to be nutritious and beneficial to health. Yellow wine is more popular among olderconsumers, who may drink a small portion every day, and many new mothers consume this productas a tonic. It is, however, not appreciated by the young as they consider it a traditional and old-fashioned drink.


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With its consumer base limited to the older population, volume growth in yellow wine of 5.5% waslow compared to red wine’s double-digit growth of 13.5% in 2003.

Red wine powers ahead

Total sales of red wine in 2003 reached 272 million litres with a value of RMB10.9 billion, up13.5% in volume terms and 13.1% in current value terms, making it not only the most dynamic ofall wines but also of all alcohol drinks.

The significant growth of grape wine sales is a result of the growing middle class developing a tastefor wine, and the increased awareness of the health benefits that are inherent in grape wines. Theinfluence of Western eating and drinking habits has played a key role too. Wine consumption onlycaught on in China in the early 1990s. The trend-setters have been those who have studied aboardor businessmen who travel abroad frequently. They tend to be very sophisticated, well read andaffluent, seeking to live a more gracious lifestyle, of which wine appreciation is seen as a part.

As a result, a “wine and dine” culture has begun to develop around social events and specialoccasions, such as wedding dinners and birthday parties. Wine has successfully carved a place foritself in Chinese restaurants, with many consumers switching from local spirits to wine.Promotional and marketing activities by foreign trade associations and local retailers, such as wine-tasting classes, also contributed to the increase in wine consumption. With increased localproduction over the years, a wide range of wines from low to high priced brands has becomeavailable to the less affluent consumers to indulge in wine appreciation as a status symbol too.

Red wine is particularly popular because of its colour, as red is believed by the Chinese to bringgood luck. Many Chinese consumers drink red wine on special days such as Chinese New Year.Wine producers recognised the trend of increased health consciousness among consumers, and thuspositioned their marketing campaigns from the angle of red wine’s ability to improve bloodcirculation and prevent heart diseases. All these factors contributed to red wine leading the pack,with a share of 60% of grape wine volume sales, leaving white and rosé wine some way behind.

White wine lacklustre, rosé’s share marginal

Chinese people traditionally decorate things in red for happy days and in white for bad days, suchas funerals. As most Chinese consumers lack knowledge of wine, when it comes to makingpurchasing decisions, it is often the colour of the wine that influences their choice. This contributedto the lacklustre performance of white wine, which grew by 6.7% in volume terms in 2003, half therate of red wine.

White wine accounted for only 30% of total grape wine volume in 2003, since Chinese consumersare not accustomed to its taste, and there was less promotion by manufacturers and distributors.

Sales of still rosé remained small throughout the review period due to its perceived lack ofsophistication and taste when compared to red or white wines. Rosé accounted for a marginal shareof total wine sales in 2003, with only 10% of the grape wine subsector. Rosé continues to be a smallniche, with expatriates wine drinkers as its main consumers.

Sparkling wine and vermouth negligible

Champagnes, other sparkling wines, fortified wine and vermouth have been available in China for along time, but in negligible quantities. Demand is limited due to poor advertising and promotion, aswell as cultural factors, with beer and spirits more popular in the country.

Still wine industry plagued by fake products


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According to a recent survey by the China National Administration for Industry and Commerce inBeijing, Shenyang, Zhengzhou and Chengdu, more than 70% of “imported” wine sold inrestaurants and hotels in the four cities is fake.

Its inspection of 50 hotels and restaurants in the four cities revealed that just 28.6% of bottles soldas imported wine were the real thing. Though Beijing fared better than the rest, it is reported tohave only managed 60% authenticity. Counterfeiting is a multimillion dollar business in China.Sometimes, it is simply done by transferring cheap local wine into imported bottles complete withlabels.

The prevalence of fake products destroys the confidence of consumers and is damaging to thedevelopment of the wine industry in China. This illegal trade is detrimental to local winemanufacturers’ plans to expand into higher end products. In addition, it will be extremely difficultto instil consumers’ confidence in buying imported wine for fear of overpaying, thereby impairingthe healthy growth of the industry. Imported wines made up less than 20% of total volume sales ofgrape wine in 2003. Having recognised the threat posed by counterfeiting, the government isclosing in on illegal agents and dealers.

Changyu, Great Wall, Dynasty dominate the grape wine market

While there are no official statistics published on individual market shares of major companies,industry consensus indicates that Changyu, Great Wall and Dynasty are the undisputed top threewine companies in China. Industry sources estimate that they had a combined volume share of 50-60% in both volume and value terms in 2003.

Changyu has the advantages of branding, a strong sales network and a broad product range. Interms of branding, Changyu has established itself as the leader of wine in China, resulting from itslong history and reputation. In addition, it has built up almost 1,000 major sales outlets. Changyuoffers a wide range of wines, from dry wine to sweet wine, and a comprehensive price range from afew renminbi to a few hundred, to cater to all consumers.

Great Wall enjoys strong backing from its parent company, the state-owned China NationalCereals, Oils & Foodstuffs Import & Export Corporation (COFCO), in terms of resources andconnections. Thus, it is a brand that is easily recognisable by consumers and it is highly regarded asa national brand with a loyal following.

Finally, Dynasty has an image of class and good taste. It has carved out a substantial share in thepremium wine segment, making it a popular brand in on-trade outlets. Dynasty has also built up astrong sales network.

Grape wine market buzzing with new entrants

As red wine is a booming area in the alcoholic drinks industry, some spirits and beer producershave also entered the fray, hoping to have a piece of the action and diversify their revenue base.Examples include:

• Wuliangye, which, in cooperation with France’s Plamon Group, launched Asia Dry Red wine

• Maotai, working with Hong Kong Tongbao Winery Co Ltd, launched Moutai Dry Red wine

• Gujinggong acquired Fenglai Winery

• Tsingtao launched Kaixuan wine

• Quanxing and Luzhoulaojiu are also preparing to enter the wine sector

New brands muscling in with substantial advertising spending

Attracted by the double-digit growth of the grape wine industry, and armed with strong capitalbacking, two newly established wine companies are muscling in with substantial advertising


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spending, attempting to wrestle share away from the veterans. Suntime spent RMB42.9 million onadvertisements on CCTV, far more than Changyu’s RMB28.9 million, while Impression spent anextravagant sum of RMB82.5 million, beating all industries, including IT, telecommunications,spirits, beer and even cosmetics companies, to be the number one spender on advertising on CCTV.

Suntime and Impression have since joined forces as they shared the same vision to “make wineavailable and affordable to everyone” and vowed to “popularise wine consumption in China”.Impression planned to launch in July 2003 a 100ml soft packaging for red wine for consumption atnon-premium restaurants so as to change consumers’ perception that red wine is a high-end, luxuryproduct.

With such aggressive marketing by the newcomer, it is inevitable that established companies willreact with counter strategies, mostly in the form of price cutting, in order to retain their marketshares. Hence, a wine price war is looming in China.

Abolition of half juice grape wine

The China State Economic and Trade Commission has recently announced the abolition of halfjuice grape wine, which has led to much controversy outside and inside wine industry.

According to the announcement, all wineries were to stop the production of half juice grape winesby 17 May 2003. All marketing of half juice grape wines was to stop by 30 June 2004. The halfjuice grape wine standard has been abolished in order to accelerate the restructuring of the Chinesewine industry and to adhere to the standards of the international market.

The so-called half juice grape wine is a product found only in China. Besides grape juice, sugar,water and some essences are also added in half juice grape wine production. The product is popularamong ordinary Chinese people due to its low price. However, with the development of the marketeconomy, more and more industry players petitioned to stop half juice grape wine productionbecause the reduction of grape juice content by some profiteering producers had created unhealthycompetition in wine industry.

Industry sources estimate that the half juice grape wine market made up a large portion of the grapewine industry in China. Some reckoned that as much as two thirds of grape wine was half juicegrape wine, while others suggested a more conservative figure of 40%. However, all agreed thatsales of half juice grape wine were more prevalent in less developed regions due to lower standardsof living.

The gap in the market left by the abolition of half juice grape wine means that there will be a majorreshuffle in the Chinese wine sector. All wineries will have to meet this change by reorganisingtheir production and marketing strategies. They will have to transform their product mixes fromhalf juice grape wine to full juice grape wine within as short a time as possible.


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Table 62 Sales of Wine by Subsector: Total Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003

Still red wine 127.2 143.4 169.5 209.8 240.0 272.3Still white wine 86.2 91.7 100.1 111.9 120.0 128.1Still rosé wine 33.5 34.6 36.3 38.5 40.0 41.5Sparkling wine - - - - - -- Champagne - - - - - -- Other sparkling wine - - - - - -Fortified wine and - - - - - -

vermouthNon-grape wine 957.1 1,031.1 1,108.2 1,179.6 1,246.0 1,315.1- Half juice grape wine - - - - - -- Rice wine below 335.6 361.7 390.5 415.6 437.5 458.9

RMB10/litre- Rice wine from RMB11- 292.2 316.0 340.4 364.3 387.2 411.7

50/litre- Rice wine from RMB51- 225.3 241.6 257.8 272.7 287.2 302.8

100/litre- Rice wine over 104.1 111.9 119.5 127.0 134.2 141.7

RMB100+/litre- Other non-grape wine - - - - - -Wine 1,204.0 1,300.8 1,414.1 1,539.8 1,645.9 1,757.0


Table 63 Sales of Wine by Subsector: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

Still red wine 5,398.3 6,024.0 7,025.2 8,521.4 9,635.7 10,897.1Still white wine 2,688.7 2,845.0 3,082.6 3,415.4 3,639.3 3,887.2Still rosé wine 1,195.4 1,232.3 1,286.0 1,358.1 1,404.6 1,461.0Sparkling wine - - - - - -- Champagne - - - - - -- Other sparkling wine - - - - - -Fortified wine and - - - - - -

vermouthNon-grape wine 33,368.6 35,447.5 37,644.3 40,054.7 42,595.3 44,940.4- Half juice grape wine - - - - - -- Rice wine below 2,556.4 2,714.6 2,902.8 3,067.1 3,238.5 3,385.5

RMB10/litre- Rice wine from RMB11- 4,955.7 5,324.5 5,702.8 6,109.4 6,527.3 6,909.1

50/litre- Rice wine from RMB51- 12,915.9 13,694.6 14,503.0 15,414.9 16,402.9 17,356.2

100/litre- Rice wine over 12,940.5 13,713.7 14,535.7 15,463.3 16,426.6 17,289.5




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Table 64 Sales of Wine by Subsector: % Total Volume Growth 1998-2003


Still red wine 13.5 16.4 114.1Still white wine 6.7 8.2 48.6Still rosé wine 3.7 4.4 23.8Sparkling wine - - -- Champagne - - -- Other sparkling wine - - -Fortified wine and vermouth - - -Non-grape wine 5.5 6.6 37.4- Half juice grape wine - - -- Rice wine below RMB10/litre 4.9 6.5 36.7- Rice wine from RMB11-50/litre 6.3 7.1 40.9- Rice wine from RMB51-100/litre 5.4 6.1 34.4- Rice wine over RMB100+/litre 5.6 6.4 36.1- Other non-grape wine - - -Wine 6.7 7.9 45.9


Table 65 Sales of Wine by Subsector: % Total Value Growth 1998-2003


Still red wine 13.1 15.1 101.9Still white wine 6.8 7.7 44.6Still rosé wine 4.0 4.1 22.2Sparkling wine - - -- Champagne - - -- Other sparkling wine - - -Fortified wine and vermouth - - -Non-grape wine 5.5 6.1 34.7- Half juice grape wine - - -- Rice wine below RMB10/litre 4.5 5.8 32.4- Rice wine from RMB11-50/litre 5.9 6.9 39.4- Rice wine from RMB51-100/litre 5.8 6.1 34.4- Rice wine over RMB100+/litre 5.3 6.0 33.6- Other non-grape wine - - -Wine 6.8 7.5 43.5


Summary 6 Major Wine Companies 2003

First tier Yantai Changyu Wine Group Co Ltd

Yantai COFCO Winery Co Ltd

Dynasty Winery Co Ltd

Second tier Tonghua Grape Wine Co Ltd

Yantai Weilong Grape Wine Co Ltd

Minquan Wufeng Wine Co Ltd

Up and coming Vinisuntime International Co Ltd

Impression Winery Co LtdSource: Company research, store checks, trade interviews, Euromonitor estimates


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Summary 7 Major Brands of Wine 2003

First tier Changyu (Yantai Changyu Wine Group Co Ltd)

Great Wall (Yantai COFCO Winery Co Ltd)

Dynasty (Dynasty Winery Co Ltd)

Second tier Huaxia (Yantai COFCO Winery Co Ltd)

Tonghua (Tonghua Grape Wine Co Ltd)

Weilong (Yantai Weilong Grape Wine Co Ltd)

Minquan Wufeng (Minquan Wufeng Wine CoLtd)

Up and coming Suntime (Vinisuntime International Co Ltd)

Impression (Impression Winery Co Ltd)Source: Company research, store checks, trade interviews, Euromonitor estimates

6.2 Sizes by Region

North and Northeast China – number one region for wine

North and Northeast China’s coastal area, with its advantageous natural conditions, grows the bestwine grapes, such as cabernet sauvignon in Changli and muscat in Tianjin. As such, it is not onlythe largest wine-producing region, but also the number one region for wine consumption. In 2003,sales of grape wine in the region reached 124 million litres, representing growth of 11% over theprevious year.

There are two key consumer groups in the Northeast, one is the sophisticated group, normallyconsisting of foreign expatriates and the well-heeled middle to high income workers, since NorthChina has the most foreign companies as well as embassies. The other group is “modern”consumers, who are ordinary wage earners but like to purchase local wine to keep up with the trend.This group is expanding, and consumes imported wine on limited occasions.

Regional wine consumption varies

In 2003, East and South China were the second and third largest regions for grape wine after theNortheast, with volume sales totalling 104 million and 100 million litres, respectively.

As affluent regions, people living in East and South China are more influenced by Westernlifestyles including drinking preferences. Due to rising incomes and increased exposure to Westernfood, sales of imported wine are higher in these regions. Imported wines are often first launched inShanghai and Guangzhou before being introduced to other areas.

As a result of aggressive marketing campaigns, consumers in the large cosmopolitan cities showgood product recognition for premium wine. However, as domestic companies start to enter thehigh-end market, consumers are showing strong support for these local products, which taste goodand are reasonably priced.

Regional companies dominate

There are many wine producers located in Northwest China, which consists of the extensive alluvialplain to the east of the Helan mountains in Ningxia, the Wuwei district in Gansu, and Tulufan inXinjiang. This is a newly developed wine-producing area on the Silk Road in China, and enjoysgood weather and produces high-grade wine grapes; Xinjiang was the first established grapeplanting and winemaking area.


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However, as the Northwest is the least developed region, and consumer purchasing power is low,regional brands are the leaders, as they are comparatively cheap. There are, however, a few nationalbrands, such as Suntime and Yeli.

Table 66 Sales of Wine by Region: Total Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003

East China 613.9 657.8 709.8 763.6 811.3 861.3Mid China 197.3 213.2 231.3 251.7 268.5 286.5North and Northeast China 137.2 148.2 163.4 183.8 201.0 218.3Northwest China 18.1 19.1 20.6 22.7 24.3 26.0South China 160.2 179.2 198.4 219.1 235.3 252.4Southwest China 77.4 83.3 90.5 98.9 105.5 112.4TOTAL 1,204.0 1,300.8 1,414.1 1,539.8 1,645.9 1,757.0


Table 67 Sales of Wine by Region: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

East China 24,014.5 25,471.2 27,235.0 29,303.9 31,296.5 33,211.8Mid China 5,825.5 6,204.3 6,641.7 7,207.6 7,732.1 8,247.6North and Northeast China 4,493.2 4,811.2 5,284.3 5,934.6 6,481.2 7,066.7Northwest China 434.8 458.0 491.7 540.3 574.7 610.9South China 5,772.7 6,348.8 6,956.7 7,699.3 8,332.2 8,988.5Southwest China 2,110.3 2,255.2 2,428.6 2,663.9 2,858.2 3,060.2TOTAL 42,651.0 45,548.7 49,038.0 53,349.6 57,274.9 61,185.7


Table 68 Sales of Wine by Region: % Total Volume Growth 1998-2003





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Table 69 Sales of Wine by Region: % Total Value Growth 1998-2003




6.3 Sizes of Non-grape Wine by Region

East region dominates

Non-grape wine in China mainly comprises rice wine, also called “yellow wine”, which is a type oftraditional alcoholic drink with a strong regional character. The consumption of yellow wine isconcentrated in the East region because of local drinking habits, with the East being where itoriginated. In 2003, overall sales of non-grape wine reached 1.3 billion litres, with the Eastaccounting for 57.5% (757 million litres) and 63.6% (RMB29 billion) of total volume and value,respectively.

The yellow wine producers are mainly located in the East region, especially in the Zhejiangprovince, which accounts for 60% of non-grape wine production. In fact, all the leading brands ofnon-grape wine come from Zhejiang, such as Gu Yue Long Shan, Chaoxing Hua Tiao andNuerhong. The urban areas account for a dominant share of yellow wine consumption as consumersare more sophisticated, and pay more attention to the quality of the wine. Consequently, yellowwine priced above RMB50/litre is mostly sold in the urban areas, while wines consumed in ruralareas generally cost less than RMB10/litre. However, although purchasing power is low in ruralareas, the potential for yellow wine priced RMB11-50/litre is very promising, due to increasingurbanisation and improving living standards.

Non-grape wine remains small in other regions

Sales of non-grape wine in other regions are low. In general, only a few provinces in the South andMid regions consume yellow wine, and it remains unpopular in Southwest, Northeast andNorthwest China, especially in the latter two regions, where there is an ingrained preference forlocal spirits.

Moreover, people in the Northwest prefer locally-made traditional non-grape wines, with OvineMilk Jiu in Xinjiang province very popular among the minorities. Ovine Milk Jiu is a traditionaldrink going back hundreds of years, and is produced by the local people and consumed on a dailybasis. Also, people in the South like to use low-end yellow wine for cooking, especially for seafoodproducts. Therefore, non-grape wine in other regions still needs time for development, andmarketing activities are needed in order to promote sales.

Competition from other liquors

Yellow wine dominates non-grape wine in China, but is facing strong competition from other non-grape wines, such as the Chinese Nuo Mi Jiu and Japanese sake, as well as some sweet-scentedosmanthus wines. Furthermore, non-grape wine also faces competition from beer, grape wine andspirits, since these westernised alcoholic drinks have a better image and taste. Usually, youngconsumers are more inclined to drink beer and wine to show they are in touch with the world, whilebusinessmen prefer spirits.


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However, yellow wine also has its own uniqueness that distinguishes it from other liquors. Yellowwine is often consumed in autumn or winter as a daily tonic, and is much loved by the elderly andpeople of poor health. Therefore, the consumer base and sales growth remained stable in 2003, butlower-end yellow wine is on a downward trend, as consumers are more cautious about the qualityof the product.

Table 70 Sales of Non-grape Wine by Region: Total Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003

East China 556.9 595.3 638.4 679.1 717.0 757.0Mid China 158.0 170.6 183.2 195.1 206.1 217.6North and Northeast China 70.9 75.1 79.7 84.4 89.2 94.0Northwest China 8.2 8.6 9.0 9.4 9.9 10.4South China 109.0 123.3 135.1 144.8 153.1 161.5Southwest China 54.2 58.4 62.8 66.8 70.7 74.6TOTAL 957.1 1,031.1 1,108.2 1,179.6 1,246.0 1,315.1


Table 71 Sales of Non-grape Wine by Region: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003



Table 72 Sales of Non-grape Wine by Region: % Total Volume Growth 1998-2003





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Table 73 Sales of Non-grape Wine by Region: % Total Value Growth 1998-2003




6.4 Price Segmentation

Red and white wine commonly priced at RMB30-40/litre

Over the review period, the price segmentation of red and white wine remained much the same.

Half juice grape wine, a unique product found only in China, is produced by adding sugar, waterand some essences to grape juice. As the amount of grape juice varies across brands, prices canrange from RMB5/litre to RMB15/litre.

Domestic still red and white wine is usually priced at RMB30-60/litre with the most popular onespriced at RMB30-40/litre. For most price-conscious drinkers, the preference is for wine pricedbelow RMB40/litre. Imported bulk wines which are locally bottled are priced at RMB60-90/litre.The domestic and imported premium wines are priced at RMB90-120/litre and over RMB120/litre,respectively.

In general, the unit price for red wine is slightly higher than for white wine, as the former is morepopular in the Chinese market.

Consumers upgrading to still wine

In China, half juice grape wine is popular among consumers, not only because of its low price,which allows regular consumption, but also its taste is more easy on the tongue than still wine,which Chinese consumers are not accustomed to.

However, as income levels rise and educational efforts by wine manufacturers bear fruit, moreconsumers will start to ask for the “real thing” and not the diluted version. As a result, with theshare of half juice grape wine slowly shrinking, manufacturers are putting greater efforts intoupgrade their existing products, improving product technology as well as quality.

Imported wines more competitive with falling tariffs

As part of China’s WTO agreement in December 2001, tariffs on wine fell, thus allowing foreignwines to be more competitively priced in the RMB60-90/litre range, and to fight for share withdomestic wines. To face this competition, domestic producers also reduced the prices of theirpremium products. This has benefited consumers as they are able to enjoy good quality wineswithout the high price tags.

Premium wine has limited consumer base

In 2003, premium wine accounted for only a small share of sales, owing to its high price. The mainconsumers of premium wine are foreign expatriates, local businessmen, and the more sophisticated.Domestic premium wines are priced lower, at RMB90-120/litre, whereas those costing over


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RMB120/litre are almost exclusively imported products. The prices of imported premium wines canreach several hundreds renminbis, which means that only a privileged few get to enjoy them, andthey are usually found in high-class on-trade establishments.

Rosé wine is a niche market

Sales of rosé wine are low because consumers lack the necessary product knowledge, and winemanufacturers are not doing much to educate them. In China, domestic rosé wines are mostly pricedbelow RMB30/litre, and imported rose wines are above RMB60/litre.

Table 74 Sales of Red Wine by Price Segment 1998/2003


Under RMB 30 45.0 32.5RMB 30 to RMB 59.99 30.0 45.0RMB 60 to RMB 89.99 10.0 12.5RMB 90 to RMB 119.99 12.0 7.5RMB 120 and above 3.0 2.5Total 100.0 100.0


Table 75 Sales of White Wine by Price Segment 1998/2003




Table 76 Sales of Rosé Wine by Price Segment 1998/2003




6.5 Non-grape by Type

Four price segments for non-grape wine

Throughout the review period, the leading price ranges for non-grape wine, or Chinese yellowwine, were RMB10/litre and under, and RMB11-50/litre. Yellow wine is a traditional drink, whichdoes not require complicated distilling technology and, as such, its unit price is comparatively low.


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Indeed, low-end yellow wine is generally dominated by regional players, especially those pricedbelow RMB20/litre. However, premium products, which are priced above RMB100/litre, aremanufactured by national players, such as Gu Yue Long Shan and Nuerhong. The pricing of yellowwine varies according to the number of years of ageing; for example, wine stored 3-5 years ispriced under RMB50-100/litre, while wine stored for more than five years is often overRMB100/litre. These premium products are often purchased as gifts or consumed during specialChinese festivals, like Moon Cake festival or Chinese New Year.

Table 77 Sales of Non-grape by Type: Total Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003

Non-grape wine 957.1 1,031.1 1,108.2 1,179.6 1,246.0 1,315.1- Half juice grape wine - - - - - -- Rice wine below 335.6 361.7 390.5 415.6 437.5 458.9




RMB100+/litre- Other non-grape wine - - - - - -


Table 78 Sales of Non-grape by Type: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

Non-grape wine 33,368.6 35,447.5 37,644.3 40,054.7 42,595.3 44,940.4- Half juice grape wine - - - - - -- Rice wine below 2,556.4 2,714.6 2,902.8 3,067.1 3,238.5 3,385.5




RMB100+/litre- Other non-grape wine - - - - - -


Table 79 Sales of Non-grape by Type: % Total Volume Growth 1998-2003


Non-grape wine 5.5 6.6 37.4- Half juice grape wine - - -- Rice wine below RMB10/litre 4.9 6.5 36.7- Rice wine from RMB11-50/litre 6.3 7.1 40.9- Rice wine from RMB51-100/litre 5.4 6.1 34.4- Rice wine over RMB100+/litre 5.6 6.4 36.1- Other non-grape wine - - -



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Table 80 Sales of Non-grape by Type: % Total Value Growth 1998-2003


Non-grape wine 5.5 6.1 34.7- Half juice grape wine - - -- Rice wine below RMB10/litre 4.5 5.8 32.4- Rice wine from RMB11-50/litre 5.9 6.9 39.4- Rice wine from RMB51-100/litre 5.8 6.1 34.4- Rice wine over RMB100+/litre 5.3 6.0 33.6- Other non-grape wine - - -


6.6 Packaging

Glass the dominant packaging format

Glass bottles accounted for 95% of total off-trade wine sales in 2003, strengthening its dominancefurther. For grape wine, the most common packaging size is the 750ml bottle, with a very smallportion of 1-litre and 375ml bottles. The slight increase in share of glass packaging over the reviewperiod was brought about by the use of glass bottles as a form of packaging for non-grape winestoo, especially for low and middle range products.

Non-grape wines have their own distinct packaging in pottery, with some in the form of historicalor legendary figures from Chinese history. This type of packaging is more often used for higher endproducts to differentiate them from the lower end ones. In addition, pottery is used for its ability topreserve wine. Non-grape wine in pottery can be stored in good condition for as long as 20 years.The most common packaging size for non-grape wine is 500ml.

Table 81 Off-trade Sales of Wine by Packaging Format: % Analysis 1998/2003


Glass 91.0 95.0Plastic 0.0 0.0Carton 2.0 2.0Bag-in-box 0.0 0.0Others 7.0 3.0Total 100.0 100.0


6.7 Distribution


In China, about 58% of total volume wine sales were through off-trade channels in 2003. However,in large cities such as Shanghai, Beijing and Guangzhou, on-trade channels may account for up to60% of total volume sales.

Wine consumption has continued to increase in on-trade establishments such as restaurants, pubs,bars and nightclubs due to the rising disposable income of the growing middle and upper incomegroups. In the past, more socialising was carried out at home, with alcoholic drinks purchased fromoff-trade outlets. Imported wine dominates sales in most upmarket on-trade establishments. Twofactors contributed to this phenomenon: firstly, consumers in upmarket outlets are mostly foreigners


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or expatriates, who are likely to be familiar with foreign brands but may know little about thedomestic alternatives; secondly, in such establishments domestic brands are no match for theirforeign competitors in terms of packaging and promotions.

A bottle of wine is often expensive in the on-trade due to high mark-ups in order to coveroverheads. To entice consumers to drink, on-trade establishments will offer promotions such as twofor the price of one promotions, or the second glass at 50% off. At other times, companies willorganise wine-tasting sessions at an attractive price in on-trade channels so as to create awarenessand increase wine appreciation.

SARS hits on-trade sales

On-trade sales were badly affected as a result of the SARS outbreak, as people avoided crowdedareas in order to reduce the risk of infection. Declines of as much as 50-80% in on-trade sales werereported during the second quarter of 2003. Manufacturers reacted with aggressive promotions anddiscounts at off-trade outlets in order to offset the steep fall in on-trade sales. In general, SARS hascaused more damage to imported wines because they rely more on on-trade channels for their sales.Given that SARS has been successfully brought under control, business has started to creep back inon-trade channels. It is thought that growth has picked up and returned to normal in the second halfof 2003.

Table 82 On-trade vs Off-trade Sales of Wine: Volume 1998-2003

Million litres1998 1999 2000 2001 2002 2003

Off-trade 713.1 766.8 829.3 899.1 959.2 1,023.0On-trade 491.0 534.0 584.8 640.8 686.7 734.0TOTAL 1,204.0 1,300.8 1,414.1 1,539.8 1,645.9 1,757.0


Table 83 On-trade vs Off-trade Sales of Wine: Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003



Table 84 On-trade vs Off-trade Sales of Wine: % Volume Growth 1998-2003





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Table 85 On-trade vs Off-trade Sales of Wine: % Value Growth 1998-2003





Supermarkets/hypermarkets not only retained their top position in off-trade channel for volumesales of wine in 2003, but also increased their share to 55%. Given that supermarkets/hypermarketsoffer a wide range of goods at competitive prices, and are conveniently located in shoppingdistricts, an increasing number of consumers like to do their shopping in these large outlets. Assuch, wine manufacturers and importers have focused their marketing efforts on these outlets to tapthis rising patronage.

Specialist stores accounted for 10% of off-trade distribution in 2003, and many of them are run bywine importers. They tend to carry only imported wines in order to maintain an image ofsophistication and taste, so as to appeal to the young and affluent. Sometimes they run subsidised orfree wine-tasting classes to stimulate interest, and act as an avenue to consumers who lackknowledge in wine but are keen to learn more. The outlets look upon such classes as a form ofinvestment which allows them to reap higher returns from sales in the medium to long term.

Other food outlets still accounted for 10% of off-trade sales of wine in 2003, because manyconsumers buy yellow wine from outdoor markets due to their low prices. However, these outlets,which constitute a more traditional distribution format, saw their share eroded over the reviewperiod.

Table 86 Off-trade Sales of Wine by Distribution Format: % Analysis 1998/2003


Supermarkets/hypermarkets 50.0 55.0Independent food stores 15.0 15.0Convenience stores 8.0 10.0Discounters - -Specialists 10.0 10.0Direct sales - -Others 17.0 10.0Total 100.0 100.0


6.8 Forecasts

Tremendous potential in grape wine

Sales of grape wine in China are expected to fall significantly in 2004, as the marketing of halfjuice grape wine will be prohibited in June 2004. The fall in sales will be reflected most acutely inred wine, with a fall of more than 20% in both volume and value terms, as it has a higher portion ofhalf juice grape wine than white wine. There is no half juice rosé grape wine. However, it isexpected that sales of grape wine, and the double-digit growth in red wine in particular, will resumein 2005, after wine manufacturers are given time to restructure and reposition themselves.


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Given that per capita consumption of grape wine in China was only 0.34 litres in 2003, compared tothe world average of 7 litres, there is tremendous potential for growth in the years ahead. Also, theState Economic and Trade Commission, in its 10th Five-Year Plan, has identified grape wine as thefocus for the development of China’s alcoholic drinks industry over the next five years. This is dueto the under-representation of grape wine in overall alcoholic drinks production in China. Grapewine only accounts for a tiny 1% of the total.

Over the forecast period, non-grape wine, ie “yellow wine”, is expected to maintain stable growth,with CAGRs of 5.9% and 5.6% in volume and value terms, respectively. The State Economic andTrade Commission, in its 10th Five-Year Plan, has stated that production of Chinese rice wineshould be encouraged. With government support, favourable policies will be enacted to facilitatethe growth of the rice wine industry.

More imported wines expected

As part of China’s WTO agreement, the tariff on wine in bottles of less than two litres will bereduced from 65% to14%, and the tariff on wine in bulk will be reduced to 20%, effective from 1January 2004. Tariff on wine in bottles is set to drop to 10% by 2005.

This brings hopes to foreign winemakers that a bottle of premium wine could soon be affordable toChina’s growing middle class. Importers hope to be able to tap the mass market after years of beingrestricted to a tiny, elite market. With an increasingly open economy and the growing influence ofWestern eating and drinking habits, young consumers have demonstrated a preference for beer andgrape wine, especially red wine. Indeed, grape wine is becoming a fashionable drink for wealthy,young and sophisticated Chinese consumers.

Currently, according to government figures, Spain, Chile, Italy, France and the United States are themajor wine exporters to China in volume terms. Imported wines made up less than 20% of the totalgrape wine market by volume in 2003.

Mergers and acquisitions ahead

With the halting of half juice grape wine production in May 2003, and of sales in June 2004,industry experts estimated that some 200 manufacturers which are very small in terms ofproduction volume will be affected. It is unlikely that they will be able to turn to producing fulljuice grape wine within the given timeframe. Thus, many will choose to merge with or be acquiredby large companies. Industry sources predict that China wine industry would follow in the footstepsof the beer sector, with mergers and acquisitions as the strategy for growth in the next two years.

However, half juice grape wine is not going to disappear from the shelves of stores next year.Under the new ruling, it is prohibited to be sold as full juice grape wine, but it can still be sold aslong as it does not claim to be full juice. Thus, some industry players have suggested changing itsname to guo jiu, and it can thus continue to be marketed, since it already enjoys a substantialmarket share and consumers are accustomed to its taste. Having said this, it is still uncertainwhether consumers will continue to buy half juice grape wine if more are aware that it is notauthentic, and may perceive it as of low quality.

Currently there are more than 600 wineries in China, 70% of which produce less than 1,000 tonnesper year, whilst only 10 wineries have production capacity of more than 10,000 tonnes per year.Having suffered the double blows of the abolition of half juice grape wine and increased pricecompetition from imported wines, as a result of falling tariffs, many wineries will be forced toconsolidate to enjoy economies of scale in order to survive. Industry players suggest that the futureof the Chinese wine industry lies in the hands of the big players – Changyu, Great Wall andDynasty – since they already have a head start and will be able to withstand the changes broughtabout by new regulations.


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Table 87 Forecast Sales of Wine by Subsector: Total Volume 2003-2008

Million litres2003 2004 2005 2006 2007 2008

Still red wine 272.3 214.9 245.9 279.8 316.5 356.3Still white wine 128.1 109.3 117.3 125.7 134.2 142.8Still rosé wine 41.5 43.2 45.1 47.0 48.8 50.5Sparkling wine - - - - - -- Champagne - - - - - -- Other sparkling wine - - - - - -Fortified wine and - - - - - -

vermouthNon-grape wine 1,315.1 1,475.3 1,542.4 1,613.5 1,682.0 1,750.3- Half juice grape wine - 88.2 80.1 72.8 64.5 57.5- Rice wine below 458.9 479.1 498.8 517.5 533.7 548.3






Table 88 Forecast Sales of Wine by Subsector: Total Value 2003-2008

RMB million2003 2004 2005 2006 2007 2008

Still red wine 10,897.1 8,768.4 9,863.3 11,036.1 12,259.0 13,570.6Still white wine 3,887.2 3,344.7 3,590.7 3,841.9 4,101.8 4,364.2Still rosé wine 1,461.0 1,523.1 1,591.9 1,658.4 1,723.2 1,784.9Sparkling wine - - - - - -- Champagne - - - - - -- Other sparkling wine - - - - - -Fortified wine and - - - - - -

vermouthNon-grape wine 44,940.4 48,628.6 51,105.0 53,732.2 56,451.2 59,145.5- Half juice grape wine - 1,189.1 1,054.2 934.7 803.7 700.1- Rice wine below 3,385.5 3,529.4 3,669.6 3,802.8 3,925.8 4,040.1







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Table 89 Forecast Sales of Wine by Subsector: % Total Volume Growth 2003-2008


Still red wine 5.5 30.8Still white wine 2.2 11.5Still rosé wine 4.0 21.8Sparkling wine - -- Champagne - -- Other sparkling wine - -Fortified wine and vermouth - -Non-grape wine 5.9 33.1- Half juice grape wine - -- Rice wine below RMB10/litre 3.6 19.5- Rice wine from RMB11-50/litre 6.3 35.5- Rice wine from RMB51-100/litre 5.7 32.0- Rice wine over RMB100+/litre 5.7 32.0- Other non-grape wine - -Wine 5.5 30.9


Table 90 Forecast Sales of Wine by Subsector: % Total Value Growth 2003-2008


Still red wine 4.5 24.5Still white wine 2.3 12.3Still rosé wine 4.1 22.2Sparkling wine - -- Champagne - -- Other sparkling wine - -Fortified wine and vermouth - -Non-grape wine 5.6 31.6- Half juice grape wine - -- Rice wine below RMB10/litre 3.6 19.3- Rice wine from RMB11-50/litre 5.9 33.4- Rice wine from RMB51-100/litre 5.5 30.8- Rice wine over RMB100+/litre 5.4 30.0- Other non-grape wine - -Wine 5.2 28.9



Yellow wine moves South

Over the forecast period, non-grape wine, ie “yellow wine”, is expected to continue the regionaltrends apparent over the review period. Mature markets for yellow wine include Shanghai, Zhejiangprovince, Jiangxi province and Jiangsu province, while growing markets include Beijing, Fujianprovince, Guangdong province, Henan province and Shandong province.

Many more companies will enter the southern regions because demand there is far from saturated,and thus competition is much less fierce compared with East China. The less competitiveenvironment will provide a healthy development space for yellow wine companies.


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Urban areas account for a large proportion of yellow wine consumption. Due to limited purchasingpower, the consumption of yellow wine in rural regions is mostly limited to festive days. Withincreasing urbanisation and rises in living standard, the potential for yellow wine in rural areas willbe better.

More to enjoy grape wine

Consumption of grape wine is strongest in major cities such as Shanghai, Beijing and Guangzhou.As consumer awareness increases and grape wines become more affordable due to pricecompetition, more people in the developing regions such as Mid, Northwest and Southwest Chinawill be able to enjoy them as well.

As with other alcoholic drinks, urban areas account for a large proportion of grape wineconsumption. With the continuing boom in the China’s economy, the rural areas will benefit fromincreased prosperity as well, leading to greater purchasing power. Hence, there is potential forgrape wine sales in rural areas over time.

Sales of red wine are expected to continue their robust growth, owing to its wide appeal as a healthydrink and its colour being deemed “auspicious’ by the Chinese. White wine sales are expected tolag behind, and rosé wine will remain the least popular choice. Neither of these types enjoys asmuch investment from manufacturers in terms of advertising as red wine. More education is neededin order to generate more receptivity to white and rosé wine.

Table 91 Forecast Sales of Wine by Region: Total Volume 2003-2008

Million litres2003 2004 2005 2006 2007 2008

East China 861.3 905.4 958.4 1,015.5 1,071.7 1,128.6Mid China 286.5 301.5 318.6 336.1 353.3 370.8North and Northeast China 218.3 227.1 242.6 259.7 277.8 297.0Northwest China 26.0 26.7 28.1 29.6 31.1 32.6South China 252.4 264.5 279.4 295.2 311.5 328.3Southwest China 112.4 117.5 123.5 129.8 136.2 142.6TOTAL 1,757.0 1,842.8 1,950.6 2,066.0 2,181.6 2,300.0


Table 92 Forecast Sales of Wine by Region: Total Value 2003-2008

RMB million2003 2004 2005 2006 2007 2008




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Table 93 Forecast Sales of Wine by Region: % Total Volume Growth 2003-2008




Table 94 Forecast Sales of Wine by Region: % Total Value Growth 2003-2008




7. SPIRITS


2003 headlines

• Value decreases more slowly than volume

• Premium products craze in local spirits

• Main consumer group of spirits remains unchanged, though consumption is shrinking

• Imported spirits still losing market share

• Low-end imported spirits compete with mid- and high-end local products

Sales continue to drop but value decreases more slowly than volume

Total sales of spirits continued to fall over the review period, although the rate of decline slowed.Volume sales declined by an estimated 8% in 2003, whilst in current value terms they fell by 3.3%.

The consumption of imported spirits used to be passion-driven, as consumers did not makepurchases out of their own necessity. With increasing product awareness and maturing consumereducation, the consumption of imported spirits is very much based on one’s own need. Meanwhilegrowing health consciousness and government restrictions on public-funded banquets andentertainment have also had a negative impact on sales.

Due to the central government’s control over the development of domestic spirits, the local spiritsindustry has been experiencing restructuring for a number of years. Some well-known local spiritsmakers have suffered significant declines in both volume and value terms, but have been able to


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survive. Lang Jiu Group, for example, witnessed a 35% decline in volume sales in 2001. However,after product restructuring and adjustment, the company achieved 116% growth in volume sales in2002.

Premium products craze as a result of the new taxation policy on local spirits

Many local spirits manufacturers have either reduced or ceased production of low-end brands.Sichuan Quanxing, for example, cut down production of its low-end Quanxing Da Qu brand, andhas concentrated on the mid- to high-end product Shui Jing Fang.

Among the new product launches in 2002 and 2003, premium products accounted for a largeproportion of the total.

In order to minimise declines in turnover, some local spirits manufacturers have targeted moreprofitable and growing sectors, and have started to produce beer or wine. Beijing General Distillery,well known for its Red Star Er Guo Tou spirits brand, has begun to produce wine under the brandYeguangbei.

Local spirits still fragmented

There are about 38,000 local spirits manufacturers in China in 2002, but only 33 have an annualoutput of over 20,000 tonnes (19,240,000 litres). The total production volume of these 33manufacturers represents about 30% of the total national output.

Even for leading players such as Sichuan Yibin Wu Liang Ye Distillery Co Ltd, Sichuan TuopaiGroup Co Ltd, and Beijing General Distillery, their national volume shares were only 3.7%, 1.9%and 1.3%, respectively, in 2002. Local small brands with low retail prices still account for asubstantial percentage of total volume sales.

Local spirits heavily advertised on TV

TV advertising is the most important way to promote consumer awareness of spirits brands, andsome manufacturers spend significant sums. Wu Liang Ye, for example, generally spendsRMB100-200 million on TV advertising every year.

The most effective means is to run commercials on the national TV network CCTV (ChineseCentral TV). Baofeng, recently acquired by Jianlibao, one of the major domestic soft drinksmanufacturers, successfully used prime time advertising on CCTV in 2003, at a cost of RMB2.5million. The high investment is usually rewarded by sales. A survey has shown that 44.6% ofconsumers stick to one brand once they conclude that this brand is reliable. TV advertising is aneffective way to create a strong brand image and sustain awareness among consumers.

Main consumer group of spirits remains unchanged, though consumption isshrinking

Chinese spirits are still a key element in Chinese people’s consumption habits. In north and inlandareas, drinking local spirits is very common social behaviour. The main consumers are men agedbetween 24 to 45, regardless of their educational background. However, consumption among thiskey group is gradually declining, due to growing health concern and the promotion of more healthydrinks, such as beer and wine.

Low-end products target consumers in rural areas, whereas the heavy drinkers in cities are mainlymanagers in companies or departments, and they consume premium products on social occasions.For imported spirits, typical consumers are those who are more exposed to Western lifestyles andwho are wealthy enough to afford these more expensive products.

Imported spirits still loses market share


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Total sales of imported spirits continued to drop in 2003, although the decline has been slowingdown. In terms of volume, sales of whisk(e)y, brandy and cognac fell by about 2% in 2003, whilevodka declined by around 1%.

Penetration of imported spirits rises, but need further expansion in retail market

Imported spirits brands found in the Chinese market in 2003 included:

Single malt Scotch whisky:

Glenfiddich

Blended Scotch whisky:

Ballantine’s 12 YO, Ballantine’s 17 YO, Ballantine’s Finest, Grant’s, Johnnie Walker, JohnnieWalker Gold Label

Bourbon/other US whiskey:

Jim Beam

Canadian whiskey:

Canadian Club

English gin:

Bombay Sapphire, Gordon’s, Tanqueray

Vodka:

Finlandia, Stolichnaya

Dark rum:

Mount Gay

Tequila (and mezcal):

José Cuervo, Sauza

Bitters:

Bols, Campari, Cointreau, De Kuyper range, Galliano, Kahlúa, Southern Comfort, Tia Maria

Imported spirits have very narrow market penetration – about 80% of imported spirits areconsumed in the on-trade, in restaurants, bars, night clubs and high class hotels, in major cities suchas Shanghai, Beijing and Guangzhou. The SARS outbreak in the second quarter of 2003 greatlyaffected the sales of imported spirits during that period, as on-trade establishments were required toclose for business to stop the spread of the disease.

More vigorous promotion strategies adopted by imported spirits manufacturers

Besides using the traditional on-trade promotion site – bars – imported spirits manufacturers haveadopted more active approaches to gain market share while competing with local counterparts.Instead of encouraging Chinese consumers to adapt to the tastes of imported spirits, foreignmanufacturers have been making more efforts to cater to local people’s taste. Seagram 30° Hi,


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which tastes like a combination of local spirits, rice wine as well as imported whisky, is a newproduct from Pernod Richard which is tailored to satisfy the specific needs of the Chinese.

To meet the fast-changing consumer trends, imported spirits manufacturers continually introducenew, trendy drinks. The successful launches of rum and FABs in 2003, like Bacardi Ice and BacardiJazz by Bacardi & Co Ltd, suggests that manufacturers are exploring new markets for importedspirits.

For imported spirits, on-site promotion is particularly important to boost sales, as areadvertisements in trendy magazines. Promoters are frequently found in restaurants, bars, clubs,specialists and big retail outlets. Sponsoring public events, especially sports games, is also effectivein promoting brand image. Johnnie Walker, for example, sponsored the Shanghai Inter-Club GolfChampionship in 2002. Golf is a symbol of class and elegance in China, and by sponsoring suchevents, imported spirits manufacturers aim to boost public awareness of their brands, especiallyamong the affluent. Hip-hop, which is of great interest to fashion-conscious young people, isutilised by Bacardi & Co Ltd to promote its brands among the younger generation. The companysponsored the first hip-hop band in China, Hi-Bomb, and its national concert tour in 2002.

Domestic brand dominates brandy sales in terms of volume

Domestic wine maker Changyu is also well known for its Jinjiang brandy. Targeted at the domesticoff-trade market, Changyu Jinjiang brandy had a sales volume of over 14 million litres in 2003, andsales have grown by around 5% annually for the past few years. Owing to the fact that about 80%of Changyu brandy on sale is constituted by its low-end products, with retail prices of aboutRMB26/litre, total sales value in 2003 was low compared with imported brandy. However, in termsof off-trade share, Changyu Jinjiang is the clear leader in China, accounting for over 90% of thetotal market in 2003.

Low-end imported spirits compete with mid- and high-end local products

Having an advantage in price and familiarity of taste over imported spirits, local spirits are muchmore popular among consumers in China. However, with China’s entry into the WTO, moreimported products with lower retail prices will enter China, thanks to the decreasing tariffs.According to the government, customs tariffs on imported spirits will decrease from 65% to 10%over the next five years. Cheaper imported spirits with more competitive prices are thus likely to beable to compete with mid- and high-end local spirits.


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Table 95 Sales of Spirits by Subsector: Total Volume 1998-2003

'000 litres1998 1999 2000 2001 2002 2003

Whisk(e)y 2,275.8 2,116.2 1,996.4 1,899.0 1,836.1 1,797.2- Single malt Scotch - - - - - -

whisky- Blended Scotch whisky 1,760.5 1,625.5 1,524.1 1,440.7 1,389.2 1,360.1- Bourbon/other US - - - - - -

whiskey- Canadian whisky 515.3 490.8 472.4 458.2 446.9 437.1- Irish whiskey - - - - - -- Japanese whisky - - - - - -- Other whisk(e)y - - - - - -Brandy and Cognac 20,478.5 19,271.4 18,271.2 17,509.5 16,994.0 16,721.4- Brandy 17,868.0 16,815.2 15,936.2 15,275.2 14,816.2 14,570.5- Cognac 2,610.5 2,456.2 2,335.0 2,234.4 2,177.8 2,150.9White spirits 422.7 401.3 384.6 372.6 365.8 361.2- Gin - - - - - -- Vodka 422.7 401.3 384.6 372.6 365.8 361.2Rum - - - - - -- White rum - - - - - -- Dark rum - - - - - -Tequila (and mezcal) - - - - - -Liqueurs - - - - - -- Cream-based liqueurs - - - - - -- Bitters - - - - - -- Other liqueurs - - - - - -Other spirits 6,168,82 5,292,27 4,755,97 4,290,97 3,865,10 3,571,98

8.4 9.6 7.3 1.9 1.5 6.0- Local spirits below 3,652,37 3,073,79 2,707,76 2,349,05 2,003,19 1,762,32

RMB10/litre 9.4 8.0 8.7 7.7 3.6 4.3- Local spirits from 1,513,09 1,337,23 1,236,47 1,174,42 1,133,99 1,108,14

RMB11 - 50/litre 2.3 3.5 8.9 6.0 5.1 9.9- Local spirits from 764,150.3 674,722.9 625,911.0 594,043.7 563,224.6 543,307.2

RMB51 - 100/litre- Local spirits over 239,206.4 206,525.1 185,818.7 173,444.6 164,688.1 158,204.6

RMB100/litreSpirits 6,192,00 5,314,06 4,776,62 4,310,75 3,884,29 3,590,86

5.3 8.5 9.5 3.1 7.3 5.8



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Table 96 Sales of Spirits by Subsector: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

Whisk(e)y 865.7 805.7 758.9 721.1 690.2 669.1- Single malt Scotch - - - - - -

whisky- Blended Scotch whisky 649.0 598.6 559.8 529.0 503.8 488.4- Bourbon/other US - - - - - -

whiskey- Canadian whisky 216.7 207.1 199.1 192.1 186.5 180.7- Irish whiskey - - - - - -- Japanese whisky - - - - - -- Other whisk(e)y - - - - - -Brandy and Cognac 4,611.1 4,312.6 4,087.0 3,888.5 3,776.0 3,692.5- Brandy 2,114.5 1,964.7 1,857.2 1,761.3 1,704.2 1,663.0- Cognac 2,496.6 2,347.9 2,229.8 2,127.1 2,071.8 2,029.4White spirits 103.2 97.1 92.4 88.5 86.5 84.8- Gin - - - - - -- Vodka 103.2 97.1 92.4 88.5 86.5 84.8Rum - - - - - -- White rum - - - - - -- Dark rum - - - - - -Tequila (and mezcal) - - - - - -Liqueurs - - - - - -- Cream-based liqueurs - - - - - -- Bitters - - - - - -- Other liqueurs - - - - - -Other spirits 181,558.9 157,181.1 143,106.6 133,572.2 127,298.9 123,049.0- Local spirits below 25,856.7 21,065.4 18,078.3 15,389.6 13,578.8 12,168.9

RMB10/litre- Local spirits from 50,907.8 44,749.0 41,419.0 39,457.8 38,246.9 37,696.3

RMB11 - 50/litre- Local spirits from 57,767.5 50,890.5 47,162.1 44,763.1 43,166.0 42,052.6


RMB100/litreSpirits 187,138.9 162,396.5 148,044.9 138,270.2 131,851.6 127,495.4



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Table 97 Sales of Spirits by Subsector: % Total Volume Growth 1998-2003


Whisk(e)y -2.1 -4.6 -21.0- Single malt Scotch whisky - - -- Blended Scotch whisky -2.1 -5.0 -22.7- Bourbon/other US whiskey - - -- Canadian whisky -2.2 -3.2 -15.2- Irish whiskey - - -- Japanese whisky - - -- Other whisk(e)y - - -Brandy and Cognac -1.6 -4.0 -18.3- Brandy -1.7 -4.0 -18.5- Cognac -1.2 -3.8 -17.6White spirits -1.3 -3.1 -14.5- Gin - - -- Vodka -1.3 -3.1 -14.5Rum - - -- White rum - - -- Dark rum - - -Tequila (and mezcal) - - -Liqueurs - - -- Cream-based liqueurs - - -- Bitters - - -- Other liqueurs - - -Other spirits -7.6 -10.4 -42.1- Local spirits below RMB10/litre -12.0 -13.6 -51.7- Local spirits from RMB11 - 50/litre -2.3 -6.0 -26.8- Local spirits from RMB51 - 100/litre -3.5 -6.6 -28.9- Local spirits over RMB100/litre -3.9 -7.9 -33.9Spirits -7.6 -10.3 -42.0



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Table 98 Sales of Spirits by Subsector: % Total Value Growth 1998-2003


Whisk(e)y -3.1 -5.0 -22.7- Single malt Scotch whisky - - -- Blended Scotch whisky -3.0 -5.5 -24.7- Bourbon/other US whiskey - - -- Canadian whisky -3.1 -3.6 -16.6- Irish whiskey - - -- Japanese whisky - - -- Other whisk(e)y - - -Brandy and Cognac -2.2 -4.3 -19.9- Brandy -2.4 -4.7 -21.4- Cognac -2.0 -4.1 -18.7White spirits -1.9 -3.8 -17.8- Gin - - -- Vodka -1.9 -3.8 -17.8Rum - - -- White rum - - -- Dark rum - - -Tequila (and mezcal) - - -Liqueurs - - -- Cream-based liqueurs - - -- Bitters - - -- Other liqueurs - - -Other spirits -3.3 -7.5 -32.2- Local spirits below RMB10/litre -10.4 -14.0 -52.9- Local spirits from RMB11 - 50/litre -1.4 -5.8 -26.0- Local spirits from RMB51 - 100/litre -2.6 -6.2 -27.2- Local spirits over RMB100/litre -3.6 -7.9 -33.8Spirits -3.3 -7.4 -31.9



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Table 99 Company Shares of Spirits by National Brand Owner 2000-2002


Sichuan Yibin Wu Liang Ye Distillery Co Ltd 3.1 3.7Sichuan Tuopai Group Co Ltd 1.7 1.9Sichuan Mian Zhu Jian Nan Chun Distillery 1.2 1.5Sichuan Lu Zhou Lao Jiao Distillery 1.1 1.3Beijing General Distillery 1.1 1.3Anhui Hao Xian Gu Jing Gong Co Ltd 1.2 0.7Guangdong Jiujiang Distillery Co Ltd 0.6 0.7Lang Jiu Group 0.3 0.7Shandong JingZhi Distillery 0.6 0.5Hunan Jiu Gui Jiu Co Ltd 0.5 0.5Sichuan Chengdu Quanxing Distillery 0.7 0.4Yantai Changyu Wine Group Co Ltd 0.3 0.4Jiangsu Yanghe Distillery 0.4 0.4Kweichow Moutai Yunfeng Distillery 0.3 0.3Hubei Daye Jingjiu Distillery 0.2 0.2Shandong Kong Fu Jia Distillery Co Ltd 0.3 0.1China Kweichow Moutai Co Ltd 0.1 0.1Sichuan Mianyang Distillery 0.1 0.1Others 86.1 85.2Total 100.0 100.0


Table 100 Company Shares of Spirits by Global Brand Owner 2000-2002


Sichuan Yibin Wu Liang Ye Distillery 3.0 3.1 3.7Co Ltd

Sichuan Tuopai Group Co Ltd 1.6 1.7 1.9Sichuan Mian Zhu Jian Nan Chun 1.1 1.2 1.5

DistillerySichuan Lu Zhou Lao Jiao Distillery 0.9 1.1 1.3Beijing General Distillery 1.2 1.1 1.3Anhui Hao Xian Gu Jing Gong Co Ltd 1.3 1.2 0.7Guangdong Jiujiang Distillery Co Ltd 0.6 0.6 0.7Lang Jiu Group 0.4 0.3 0.7Shandong JingZhi Distillery 0.6 0.6 0.5Hunan Jiu Gui Jiu Co Ltd 0.5 0.5 0.5Sichuan Chengdu Quanxing Distillery 0.7 0.7 0.4Yantai Changyu Wine Group Co Ltd 0.3 0.3 0.4Jiangsu Yanghe Distillery 0.3 0.4 0.4Kweichow Moutai Yunfeng Distillery 0.3 0.3 0.3Hubei Daye Jingjiu Distillery 0.1 0.2 0.2Shandong Kong Fu Jia Distillery Co Ltd 0.5 0.3 0.1Sichuan Mianyang Distillery 0.1 0.1 0.1China Kweichow Moutai Co Ltd 0.1 0.1 0.1China Guizhou Maotai Distillery Co Ltd 0.1 0.1 0.1Others 86.0 86.1 85.2Total 100.0 100.0 100.0



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Table 101 Brand Shares of Spirits 2000-2002


Owner)

Tuo Pai Sichuan Tuopai Group Co Ltd 1.6 1.7 1.9Red Star Er Guo Tou Beijing General Distillery 1.2 1.1 1.3Lu Zhou Lao Jiao Da Qu Sichuan Lu Zhou Lao Jiao 0.9 1.0 1.2

DistilleryWu Liang Chun Sichuan Yibin Wu Liang Ye 0.8 1.0 1.2

Distillery Co LtdJianzhuang Sichuan Yibin Wu Liang Ye 1.0 0.9 1.1

Distillery Co LtdWu Liang Ye Sichuan Yibin Wu Liang Ye 0.6 0.6 0.8

Distillery Co LtdJian Nan Chun Sichuan Mian Zhu Jian Nan 0.5 0.6 0.8

Chun DistilleryJiujiang Shuang Zheng Guangdong Jiujiang 0.6 0.6 0.7

Distillery Co LtdLang Jiu Lang Jiu Group 0.4 0.3 0.7Jingzhi Baigan Shandong JingZhi Distillery 0.6 0.6 0.5Mian Zhu Da Qu Sichuan Mian Zhu Jian Nan 0.3 0.4 0.5

Chun DistilleryYiDixiang Sichuan Yibin Wu Liang Ye 0.5 0.4 0.4

Distillery Co LtdGu Jing Gong Anhui Hao Xian Gu Jing 0.3 0.3 0.4

Gong Co LtdQuanxing Sichuan Chengdu Quanxing 0.7 0.7 0.4

DistilleryChangyu Jinjiang Yantai Changyu Wine Group 0.3 0.3 0.4

Co LtdYang He Da Qu Jiangsu Yanghe Distillery 0.3 0.4 0.4Mian Zhu Jiu Sichuan Mian Zhu Jian Nan 0.2 0.2 0.3

Chun DistilleryGuo Ding Gong Jiu Sichuan Yibin Wu Liang Ye 0.2 0.2 0.2

Distillery Co LtdXiao Hu Tu Xian Kweichow Moutai Yunfeng 0.2 0.2 0.2

DistilleryJing Jiu Hubei Daye Jingjiu 0.1 0.2 0.2

DistilleryJiu Gui Jiu Hunan Jiu Gui Jiu Co Ltd 0.1 0.1 0.2Xiao Hu Tu Shen Kweichow Moutai Yunfeng 0.1 0.1 0.1

DistilleryKong Fu Jia Jiu Shandong Kong Fu Jia 0.5 0.3 0.1

Distillery Co LtdFenggu Techunwang Sichuan Mianyang Distillery 0.1 0.1 0.1Guizhouchun (China China Kweichow Moutai Co 0.1 0.1 0.1

Guizhou Maotai LtdDistillery Co Ltd)

Others 87.7 87.5 86.1Total 100.0 100.0 100.0


7.2 Sizes and Shares by Region

North and Northeast China – the largest region for spirits

Due to strong cultural influences and regional climatic characteristics, North and Northeast Chinaremains the number one region, in terms of volume sales, for imported spirits, such as brandy andcognac, and also the number one region for local sprits. As people in this region tend to drink high


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alcohol content spirits rather than other types of alcoholic drink, volume consumption remainedhigh in the review period. In 2003, consumption reached over 1 billion litres.

Strong regional preferences

Even though imported spirits experienced price reductions over the review period, they are stillregarded as luxury products by Chinese consumers, as they are not as affordable as local spirits toordinary Chinese consumers. Imported spirits are more popular in the more developed regions, suchas North and Northeast, East and South China. Furthermore, there are more expatriates in thesethree regions because of more frequent political and economic exchanges with foreign countries.

On the other hand, people in Mid, Northwest and Southwest China are less exposed to Westernlifestyles. More importantly, purchasing power in these regions is comparatively low, thusconsumption of imported spirits also remains very low. Combined, the three regions accounted foronly about 15% of volume sales of imported spirits sales in China in 2003.

Of the imported spirits types, cognac accounts for the largest proportion of sales. The North andNortheast region is the number one for cognac and vodka, while the East is the leading region forwhisk(e)y. The domestic brandy Changyu is extremely popular in the South region.

Table 102 Sales of Spirits by Region: Total Volume 1998-2003

mn litres1998 1999 2000 2001 2002 2003

East China 843.5 736.7 678.8 637.4 608.5 586.0Mid China 792.0 691.9 638.3 600.6 571.1 547.0North and Northeast China 2,358.5 1,990.1 1,743.8 1,504.1 1,266.2 1,115.9Northwest China 797.6 673.3 590.6 509.8 429.8 372.2South China 469.0 408.3 375.4 352.3 335.1 322.3Southwest China 931.3 813.8 749.7 706.5 673.6 647.4TOTAL 6,192.0 5,314.1 4,776.6 4,310.8 3,884.3 3,590.9

Source: Trade interviews, Euromonitor estimatesNote: Excludes “other” spirits

Table 103 Sales of Spirits by Region: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003




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Table 104 Sales of Spirits by Region: % Total Volume Growth 1998-2003


East China -3.7 -7.0 -30.5Mid China -4.2 -7.1 -30.9North and Northeast China -11.9 -13.9 -52.7Northwest China -13.4 -14.1 -53.3South China -3.8 -7.2 -31.3Southwest China -3.9 -7.0 -30.5TOTAL -7.6 -10.3 -42.0


Table 105 Sales of Spirits by Region: % Total Value Growth 1998-2003





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Table 106 Brand Ranking of Spirits by Region 2002

Brand (Company) SW S M E NW N&NE

Bai Yun Bian (Huibei - - 3 - - -Bai Yu Bian DistilleryCo Ltd)

Beijing Chun (Beijing - - - - - 5Niulanshan Winery Co Ltd)

Erguotou Premium - - - - - 4(Beijing NiulanshanWinery Co Ltd)

Fen Jiu (Shanxi Xing - X - - 4 -Hua Cun Fen Jiu Co Ltd)

Gu Jing Gong (Anhui Hao - - - X - -Xian Gu Jing Gong Co Ltd)

Gui Zhou Chun (Gui Zhou X X - - - -Chun Distillery Co Ltd)

Jian Nan Chun (Sichuan - - X - X -Mian Zhu Jian Nan ChunDistillery)

Jian Nan Te Qu (Sichuan - - - X - -Mianyang Distillery)

Jianzhuang (Sichuan 2 3 5 5 X -Yibin Wu Liang YeDistillery Co Ltd)

Jing Jiu (Hubei Daye - - - - - 3Jingjiu Distillery)

Jing Yang Chun - - - 2 - -(Shandong JingZhiDistillery)

Jinliufu (Sichuan Yibin - - X - - XWu Liang Ye DistilleryCo Ltd)

Jinliufu (1 star) - - - - - 2(Sichuan Yibin Wu LiangYe Distillery Co Ltd)

Jiu Gui Jiu (Hunan Jiu - - - - - XGui Jiu Co Ltd)

Lan Ling Cheng Xiang - - - X - -(Shandong Lan LingCheng Xiang DistilleryCo Ltd)

Lan Ling Da Qu - - - 1 - -(Shandong Lan LingCheng Xiang DistilleryCo Ltd)

Lang Jiu (Lang Jiu Group) X - - - - -Lianglichun (Sichuan 5 5 - - - -

Tuopai Group Co Ltd)Lu Zhou Lao Jiao - - - - 3 -

(Sichuan Lu Zhou LaoJiao Distillery)

Lu Zhou Lao Jiao Da Qu X X X X - -(Sichuan Lu Zhou LaoJiao Distillery)

Mian Zhu Da Qu (Sichuan 3 - - - - -Mian Zhu Jian Nan ChunDistillery)

Moutai (China Kweichow - - - - X XMoutai Co Ltd)

Quanxing (Sichuan - - - - 5 -Chengdu QuanxingDistillery)


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Red Star Er Guo Tou 4 4 - - 2 1(Beijing GeneralDistillery)

Red Star Yujiu (Beijing - - - - - XGeneral Distillery)

Shuangou Da Qu (Jiangsu - - - 3 - -Shuanggou Distillery CoLtd)

Songhe (Henan Songhe - - X - - -Distillery Co Ltd)

Tuo Pai (Sichuan Tuopai 1 2 2 4 - -Group Co Ltd)

Tuo Pai Chun (Sichuan X - - - - -Tuopai Group Co Ltd)

Wan Jiu Wang (Anhui Wan - X - - - -Jiu Wang Distillery CoLtd)

Wu Liang Chun (Sichuan X X X - X XYibin Wu Liang YeDistillery Co Ltd)

Wu Liang Ye (Sichuan - - - - 1 -Yibin Wu Liang YeDistillery Co Ltd)

Xinghuacun (Shanxi Xing - - - - X -Hua Cun Fen Jiu Co Ltd)

Yang He Da Qu (Jiangsu - - - X - -Yanghe Distillery)

Yang Shao Jiu (Henan - - 4 - - -Yang Shao Group)

Yuanhang Jiujiang - 1 - - - -Shuang Zheng Jiu(Guangdong JiujiangDistillery Co Ltd)

Zhi Jiang Da Qu (Huibei - - 1 - - -Zhi Jiang Distillery CoLtd)


7.3 Sizes and Shares of Other Spirits by Region

East sees slowest rate of decline

Sales of local spirits in China continued to fall over the review period, although the decline isslowing down. East China experienced the slowest rate of decline. In 2003, sales fell by 2.6% incurrent value and by 3.7% in volume terms over the previous year. There are two major reasons forthis. First, most consumers in East prefer products with low alcohol content, and the production oflow-alcohol local spirits is being encouraged by the government policy, whilst high alcohol contentproducts are gradually being phased out. Second, levels of disposable income are higher in EastChina, making mid-priced and premium spirits more affordable to locals.

People in the South also have higher disposable incomes, but generally they are not as fond ofspirits as those in the North and Northeast. Per capita consumption of local spirits in South in 2003stood at 0.85RMB/litre, lower than 0.87RMB/litre in the East and 1.08RMB/litre in the North andNortheast.

Decline in North and Northeast slows down

Over the review period, North and Northeast China was the largest region for local spirits sales, dueto traditional consumption patterns and regional climatic characteristics. However, volume sales


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declined at double-digit rates throughout the review period, although the decline was slightly less in2003 than in previous years.

There are several reasons for the less sharp decline in sales in 2003. First, local spirits are cateringto domestic consumers’ tastes, even though they have a negative image of doing harm to health.Second, manufacturers have been making efforts to produce low alcohol content products, tocompensate for the decrease in high alcohol content products. Third, with rising disposableincomes, air conditioning systems are more affordable to average consumers, making the drinkingof spirits as a means of keeping warm less significant.

Southwest remains the largest spirits consumption region in terms of value

Southwest is the most important region for local spirits production. In volume terms, it is thesecond largest region for spirits sales, closely following the North and Northeast. In terms of salesvalue, however, the Southwest is the largest region, with sales reaching almost RMB27 billion in2003, accounting for about 22% of the total.

Only few local spirits manufacturers able to enjoy positive volume growth

Owing to the new taxation policy, a large majority of the local spirits manufacturers areexperiencing volume sales declines. Only a few brands are able to survive. Among them, Wu LiangYe, Mian Zhu Jian Nan Chun and Lu Zhou Lao Jiao continued to rank among the top four in 2002.Low-end local spirits brand Tuo Pai remained in second position, even though sales have beenundermined by the new taxation policy, and declined in 2002.

Table 107 Sales of Other Spirits by Region: Total Volume 1998-2003

mn litres1998 1999 2000 2001 2002 2003

East China 836.6 730.4 672.9 631.8 603.1 580.7Mid China 790.7 690.7 637.2 599.5 570.0 546.0North and Northeast China 2,351.1 1,983.0 1,736.9 1,497.4 1,259.7 1,109.6Northwest China 796.4 672.1 589.5 508.7 428.7 371.2South China 463.5 403.2 370.6 347.7 330.7 317.9Southwest China 930.4 813.0 748.9 705.8 672.9 646.7TOTAL 6,168.8 5,292.3 4,756.0 4,291.0 3,865.1 3,572.0


Table 108 Sales of Other Spirits by Region: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003




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Table 109 Sales of Other Spirits by Region: % Total Volume Growth 1998-2003




Table 110 Sales of Other Spirits by Region: % Total Value Growth 1998-2003




7.4 Pricing

Local spirits manufacturers are increasingly producing high-end products, as a result of the newtaxation policy. Imported spirits are still considered luxury products in China, but experienced pricereductions over the review period. The price difference between high-end domestic and low-endimported spirits in the retail market is thus no longer as great as it once was. For example, premiumlocal spirits Jin Jian Nan is sold at RMB450/litre. Mid-priced imported Napoleón Seguin isavailable in the retail market at RMB241/litre.

Generally, about 80% of imported spirits are sold through on-trade channels. On-trade selling pricesare around twice the off-trade prices.

In 2003, cognac was the most popular imported spirit, followed by blended Scotch whisky.


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Table 111 Blended Scotch Whisky Pricing 2003

Price PriceBottle per bottle per litre

Brand name Local company size (ml) (RMB) (RMB)PremiumChivas Royal Salute Pernod Ricard Groupe 700 710 1,014Johnnie WalkerBlue Label Diageo Plc 750 1,980 2,640

StandardDimple 15 YO Diageo Plc 750 300 400Ballantine’s 17 YO Allied Domecq Plc 750 340 453

EconomyBell’s Extra Special Diageo Plc 750 105 140William Grant’s William Grant & Sons Ltd 750 80 106


Table 112 Canadian Whisky Pricing 2003


Brand name Local company size (ml) (RMB) (RMB)PremiumCanadian Crown Royal Pernod Ricard Groupe 750 208 277

StandardCanadian Club Allied Domecq Plc 750 155 207

EconomySeagram CanadianWhisky Pernod Ricard Groupe 750 110 147



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Table 113 Brandy and Cognac Pricing 2003


Brand name Local company size (ml) (RMB) (RMB)PremiumArmagnac Marquesde Montesquieu XO Pernod Ricard Groupe 700 990 1,414Napoleon VSOP Prince de France 700 580 829Rémy Martin XO Special Rémy Cointreau 750 700 933Camus XO Camus la Grande Marque 700 1,108 1,582

StandardNapoleón Seguin Rémy Cointreau 700 169 241Armagnac Marquesde Montesquieu VSOP Pernod Ricard Groupe 700 270 386Hine Rare Delicate LVMH Moët Hennessy Louis 700 320 457

Vuitton

EconomyChangyu VSOP Yantai Changyu Wine Group 700 130 186

Co LtdChangyu VS Yantai Changyu Wine Group 700 16 23

Co LtdRémy Martin Silver Rémy Cointreau 700 145 207


Table 114 Vodka Pricing 2003


Brand name Local company size (ml) (RMB) (RMB)PremiumAbsolut Vodka V&S Vin & Sprit AB 700 110 157Stolichnaya Soyuzplodimport 750 118 157Smirnoff Diageo Plc 750 105 140

StandardAbsolut V&S Vin & Sprit AB 750 80 107Havana Club Altia Group Oy 750 85 113Finlandia Altia Group Oy 750 76 101

EconomyEristoff Bacardi & Co Ltd 700 63 90Moskovskaya Soyuzplodimport 750 63 84


7.5 Packaging

Glass bottles still dominate

Glass bottles are the traditional packaging for spirits, and remain dominant. Altogether, glassbottles accounted for over 93% of total off-trade volume sales in 2003. One alternative packagingfor local spirits is glass cups. Consumers may make use of the packaging after drinking. Plasticbottles are another alternative packaging for local spirits, but are only found in far less developedareas. Although plastic bottles are on the decline, they still have a presence in the market due totheir low cost.


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Local spirits available in smaller pack sizes

In line with consumers’ growing demand for less quantity but higher quality, smaller packaging isnow available, especially for high-end products. Most premium products in the market are availablein smaller sized packaging of 250-300ml, as well as the standard 500ml size.

Packaging increasingly deemed a reflection of the cultural value of local spirits

The success of Kong Fu Jia in pottery containers instead of the traditional glass bottle led to apackaging trend. Pottery containers look ancient and are a symbol of the long-running Chinesespirits culture. More innovative packaging is also appearing in the market. The new Red Star ErGuo Tou 52° is packaged in containers made from celadon – a traditional type of Chinesestoneware.

Table 115 Sales of Spirits by Packaging Format: % Analysis 1998/2003


Can 0.0 0.0Glass 93.4 93.1Plastic 0.4 0.3Others 6.2 6.6Total 100.0 100.0



Premium product craze

With the advent of the new tax policy for local spirits in 2001, manufacturers have been striving tosurvive by developing premium products (over RMB100/litre), as the new policy made low-endproducts unprofitable. In 2003, sales of high-end products accounted for about 5% of the total interms of volume, but about 25% of the total in terms of value. According to trade sources, the profitfrom premium products account for nearly 50% of the total for the manufacturers in this industry.

Jian Nan Chun alone launched four premier brands in 2002. Jin Jian Nan (or Gold Jian Nan), one ofthe new launches, is sold at RMB450/litre in the retail market. Its retail price is actually higher thansome mid-priced imported spirits (eg the off-trade price for The Famous Grouse 12 YO isRMB344/litre).

Innovative taste

Meanwhile, manufacturers have endeavoured to create a modern image for some traditional localspirits. Gu Jing Gong launched whisky-like Yetaiyang, targeting the younger generation. Somemanufacturers also began to explore new markets. Yi Wu Jia, a domestic bitters brand, wasintroduced by Wu Liang Ye early in 2003. Beijing General Distillery, famous for its Red Star ErGuo Tou, has begun production of ginseng brandy.

More attractive packaging

Festivals, especially the Chinese New Year, as well as social gatherings, are occasions when localspirits are frequently consumed. Local spirits are traditionally chosen as gifts, especially for peopleof older generations. Consequently, attractive gift packaging for local spirits is usually in highdemand during festivals.


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The success of Kong Fu Jia in pottery containers led other manufacturers to adopt similarpackaging. Examples are the new Red Star Er Guo Tou 52° packaged in celadon containers, andWu Liang Ye Yifanfengshun packaged in crystal glass bottles.

Health concept is increasingly popular

Growing health awareness partly accounts for the decline in volume sales of local spirits. Tochange the negative image of local spirits, some manufacturers have produced “healthcare” spirits,which are claimed to be able to do good, instead of doing harm, to the liver. Haokexiang, launchedby Wu Liang Ye during the 2003 Chinese New Year, is made from choice bamboo shoots and WuLiang Ye alcohol. It is said to be anti-ageing and able to reduce blood cholesterol, hence protectingthe liver.

Summary 8 Spirits: New Product Launches 2002-2003

Brand name Company Product type Launch date

Yi Wu Jia Sichuan Wu Liang YeDistillery Co Ltd

Bitters by local spiritsmanufacturer

2003

Yeguangbei GinsengBrandy

Beijing GeneralDistillery

Brandy by local spiritsmanufacturer

2003

Red Star Er Guo Tou52°

Beijing GeneralDistillery

Local spirits packagedin celadon container

2003

Jin Jian Nan Sichuan Jian Nan ChuDistillery Co Ltd

Domestic spirits overRMB100/litre

2002

Yin Jian Nan Sichuan Jian Nan ChuDistillery Co Ltd


2002

Dong Fang Hong Sichuan Jian Nan ChuDistillery Co Ltd


2002

Jian Nan Jiao Zi Jiu Sichuan Jian Nan ChuDistillery Co Ltd


2002

Source: Store checks, trade interviews

7.7 Distribution


On-trade sales account for only a small proportion of the total in volume terms, with a 16% share in2003. On-trade promotions are traditionally carried out in bars and pubs. Chivas Regal, forexample, set up a concept bar in Beijing.

Owing to low disposable incomes and cultural factors, the majority of Chinese do not have the habitof eating out frequently. Changing drinking habits, with consumers increasingly shifting away fromspirits to beer, wine and even soft drinks, have eroded the share of sales held by spirits in thealcoholic drinks market, and this has especially affected off-trade sales.

Off-trade volume sales continued to drop in 2003, by almost 9%, while sales in current value termsdeclined by 5%. On-trade sales, on the other hand, saw slight growth of 0.1% in volume and 0.4%in value. After years of adjustment resulting from the tight control of public-funded banquets andentertainment expenditure, on-trade consumption is close to stable development. Imported spiritsand high-end local spirits are popular sellers in the on-trade. Imported spirits are a must inentertainment establishments, such as bars and night clubs, while high-end local spirits are usuallyconsumed during traditional Chinese festivals and at business functions.


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Table 116 On-trade vs Off-trade Sales of Spirits: Volume 1998-2003

mn litres1998 1999 2000 2001 2002 2003

Off-trade 5,539.9 4,709.4 4,190.9 3,735.5 3,312.6 3,018.5On-trade 652.1 604.7 585.7 575.2 571.7 572.4TOTAL 6,192.0 5,314.1 4,776.6 4,310.8 3,884.3 3,590.9


Table 117 On-trade vs Off-trade Sales of Spirits: Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003



Table 118 On-trade vs Off-trade Sales of Spirits: % Volume Growth 1998-2003


Off-trade -8.9 -11.4 -45.5On-trade 0.1 -2.6 -12.2TOTAL -7.6 -10.3 -42.0


Table 119 On-trade vs Off-trade Sales of Spirits: % Value Growth 1998-2003


Off-trade -4.7 -9.0 -37.5On-trade 0.4 -2.6 -12.3TOTAL -3.3 -7.4 -31.9



Supermarkets/hypermarkets constitute the most important off-trade distribution channel with avolume share of 50% in 2003 – an increase of 2.5 percentage points on 2002. The penetration ofchained supermarkets into rural areas has reduced the number of independent food stores. Alsoowing to supermarkets/hypermarkets’ chain operations and the resulting economies of scale, theyare able to sell spirits at lower prices than independent food stores.

Specialists, most of which take the form of counters attached to supermarkets, have also benefitedfrom the expansion of supermarkets/hypermarkets. Spirits sales through specialist shops accountedfor a volume share of 15% in 2003, a slight increase of 0.9 percentage points over 2002. Specialiststend to offer a wider range of products, especially authentic imported spirits.

Convenience stores continue to expand, especially in big cities, and thus saw their share of salesincrease over the forecast period.


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Table 120 Off-trade Sales of Spirits by Distribution Format: % Analysis 1998/2003


Supermarkets/hypermarkets 36.1 50.0Independent food stores 29.7 20.0Convenience stores 5.3 7.0Discounters - -Specialists 13.7 15.0Direct sales - -Others 15.2 8.0Total 100.0 100.0


7.8 Forecasts

Value growth higher than volume growth

In local spirits, the most popular pricing currently is at middle to low level. This is because the bulkof volume consumption is accounted for by spirits being drunk at home. There were about 38,000producers in the local spirits industry in 2002, with nearly 70% of these providing economy spiritswith retail prices below RMB20/litre. Thus the average unit price is still very low. As a result of theintroduction of the new tax policy, more producers have started to develop premium products. Withthe rise in living standards, both in cities and in rural areas, this development is likely to provesuccessful. Consequently, the average unit price of sprits will rise gradually, leading to value salesgrowth in the latter part of the forecast period.

Spirits explore new market

Local spirits manufacturers, which are restricted by the new taxation policy, are likely to explorenew markets by launching Western-style products, such as liqueurs. These products also have thebenefit of higher margins.

The higher retail prices of imported spirits make further market penetration difficult. Manufacturersare expected to launch more trendy but cheaper products to promote brand image, especially amongthe younger generation.

Products with low alcohol content become mainstay due to health concerns

The current mainstream local spirits product is around 40-49% ABV. The former mainstreamproducts of 50-55% ABV are being phased out. With growth in health awareness, products withlower alcohol content (less than 39% ABV), which currently account for 40% of total annualoutput, will become the leading type in the forecast period.

Local spirits continue to dominate in domestic market

With improving quality and better packaging, local spirits remain dominant in the market. Eventhough high-end products are targeted for further development, low-end products will still accountfor nearly 50% of total volume sales in the forecast period, owing to average disposable incomesremaining low.

Imported spirits benefit from reduced tariff and direct shipments

There are still prospects for Western spirits in China despite the decline experienced by theseproducts over the review period. Marginal positive growth in volume terms is expected for


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imported spirits over the forecast period. Volume sales will be stimulated by the reduction in importtariffs from 60% to 10%, following China’s accession to the WTO, as well as rising disposableincomes.

To take advantage of lower tariffs, more global spirits companies are likely to make directshipments to mainland China, following the steps of the Scotch whisky brand The Famous Grouse,which made its first direct shipment in mid-2002.

To benefit further from lower tariffs, Western spirits companies are expected to cut prices to attractmore Chinese consumers. With distribution centres moving from Hong Kong to the mainland, moreresources will be put into promotion and advertising of products.

Table 121 Forecast Sales of Spirits by Subsector: Total Volume 2003-2008

mn litres2003 2004 2005 2006 2007 2008



whiskey- Canadian whisky 0.4 0.4 0.4 0.4 0.5 0.5- Irish whiskey - - - - - -- Japanese whisky - - - - - -- Other whisk(e)y - - - - - -Brandy and Cognac 16.7 16.6 16.7 16.9 17.3 17.6- Brandy 14.6 14.5 14.6 14.7 15.0 15.3- Cognac 2.2 2.2 2.2 2.2 2.2 2.3White spirits 0.4 0.4 0.4 0.4 0.4 0.4- Gin - - - - - -- Vodka 0.4 0.4 0.4 0.4 0.4 0.4Rum - - - - - -- White rum - - - - - -- Dark rum - - - - - -Tequila (and mezcal) - - - - - -Liqueurs - - - - - -- Cream-based liqueurs - - - - - -- Bitters - - - - - -- Other liqueurs - - - - - -Other spirits 3,572.0 3,367.4 3,228.0 3,139.5 3,087.7 3,049.9- Local spirits below 1,762.3 1,589.1 1,462.0 1,370.4 1,307.1 1,258.6


RMB11 - 50/litre- Local spirits from 543.3 530.4 523.8 523.6 528.4 534.0

RMB51 - 100/litre- Local spirits over 158.2 153.6 151.0 150.2 150.7 151.3




Euromonitor Page 91

Table 122 Forecast Sales of Spirits by Subsector: Total Value 2003-2008

RMB million2003 2004 2005 2006 2007 2008



whiskey- Canadian whisky 180.7 177.1 176.1 176.1 177.6 179.6- Irish whiskey - - - - - -- Japanese whisky - - - - - -- Other whisk(e)y - - - - - -Brandy and Cognac 3,692.5 3,645.4 3,630.9 3,646.7 3,672.4 3,714.8- Brandy 1,663.0 1,640.7 1,631.8 1,637.1 1,648.6 1,666.1- Cognac 2,029.4 2,004.7 1,999.1 2,009.6 2,023.8 2,048.7White spirits 84.8 84.0 83.8 84.3 85.2 86.4- Gin - - - - - -- Vodka 84.8 84.0 83.8 84.3 85.2 86.4Rum - - - - - -- White rum - - - - - -- Dark rum - - - - - -Tequila (and mezcal) - - - - - -Liqueurs - - - - - -- Cream-based liqueurs - - - - - -- Bitters - - - - - -- Other liqueurs - - - - - -Other spirits 123,049.0 120,530.4 118,994.9 118,672.2 119,205.4 119,852.5- Local spirits below 12,168.9 11,049.9 10,115.5 9,477.6 9,054.1 8,731.8


RMB11 - 50/litre- Local spirits from 42,052.6 41,494.3 41,253.1 41,343.4 41,651.9 42,054.6





Euromonitor Page 92

Table 123 Forecast Sales of Spirits by Subsector: % Total Volume Growth 2003-2008


Whisk(e)y 1.2 5.9- Single malt Scotch whisky - -- Blended Scotch whisky 1.2 6.2- Bourbon/other US whiskey - -- Canadian whisky 1.0 5.2- Irish whiskey - -- Japanese whisky - -- Other whisk(e)y - -Brandy and Cognac 1.0 5.3- Brandy 1.0 5.1- Cognac 1.3 6.5White spirits 0.9 4.6- Gin - -- Vodka 0.9 4.6Rum - -- White rum - -- Dark rum - -Tequila (and mezcal) - -Liqueurs - -- Cream-based liqueurs - -- Bitters - -- Other liqueurs - -Other spirits -3.1 -14.6- Local spirits below RMB10/litre -6.5 -28.6- Local spirits from RMB11 - 50/litre 0.0 -0.2- Local spirits from RMB51 - 100/litre -0.3 -1.7- Local spirits over RMB100/litre -0.9 -4.4Spirits -3.1 -14.5



Euromonitor Page 93

Table 124 Forecast Sales of Spirits by Subsector: % Total Value Growth 2003-2008


Whisk(e)y -0.1 -0.6- Single malt Scotch whisky - -- Blended Scotch whisky -0.1 -0.5- Bourbon/other US whiskey - -- Canadian whisky -0.1 -0.6- Irish whiskey - -- Japanese whisky - -- Other whisk(e)y - -Brandy and Cognac 0.1 0.6- Brandy 0.0 0.2- Cognac 0.2 0.9White spirits 0.4 1.9- Gin - -- Vodka 0.4 1.9Rum - -- White rum - -- Dark rum - -Tequila (and mezcal) - -Liqueurs - -- Cream-based liqueurs - -- Bitters - -- Other liqueurs - -Other spirits -0.5 -2.6- Local spirits below RMB10/litre -6.4 -28.2- Local spirits from RMB11 - 50/litre 0.6 2.9- Local spirits from RMB51 - 100/litre 0.0 0.0- Local spirits over RMB100/litre -0.5 -2.7Spirits -0.5 -2.5



Imported spirits sales on the rise in East, South, North and Northeast

After years of decline, sales of imported spirits are expected to pick up during the forecast period inthe more developed regions of East, South, and North and Northeast China, thanks to reducedtariffs, rising disposable incomes and the thriving bar culture in cities.

With import tax being reduced from 60% to 10%, more mid-priced spirits brands – which werepreviously blocked because of the high tariffs – are expected to enter China. These new entries willinitially emerge in coastal areas such as East and South China, and will penetrate deeper into inlandregions as they become more established.


Euromonitor Page 94

Table 125 Sales of Spirits by Region: Total Volume 2003-2008

mn litres2003 2004 2005 2006 2007 2008

East China 586.0 568.7 557.9 552.6 550.1 547.0Mid China 547.0 528.8 515.7 508.3 502.4 498.4North and Northeast China 1,115.9 1,014.7 941.4 889.8 862.2 842.7Northwest China 372.2 333.0 306.4 289.8 278.8 272.1South China 322.3 313.3 308.8 306.6 305.4 304.5Southwest China 647.4 627.7 616.7 611.6 608.2 605.2TOTAL 3,590.9 3,386.2 3,246.9 3,158.7 3,107.2 3,069.8

Source: Euromonitor estimatesNote: Excludes “other” spirits

Table 126 Sales of Spirits by Region: Total Value 2003-2008

RMB million2003 2004 2005 2006 2007 2008



Table 127 Sales of Spirits by Region: % Total Volume Growth 2003-2008


East China -1.4 -6.7Mid China -1.8 -8.9North and Northeast China -5.5 -24.5Northwest China -6.1 -26.9South China -1.1 -5.5Southwest China -1.3 -6.5TOTAL -3.1 -14.5



Euromonitor Page 95

Table 128 Sales of Spirits by Region: % Total Value Growth 2003-2008


East China -0.3 -1.3Mid China -0.4 -2.1North and Northeast China -0.8 -3.9Northwest China -1.9 -9.3South China 0.2 1.0Southwest China -0.6 -2.8TOTAL -0.5 -2.5


8. CIDER/PERRY


Sales of cider/perry were negligible throughout the review period. Cider and perry products are stillquite new to most Chinese consumers due to a lack of promotional and advertising support fromproducers. Imported brands dominate the very limited sales.

Cider/perry is largely targeted at expatriate consumers. Mostly, these products are distributedthrough on-trade establishments, where prices can be up to five times higher than off-trade prices,making them unaffordable to most Chinese consumers. Only a small proportion of the cider andperry sold is distributed through off-trade channels.

9. FABS


FABs still a new drink

There are only a handful of brands of FABs, which are mostly imported from Western countriesand are most often found in on-trade outlets such as pubs and discos, or in a few supermarketscatering to expatriates. Brands available include Bacardi Breezer, Bacardi Jazz, Sour, Jack Daniel’s& Cola, Red Square and the Arbor Mist range. Most are spirits-based rather than wine-based.

The vast majority of Chinese consumers have never heard of FABs due to a lack of marketing andpromotional support from producers. Those who drink FABs are mostly the young, trendy and highincome earners who are in touch with the latest fads and have high disposable incomes. In addition,FABs have to compete against premium beer in terms of pricing, image and taste. Off-trade unitprice for FABs start from RMB8 per 275ml bottle, while on-trade prices can be 3-4 times higher.

Bacardi leads

Industry sources suggest that Bacardi has by far the largest volume share in the sector, of about90%. The success of FABs in China has been dependent on the first mover advantage, and theBacardi brand has been available for 3-4 years. Bacardi Breezer and Jazz are produced locally.

FABs sales are mainly in Shanghai. FABs sales are estimated to have reached 690,000 litres in2003, and are projected to grow by 15-20% in volume terms per year for the next few years.


Euromonitor Page 96

Table 129 Sales of FABs by Subsector: Total Volume 1998-2003

'000 litres1998 1999 2000 2001 2002 2003

Wine-based FABs - - - - - -Spirits-based FABs - - - - 600.0 690.0Other FABs - - - - - -FABs (flavoured - - - - 600.0 690.0

alcoholic beverages)


Table 130 Sales of FABs by Subsector: Total Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

Wine-based FABs - - - - - -Spirits-based FABs - - - - 108.0 120.0Other FABs - - - - - -FABs (flavoured - - - - 108.0 120.0



Table 131 Sales of FABs by Subsector: % Total Volume Growth 1998-2003


Wine-based FABs - - -Spirits-based FABs 15.0 - -Other FABs - - -FABs (flavoured alcoholic beverages) 15.0 - -


Table 132 Sales of FABs by Subsector: % Total Value Growth 1998-2003


Wine-based FABs - - -Spirits-based FABs 11.1 - -Other FABs - - -FABs (flavoured alcoholic beverages) 11.1 - -



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Table 133 Company Shares of FABs by National Brand Owner 2000-2002


Bacardi (Shanghai) Co Ltd - 90.0Beijing Shunxing Halewood Winery Co Ltd - 1.0Brown-Forman Corp - 1.0Others - 8.0Total - 100.0


Table 134 Company Shares of FABs by Global Brand Owner 2000-2002


Bacardi & Co Ltd - - 90.0Brown-Forman Corp - - 1.0Halewood International Ltd - - 1.0Others - - 8.0Total - - 100.0


Table 135 Brand Shares of FABs 2000-2002


Owner)

Bacardi Ice (Bacardi Bacardi (Shanghai) Co Ltd - - 90.0& Co Ltd)

Red Square (Halewood Beijing Shunxing Halewood - - 1.0International Ltd) Winery Co Ltd

Jack Daniel's & Cola Brown-Forman Corp - - 1.0Others - - 8.0Total - - 100.0


9.2 Packaging

Glass bottles are the only packaging format available for FABs. The most common packaging sizeis 275ml, followed by 355ml. The bottle is small so that it can be held in one hand comfortablywhile chatting with people, as FABs are mostly consumed in on-trade outlets such as pubs, bars anddiscos. Projecting the right image is especially crucial to appeal to the well-heeled young andfashionable. The bottles are designed with attractive labels and are usually transparent to makethem look more elegant and sophisticated.


Euromonitor Page 98

Table 136 Sales of FABs by Packaging Format: % Analysis 1998/2003


Can 0.0 0.0Glass 0.0 100.0Plastic 0.0 0.0Others 0.0 0.0Total 0.0 100.0



FABs are fairly new to Chinese consumers, and the vast majority of people have never heard ofFABs. Most of the limited number of brands available are imported, and due to a lack of marketingand promotional support from producers many brands come and go quickly without establishing apresence.

9.4 Distribution


FABs are mostly consumed in the on-trade in night spots such as in pubs, bars and discos. They areseldom found in off-trade outlets, except a few specialists, convenience stores and supermarketscatering to expatriates, because most Chinese consumers are not familiar with FABs and hence arenot willing to purchase them. As a result, off-trade sales are negligible.

Table 137 On-trade vs Off-trade Sales of FABs: Volume 1998-2003

'000 litres1998 1999 2000 2001 2002 2003

Off-trade - - - - - -On-trade - - - - 600.0 690.0TOTAL - - - - 600.0 690.0


Table 138 On-trade vs Off-trade Sales of FABs: Value 1998-2003

RMB million1998 1999 2000 2001 2002 2003

Off-trade - - - - - -On-trade - - - - 108.0 120.0TOTAL - - - - 108.0 120.0



Euromonitor Page 99

Table 139 On-trade vs Off-trade Sales of FABs: % Volume Growth 1998-2003


Off-trade - - -On-trade 15.0 - -TOTAL 15.0 - -


Table 140 On-trade vs Off-trade Sales of FABs: % Value Growth 1998-2003


Off-trade - - -On-trade 11.1 - -TOTAL 11.1 - -


9.5 Forecasts

FABs to march into more cities

FABs are predicted to grow by 15-20% per year in volume terms over the forecast period, asyounger consumers are increasingly exposed to Western culture and tastes. With FABs havinggained a measure of acceptance in Shanghai, they are likely to be promoted in other big cities, suchas Beijing and Guangzhou.

FABs manufacturers are likely to hold promotions and to invest in marketing activities in on-tradeoutlets so as to create awareness and widen the customer base. With the introduction of FABs intomore cities, the next logical step will be to offer off-trade sales as well. However, to reach out to awider spectrum of consumers, FABs manufacturers will have to invest in advertisements in themass media. At the same time, FABs also face competition from premium beer, which is moreestablished and affordable.

Bacardi to dominate

Given that FABs is still a very small sector in the Chinese market, there are unlikely to be manynew players entering it. Moreover, with Bacardi holding such a strong position, it is understandablethat other manufacturers will do their sums carefully before joining the fray. Having said that,should there be competition, it will probably come from foreign brands as there is no expertise inFABs in China yet.

Table 141 Forecast Sales of FABs by Subsector: Total Volume 2003-2008

'000 litres2003 2004 2005 2006 2007 2008

Wine-based FABs - - - - - -Spirits-based FABs 690.0 797.0 924.5 1,081.6 1,276.3 1,512.4Other FABs - - - - - -FABs (flavoured 690.0 797.0 924.5 1,081.6 1,276.3 1,512.4




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Table 142 Forecast Sales of FABs by Subsector: Total Value 2003-2008

RMB million2003 2004 2005 2006 2007 2008

Wine-based FABs - - - - - -Spirits-based FABs 120.0 134.4 151.9 173.1 199.1 230.0Other FABs - - - - - -FABs (flavoured 120.0 134.4 151.9 173.1 199.1 230.0



Table 143 Forecast Sales of FABs by Subsector: % Total Volume Growth 2003-2008


Wine-based FABs - -Spirits-based FABs 17.0 119.2Other FABs - -FABs (flavoured alcoholic beverages) 17.0 119.2


Table 144 Forecast Sales of FABs by Subsector: % Total Value Growth 2003-2008


Wine-based FABs - -Spirits-based FABs 13.9 91.6Other FABs - -FABs (flavoured alcoholic beverages) 13.9 91.6


10. APPENDIX

10.1 Industry Statistics

In 2002, the National Bureau of Statistics of China changed its policy, and required only companieswith turnover of over RMB5 million to submit their production figures. Hence, to ensureconsistency of data, only data from 2000 to 2002 are included here.

Beer: Production, Imports and Exports

Local production of beer registered an increase of 5% in 2002. This increase was a result ofimproved efficiency at production plants after the acquisitions of small players by larger localcompanies, or joint ventures with foreign enterprises.

Imports, however, suffered a double-digit decline of 19% in 2002, with only 43.6 million litresbeing imported, as more foreign players began local production through joint ventures withdomestic companies.

Exports rose by more than 50% to 130 million litres in 2002, with large local players such asTsingtao and Yanjing taking the lead as they sought overseas expansion, given the increasing



maturity of the beer sector in China’s cities. Tsingtao and Yanjing exported 63.2 million litres and6.7 million litres, respectively, in 2002.

Table 145 Beer: Production, Imports and Exports: Total Volume 2000-2002

Million litres2000 2001 2002

Production 22,045.4 22,465.1 23,581.8Imports 71.6 53.8 43.6Exports 84.4 83.5 130.5Apparent consumption 22,032.7 22,435.4 23,494.9

Source: Official statistics (National Bureau of Statistics of China)

Wine: Production, Imports and Exports

Grape wine production and consumption in China have developed quite rapidly. Production ofgrape wine in 2002 was 277 million litres, an increase of 15% over 2001. However, per capitaconsumption was still very low at around 0.3 litres, which reflects the great potential for futuresales.

Official production figures are about 30% lower than Euromonitor’s total volume sales data. Sincethe official statistics only cover companies with turnover of RMB5 million, it is estimated thatproduction of about 50 million litres from small producers is not reported.

Table 146 Wine Production, Imports and Exports: Total Volume 2000-2002

Million litres2000 2001 2002

Production 194.2 241.0 277.1Imports 0.0 0.0 0.0Exports 0.0 0.0 0.0Apparent consumption 194.2 241.0 277.1


Spirits: Production, Imports and Exports

Only production figures for local spirits and domestic brandy are available. The exact size ofimported spirits sales is impossible to calculate, but according to industry sources, volume sales ofsmuggled imported spirits are about 10 times as large as sales of legally imported products.

Locally produced brandy is mainly for domestic sale. Exports accounted for about 10% of totaloutput in 2002.

Table 147 Domestic Brandy Production: Total Volume 1998-2002

‘000 litres1998 1999 2000 2001 2002

13,468.0 13,939.4 14,430.0 15137.1 15,909.1




Table 148 Whisk(e)y Production, Imports and Exports: Total Volume 2000-2002

'000 litres2000 2001 2002

Imports 1,314.6 1,978.1 2,067.9Exports 146.5 2.0 198.0


Table 149 Brandy And Cognac Production, Imports and Exports: Total Volume 2000-2002

'000 litres2000 2001 2002

Imports 1,599.2 2,005.5 2,832.2Exports 36.3 55.0 324.4


Table 150 Vodka Production, Imports and Exports: Total Volume 2000-2002

'000 litres2000 2001 2002

Imports 221.3 183.9 324.9Exports 58.0 41.9 7.2


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