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Gan Bei to 1.3 Billion Gan Bei to 1.3 Billion PeoplePeople

Th Chi M k tTh Chi M k tThe China MarketThe China Market

Presented by Presented by William W. WestmanWilliam W. Westman

Craft Brewers ConferenceCraft Brewers ConferenceChicagoChicago

April 8, 2010April 8, 2010

Economic OverviewEconomic OverviewEconomic OverviewEconomic Overview

World’s Second Largest Economy (PPP) World’s Second Largest Economy (PPP) GDP GrowthGDP Growth

2007: 2007: 11.9%11.9%2008: 2008: 9.8% (estimate)9.8% (estimate)2009:2009: 7 57 5 9% (forecast)9% (forecast)2009: 2009: 7.57.5--9% (forecast)9% (forecast)2010:2010: 88--10% (forecast)10% (forecast)

2008 GDP per capita (PPP): World Bank estimates $6,020 2008 GDP per capita (PPP): World Bank estimates $6,020 (PPP), CIA estimates $6,000, IMF estimates $5,970(PPP), CIA estimates $6,000, IMF estimates $5,970

Unemployment: 4% officially in urban areas, but including Unemployment: 4% officially in urban areas, but including migrants may be as high as 9% migrants may be as high as 9%

Source: CIA World Fact Book, EIU, 2009, USB

Economic OverviewEconomic OverviewSlightly Smaller Area than the United States

Total: 9,596,960 sq km

Source: www.flora.huh.harvard.edu/china/images/floramap.gif

China's Expanding China's Expanding Middle ClassMiddle Class

150

200

250

w/r

eal P

PP in

com

es

000/

yr

WTO A i

0

50

100

1990 92 94 96 98

2000 02 04 06 08

2010 12 14 16 18

2020

Mill

ion

hous

ehol

ds w

over

$20

,0

Source: Global Insight’s Global Consumer Markets Service & FAS China Forecast

WTO Accession

ChinaChina’’s Beer Industrys Beer Industry

The largest in the world in terms of production The largest in the world in terms of production volume volume

Average per capita beer consumption is 5.25kg Average per capita beer consumption is 5.25kg (or 5 19 liters; this is the official Chinese(or 5 19 liters; this is the official Chinese(or 5.19 liters; this is the official Chinese (or 5.19 liters; this is the official Chinese estimate butestimate but…….).)

Beer production increased 4.9% in 2009, over Beer production increased 4.9% in 2009, over 2008, to 43 billion litres (33 liters per capita)2008, to 43 billion litres (33 liters per capita)

Imported beer sales are very small compared to Imported beer sales are very small compared to domestic beer sales, at less than 22 million liters domestic beer sales, at less than 22 million liters in 2008.in 2008.

So……So……What is this important toWhat is this important to

thetheU.S. Craft Brewer?U.S. Craft Brewer?U.S. Craft Brewer? U.S. Craft Brewer?

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Opportunities for Imported BeersOpportunities for Imported Beers

Rising disposable incomes and a developing tasteImported, specialty items will spur demand

I i f i it i Chi d Chi ’Increase in foreign community in China and China’s emergencein the world economy

Opportunity to introduce high-value,

imported American Craft Beers

Favorable EnvironmentFavorable Environment

Accession to the WTO has benefited Chinese Accession to the WTO has benefited Chinese industries across the boardindustries across the board

Gradual removal of market barriers and trade Gradual removal of market barriers and trade restrictions creating increased competitionrestrictions creating increased competitionrestrictions creating increased competition restrictions creating increased competition among domestic and foreign operatorsamong domestic and foreign operators

Looking AheadLooking Ahead

ChinaChina’’s huge population, coupled with the s huge population, coupled with the marketmarket’’s immaturity and sound longs immaturity and sound long--term term economic structure, all serve to create a very economic structure, all serve to create a very appealing marketappealing marketappealing market.appealing market.

ChinaChina’’s economic recovery remains firmly on s economic recovery remains firmly on tracktrack

The Saddle RestaurantThe Saddle RestaurantBeijingBeijing

Craft Brew Market in ChinaCraft Brew Market in China

Expat community is well established and growing Expat community is well established and growing in Chinain China

Many more int’l students studying Chinese as Many more int’l students studying Chinese as interns then seeking work in Chinainterns then seeking work in Chinainterns then seeking work in Chinainterns then seeking work in China

Increase in international restaurantsIncrease in international restaurants

Sports bars open 24Sports bars open 24--hours per day, 7 days/weekhours per day, 7 days/week

English Premier League, Cricket, Australian English Premier League, Cricket, Australian Rules Football, World Cup, ATP Tennis Circuit, Rules Football, World Cup, ATP Tennis Circuit, NFL and MLB (esp. the Yankees on Chinese NFL and MLB (esp. the Yankees on Chinese channels)channels)

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International InfluenceInternational Influence

The NBA and CBA The NBA and CBA –– Yao Ming in the USA; Yao Ming in the USA; Stephan Marbury in China.Stephan Marbury in China.

Chinese students studying abroad, in the USA!Chinese students studying abroad, in the USA!

I i d i i llI i d i i ll Increasing destination malls:Increasing destination malls: The Village in Sanlitun (Addidas, Blue Frog, Union The Village in Sanlitun (Addidas, Blue Frog, Union

Grill, Element Fresh, Apple Store)Grill, Element Fresh, Apple Store)

Lufthansa Center (high end designer stores + Lufthansa Center (high end designer stores + Paulaner Brew Pub)Paulaner Brew Pub)

Solana Mall (Tsingtao brewery, All American Sports Solana Mall (Tsingtao brewery, All American Sports Bar, Bling, ice skating rink)Bar, Bling, ice skating rink)

Solana’s Tsingtao Brew PubSolana’s Tsingtao Brew Pub

The Night LifeThe Night Life

Night clubs and bars open all nightNight clubs and bars open all night

International DJs and theme nightsInternational DJs and theme nights

Fashion and StyleFashion and Style——The World of Suzie Wong, The World of Suzie Wong, A 8 i Ch Cl b /B i Fi SA 8 i Ch Cl b /B i Fi SApartment 8 in Chaoyang, Clubs/Bars in Five Star Apartment 8 in Chaoyang, Clubs/Bars in Five Star HotelsHotels

Chinese culture and KTV.Chinese culture and KTV.

1308 Beijing1308 Beijing German Brew PubGerman Brew Pub

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Retail MarketRetail Market

Increasing incomes Increasing incomes –– consumers shop in consumers shop in Carrefour, WalCarrefour, Wal--Mart, City Shop, and Jenny Mart, City Shop, and Jenny Lou’sLou’s——opportunities of imported craft beers.opportunities of imported craft beers.

Emphasis on food safety packagingEmphasis on food safety packaging Emphasis on food safety, packaging, Emphasis on food safety, packaging, international selection of beverages and food international selection of beverages and food products.products.

Wine market expanding very fast.Wine market expanding very fast.

Cheeses and yogurt.Cheeses and yogurt.

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Market Development StrategiesMarket Development Strategies

Emphasis on the Expat communityEmphasis on the Expat community

More sophisticated and wealthy Chinese More sophisticated and wealthy Chinese consumers who travel frequentlyconsumers who travel frequently

E i Ci M kE i Ci M k Di ib i N kDi ib i N k Emerging City Markets Emerging City Markets –– Distribution NetworksDistribution Networks Rising incomes have driven the consumer foodservice Rising incomes have driven the consumer foodservice

market, and also the development of pubs and barsmarket, and also the development of pubs and bars

FoodFood--beverage pairing promotions for fivebeverage pairing promotions for five--star chefs star chefs in hotels and international restaurantsin hotels and international restaurants

Educational seminars on U.S. craft beersEducational seminars on U.S. craft beers

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TechniquesTechniques

Effective promotion tools: Effective promotion tools:

----Simple promotional items in popular expat Simple promotional items in popular expat locations plus developing relationships with key locations plus developing relationships with key F&B managers and bartendersF&B managers and bartendersF&B managers and bartenders.F&B managers and bartenders.

----Sales girls hired by beer manufacturers in bars Sales girls hired by beer manufacturers in bars and restaurants are effective tools to push sales, and restaurants are effective tools to push sales, and to introduce new or premium imported and to introduce new or premium imported American Craft Beer and Ale to Chinese American Craft Beer and Ale to Chinese consumers.consumers.

Additional Market InformationAdditional Market Information

Beer SalesBeer Sales

OffOff--trade accounts for 68% of total volume trade accounts for 68% of total volume sales in 2008/2009, which includes domestic and sales in 2008/2009, which includes domestic and imported beer.imported beer.

OnOn trade channel sales is growing faster d e totrade channel sales is growing faster d e to OnOn--trade channel sales is growing faster, due to trade channel sales is growing faster, due to the strong development of the consumer the strong development of the consumer foodservice market.foodservice market.

Regional DifferencesRegional Differences

Consumer preferences Consumer preferences vary in different regions vary in different regions in China. in China.

PPeople in Northwest eople in Northwest China tend to preferChina tend to preferChina tend to prefer China tend to prefer stronger tasting and stronger tasting and highhigh--strength beersstrength beers..

TThe majority of Chinese he majority of Chinese consumers prefer lighter consumers prefer lighter tasting and lowertasting and lower--strength strength beers.beers.

PricingPricing

SectorSector PricingPricing

PremiumPremium Above RMB20 per literAbove RMB20 per liter

StandardStandard RMB7RMB7--20 per liter20 per liter

EconomyEconomy Below RMB7 per literBelow RMB7 per liter

Source: Official statistics, Trade associations, Trade press, Company research, Store checks

Growth of Imported Premium LagerGrowth of Imported Premium Lager(>Y20 ($2.93) per bottle)(>Y20 ($2.93) per bottle)

2008/20092008/2009 20042004--2009 2009 CAGRCAGR

Growth ofGrowth of 3 6%3 6% 4 6%4 6%Growth of Growth of sales sales volumevolume

3.6%3.6% --4.6%4.6%

Growth of Growth of ValueValue

5.75.7%% --2.02.0%%

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PricingPricing

SStandard lager brands (RMB7tandard lager brands (RMB7--20 per litre) 20 per litre) recorded the strongest growth during 2009. recorded the strongest growth during 2009.

The leading standard lager brand in China is The leading standard lager brand in China is Tsingtao which recorded a vol me share ofTsingtao which recorded a vol me share ofTsingtao, which recorded a volume share of Tsingtao, which recorded a volume share of 32% in 2009, with demand being fuelled by 32% in 2009, with demand being fuelled by rising demand for higher quality amongst rising demand for higher quality amongst increasingly sophisticated consumers. increasingly sophisticated consumers.

PricingPricing

Demand for premium lager brands (> RMB20 Demand for premium lager brands (> RMB20 per litre) remains limited in China, with such per litre) remains limited in China, with such products recording a total volume share of just products recording a total volume share of just 2% in 20092% in 20092% in 2009. 2% in 2009.

Premium lager sales are dominated by Premium lager sales are dominated by multinational brands like Budweiser, Heineken, multinational brands like Budweiser, Heineken, Tiger, and Carlsberg, with the majority of sales Tiger, and Carlsberg, with the majority of sales being made onbeing made on--trade.trade.

Domestic CompetitionDomestic Competition

Top Six Domestic companies in beer sectorTop Six Domestic companies in beer sector China Resources Enterprise Co., Ltd with production China Resources Enterprise Co., Ltd with production

capacity of around 10 billion liters.capacity of around 10 billion liters. Tsingtao Brewery Co., LtdTsingtao Brewery Co., Ltd Beijing Yanjing Brewing CorpBeijing Yanjing Brewing Corp Beijing Yanjing Brewing CorpBeijing Yanjing Brewing Corp Harbin Brewery Group Co., LtdHarbin Brewery Group Co., Ltd Henan Jinxing Brewery GroupHenan Jinxing Brewery Group Guangzhou Zhujiang Brewery Co. LtdGuangzhou Zhujiang Brewery Co. Ltd No official micro brewers in China. There is a China No official micro brewers in China. There is a China

Food Industry Association’s Beer Chapter. The Food Industry Association’s Beer Chapter. The official website is official website is http://www.haicent.com/http://www.haicent.com/

Brand Shares of Top Ten Domestic Brand Shares of Top Ten Domestic BrandBrandBeer Beer 22006006--20092009

BrandBrand CompanyCompany 20062006 20072007 20082008 20092009

SnowSnow China ResourcesChina Resources 8.8%8.8% 13.3%13.3% 15%15% 17%17%

TsingtaoTsingtao Tsingtao BreweryTsingtao Brewery 4.5%4.5% 4.8%4.8% 5.8%5.8% 6.1%6.1%

YanjingYanjing Beijing Yanjing BreweryBeijing Yanjing Brewery 4.5%4.5% 4.6%4.6% 4.9%4.9% 5.2%5.2%

Harbin (AnheuserHarbin (Anheuser--Busch InBev NV)Busch InBev NV)

Harbin Brewery Group LtdHarbin Brewery Group Ltd 00 00 4.5%4.5% 4.7%4.7%

ZhujiangZhujiang Guangzhou Zhujiang Guangzhou Zhujiang Brewery Co. ltdBrewery Co. ltd

3.8%3.8% 3.5%3.5% 3.0%3.0% 2.9%2.9%

HansHans Tsingtao Brewery Tsingtao Brewery 1.7%1.7% 2.0%2.0% 2.6%2.6% 2.8%2.8%

JinxingJinxing Henan Xinxing Brewery Henan Xinxing Brewery GroupGroup

2.9%2.9% 2.8%2.8% 2.7%2.7% 2.7%2.7%

LiquanLiquan Beijing Yanjing BreweryBeijing Yanjing Brewery 1.6%1.6% 1.9%1.9% 2.2%2.2% 2.6%2.6%

Sedrin (AnheruserSedrin (Anheruser--Busch InBev NV)Busch InBev NV)

Inbev Sedrin Brewery Co.Inbev Sedrin Brewery Co. -- -- 3.1%3.1% 2.6%2.6%

LaoshanLaoshan Tsingtao Brewery Co. LtdTsingtao Brewery Co. Ltd 1.5%1.5% 1.7%1.7% 2.2%2.2% 2.4%2.4%

OthersOthers 51.1%51.1%

Source: Official Statistics, Company Research

Company Shares of Top Ten Global Company Shares of Top Ten Global BeerBeerBrands 2Brands 2006006--20092009

% total Volume% total Volume 20052005 20062006 20072007 20082008 20092009

China Resources enterpriseChina Resources enterprise 13.113.1 15.415.4 17.917.9 17.917.9 19.219.2

Tsingtao BreweryTsingtao Brewery 13.413.4 12.912.9 12.912.9 1313 13.413.4

AnheuserAnheuser--Busch InBev NVBusch InBev NV -- -- -- 12.112.1 10.810.8

Beijing Yanjing Brewery Co.Beijing Yanjing Brewery Co. 10.210.2 10.210.2 10.410.4 10.410.4 10.710.7Beijing Yanjing Brewery Co.Beijing Yanjing Brewery Co. 10.210.2 10.210.2 10.410.4 10.410.4 10.710.7

Henan Jinxing Brewery Henan Jinxing Brewery GroupGroup

4.24.2 4.64.6 4.34.3 4.24.2 4.14.1

Guangzhou Zhujiang Guangzhou Zhujiang Brewery Co.Brewery Co.

4.04.0 3.83.8 3.53.5 3.03.0 2.92.9

Suntory Holdings LtdSuntory Holdings Ltd 2.42.4 2.82.8 2.62.6 2.42.4 2.52.5

Carlsberg A/SCarlsberg A/S 1.81.8 1.91.9 1.91.9 1.81.8 1.81.8

Kingway Brewery Holdings Kingway Brewery Holdings LtdLtd

1.41.4 1.41.4 1.41.4 1.51.5 1.61.6

Asahi Breweries LtdAsahi Breweries Ltd 1.71.7 1.91.9 1.91.9 1.61.6 1.41.4

Source: Official Statistics, Company research

Beer Beer Imports by Country/Region of Origin (Liter)Imports by Country/Region of Origin (Liter)

CountryCountry 20072007 20082008 20092009 % Change% Change

WorldWorld 21,828,148 28,132,881 40,501,33243.96

GermanyGermany 7,325,490 8,238,110 12,414,01650.69

MexicoMexico 7,924,683 9,012,035 10,235,48713.58

TaiwanTaiwan 1,783 255,511 4,639,3051,715.70

South KoreaSouth Korea 2,112,223 3,678,992 3,913,4566.37

BelgiumBelgium 433,535 680,667 1,484,690118.12

FranceFrance 191,465 875,230 1,412,79061.42

MalaysiaMalaysia 1,303,114 1,352,099 1,269,969-6.07

RussiaRussia 282,684 1,341,810 1,132,262-15.62

NetherlandsNetherlands 632,584 840,707 890,1005.88

IrelandIreland 390,240 499,448 515,917 3.3

Source: World Trade Atlas, Beer made from Malt.

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Beer Production, Imports and ExportsBeer Production, Imports and Exports

Million Million LitersLiters

20042004 20052005 20062006 20072007 20082008

ProductionProduction 29,100.529,100.5 30,62030,620 35,151.535,151.5 38,905.738,905.7 41,030.941,030.9

Apparent Apparent ConsumptiConsumptionon

28,986.128,986.1 30,494.230,494.2 34,995.334,995.3 38,721.938,721.9 40,817.440,817.4

ExportsExports 141.3141.3 147147 177.5177.5 205.7205.7 241.6241.6

ImportsImports 26.826.8 21.121.1 21.321.3 21.821.8 28.128.1

Source: Global Trade Information Service (GTIS)

Beer Sales Volume through Beer Sales Volume through OnOn--trade and Offtrade and Off--trade Channeltrade Channel

Million Million litersliters

20042004 20052005 20062006 20072007 20082008 20092009

R ilR il 18 83418 834 20 71120 711 23 48423 484 26 17926 179 27 50927 509 29 05029 050

Source: Official statistics, trade associations, trade interviews and estimates

RetailRetail 18,83418,834 20,71120,711 23,48423,484 26,17926,179 27,50927,509 29,05029,050

Food Food ServiceService

8,7658,765 9,7269,726 11,11011,110 12,46212,462 13,16513,165 13,95213,952

TotalTotal 27,59927,599 30,43730,437 34,59434,594 38,64138,641 40,67440,674 43,00243,002

CompetitionCompetition

Domestic beer manufacturers dominate beer Domestic beer manufacturers dominate beer sales in China, with the top six domestic sales in China, with the top six domestic manufacturers accounting for 52.6% of total manufacturers accounting for 52.6% of total beer volume sales in the countrybeer volume sales in the countrybeer volume sales in the country. beer volume sales in the country.

Increasing acquisition and improved distribution Increasing acquisition and improved distribution channel in wider areas made domestic market channel in wider areas made domestic market share larger than before.share larger than before.

Example of AcquisitionExample of Acquisition

Snow is a 51:49 joint venture between Hong Kong’s China Snow is a 51:49 joint venture between Hong Kong’s China Resources Enterprises and AngloResources Enterprises and Anglo--South African Brewing South African Brewing SABMiller.SABMiller.

In April 2009, China Resources Snow Breweries, the country’s In April 2009, China Resources Snow Breweries, the country’s leading brewer by volume acquired Shandongleading brewer by volume acquired Shandong--based based Amber Amber B iB i f US$41 78 (CNY285 ) i bid bf US$41 78 (CNY285 ) i bid bBreweriesBreweries for US$41.78mn(CNY285mn) in a bid to become a for US$41.78mn(CNY285mn) in a bid to become a truly national player in China and to beat its fierce competitor truly national player in China and to beat its fierce competitor Tsingtao.Tsingtao.

The acquisition not only increased Snow’s production capacity The acquisition not only increased Snow’s production capacity but to establish a manufacturing presence in a market dominated but to establish a manufacturing presence in a market dominated by its rivalsby its rivals--Tsingtao. Which Shandong province accounts to Tsingtao. Which Shandong province accounts to nearly 50% of Tsingtao’s total revenues.nearly 50% of Tsingtao’s total revenues.

CompetitionCompetition

MMultinational manufacturers such as Carlsberg ultinational manufacturers such as Carlsberg and Heineken are increasingly focused on China. and Heineken are increasingly focused on China.

Carlsberg acquired a beer hop manufacturer in Carlsberg acquired a beer hop manufacturer in Xinjiang provinceXinjiang province in West Chinain West China in April 2009in April 2009Xinjiang province Xinjiang province in West China in West China in April 2009in April 2009,,and is developing its operations in West China. and is developing its operations in West China.

LLeading Taiwanese brand Taiwan Beer also eading Taiwanese brand Taiwan Beer also entered mainland China in 2009entered mainland China in 2009..

OpportunitiesOpportunities

To increase profit margins, manufacturers are To increase profit margins, manufacturers are reducing packaging from standard 630reducing packaging from standard 630--640ml to 640ml to 500ml, or 600ml, and the smaller packs are more 500ml, or 600ml, and the smaller packs are more popular in the marketpopular in the marketpopular in the market.popular in the market.

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OpportunitiesOpportunities

Chinese are yet to adapt to the relatively bitter Chinese are yet to adapt to the relatively bitter taste of ales, dark beer and stout.taste of ales, dark beer and stout.

Local consumers prefer low priced locallyLocal consumers prefer low priced locally--brewed lagers ($0 30 per 500 ml in local Beijingbrewed lagers ($0 30 per 500 ml in local Beijingbrewed lagers ($0.30 per 500 ml in local Beijing brewed lagers ($0.30 per 500 ml in local Beijing kiosks).kiosks).

OffOff--trade or retail sales are limited.trade or retail sales are limited.