Active price increase is not something everyone can do
Tsingtao Beer “Moutai”?

Text | Juchao WAVE, Author | Wu Ying, Editor | Yang Xuran

Open the Tmall official flagship store of Tsingtao Beer, the 1.5L “Legend of the World” priced at 1399 yuan/bottle, and the monthly sales exceeded 100; the combination of two bottles priced at 2698 yuan also sold 96 pieces in a month; The official flagship store of Tsingtao Brewery on JD.com shows that the wine has been temporarily sold out.

“The style is very high, and the sense of ceremony is full”, “Although the price is a little expensive, it is still worth it”, “The wheat fragrance is rich and the taste is rich”… Judging from the feedback of the consumers who have purchased it, whether it is the control of the water army The reviews are still really liked by consumers, and they all praise its mellow taste and exquisite packaging, trying to make others feel “value for money”.

It is not the first time that Thousand Yuan Beer has appeared in the public eye. Last year, China Resources Beer launched an ultra-high-end series of beer “Li” priced at 999 yuan, which opened up the imagination of domestic ultra-high-end beer for the first time.

Budweiser and Tsingtao Brewery have also successively launched ultra-high-end products, and the ceiling of beer prices has been continuously raised.

Tsingtao Brewery’s launch of ultra-high-end products has actually been “premeditated”. Since 2018, Tsingtao Brewery has raised prices for its products several times:

First, in May 2018, the prices of several brands increased by 0.5 yuan to 2 yuan; in March 2019, pure raw, classic 1903 and other prices increased by 6%-10%; in May 2020, Tsingtao Brewery increased the price of white beer by 5% %, the price of classic bottles will increase by 8%; in August 2021, the retail prices of Tsingtao white beer and pure raw materials will increase; in November, the price of 1903 cans and white beer cans will be increased nationwide, with a maximum increase of 13% .

A series of price increase operations, combined with Tsingtao Brewery’s accelerated development of products such as August, IPA, and Amber Lager in recent years, Tsingtao Brewery has become a strategic brand to promote high-end products by means of price increase + product structure upgrade. Performance and stock prices also rose.

Tsingtao Brewery’s share price performance (January 2016 to present)

Reviewing the development process of the beer industry, from the initial staking model, to the stage of mergers and acquisitions and integration, and the “total volume sideways” stage, the beer industry has changed from an incremental market to a stock market. Today, high-endization has become an industry consensus, but the outside world has always been skeptical.

Beer makers smell the scent of the high-end market, and consumers are willing to pay for it. Thousand-yuan beer brings topics and traffic to enterprises, and its significance is far greater than the sales of tens of thousands of bottles. Behind the seemingly unreasonable high-end products, there are hidden plans for brewers to continue to raise prices.

01 Beer is sick with liquor?

Beer wants to replicate the profit model of liquor and achieve long-term profit growth by continuously increasing prices, which is obviously a dead end.

“Liquor and Maotai wine are put together, and they do not violate the harmony at all.”

Not long after Hou Xiaohai, chairman and general manager of China Resources Snow Beer (China) Co., Ltd., finished speaking, Tsingtao Brewery produced a beer with a higher price than Li, which seemed more suitable to be put together with Moutai.

If you create a thousand-yuan price band for beer, can you really create a high-end market like liquor, and improve corporate performance by constantly increasing prices? Apparently beer and liquor are two different things.

Different from liquor, the consumer group of beer has a wide audience, is younger in comparison, has a relatively low pursuit of alcohol quality, and places more emphasis on the feeling of hearty and incisive. Common consumption scenarios are bars, food stalls, and KTV.

Younger consumer groups lead to a relatively low limit on beer consumption. Most of the main consumers of liquor are men over 40 years old, who pay more attention to taste and quality, and consumers are willing to pay a premium for their products, which also constitutes the reason for the rise in liquor prices.

And beer is an imported culture from Europe, and it only entered the Chinese market at the end of the 19th century. Liquor originated in China, and the liquor culture is deeply embedded in the genes of the Chinese. It can be said that the Chinese liquor culture is the liquor culture.

For many Chinese people, no matter what the occasion is, a bottle of good wine, even if you don’t drink it, can show the enthusiasm of the host and the dignity of the guests. By contrast, beer does not possess this cultural attribute.

Since they are two different products, if beer wants to replicate the profit model of liquor and achieve long-term profit growth by continuously increasing prices, it will inevitably hit the ceiling one day.

However, the price increase within the acceptable range of consumers can ensure that the beer companies represented by Tsingtao Brewery will enjoy worry-free performance growth in a few years.

02 High-end depends on heritage

In terms of domestic beer brands, Tsingtao Brewery has a clearer advantage than China Resources and Yanjing.

After China Resources and Tsingtao Brewery launched thousand-yuan products, the ceiling of the beer market has been lifted up a level.

At present, in the high-end beer market, China Resources Beer, Tsingtao Beer and Budweiser are showing a “three-legged” situation. From the perspective of the entire beer market, there are currently leading breweries such as Yanjing Beer and Carlsberg, showing a pattern of “five points in the world”.

Among the domestic beer brands, Tsingtao Beer faces China Resources Beer and Yanjing Beer.

China Resources Beer, as the beer company with the highest revenue in China, has been robbing the market for a long time by means of low prices. When the overall space of the industry peaked and shrunk, it also began to reshape its strategy in 2017, created a “4+4” brand, promoted the transformation of high-end, and strategically joined forces with Heineken in 2018.

However, judging from the data in recent years, Heineken’s development in the Chinese market has not been smooth, and the market share of China Resources Beer in the high-end market has not been increased due to the alliance between powerful players, which has a profound brand cultural root.

Yanjing Beer, which also won with low-priced brands, seems to be unable to get rid of the regional brand label. The new high-end beer U8 is popular in the Beijing market, but it is still difficult to accept in the national market.

As a national brand with a history of more than 100 years, Tsingtao Brewery is the first enterprise to develop the domestic beer market. Although beer originated in Europe, Tsingtao Brewery has injected cultural characteristics belonging to China in the past 100 years of development. “Tsingtao” has become synonymous with beer to a certain extent, which is very beneficial to the national layout.

Therefore, in terms of domestic beer brands, Tsingtao Beer has a clearer advantage than China Resources and Yanjing: the brand image is high-end, and there is no strong sense of place.

Tsingtao Brewery recently launched “Old Tsingtao” products, using “familiar taste, familiar packaging” to play the cultural card, once again emphasizing its own brand heritage.

Combining the financial data, we can intuitively feel the positive impact of high-endization on Tsingtao Brewery’s performance. Its gross profit margin in 2020 reached 40.42%, and its net profit reached 8.38%, both ahead of beer faucets such as China Resources and Yanjing.

The latest 2021 Q3 data shows that its gross profit margin will reach 43.66% and its net profit margin will be 13.89%. In 21 years, it will achieve a net profit of 3.150 billion yuan attributable to the parent, a year-on-year increase of 43%.

In 2022, Tsingtao Brewery will also streamline the Qingdao brand product line, focus on core products, and promote the layout of craft beer and import markets. On the whole, it is an action in line with industry trends.

03 Is the price increase always effective?

Not everyone can take the initiative to raise prices, and the right to raise prices is generally in the hands of the leader with the strongest brand power.

Raising prices and rushing to the high end is an inevitable trend for the continued development of the beer industry. Raising prices is the most direct and efficient strategy for brewers to increase profits, but the question is, who has the confidence to raise prices and who can really benefit from this process.

China Resources has the largest share in the mainstream price band, Budweiser is an international high-end beer leader, and Tsingtao Beer is the most recognized high-end brand in China. The demands of the three companies to raise prices have always been there. After the industry competition eases, the price increases will be more obvious.

However, not everyone can take the initiative to raise prices, and the right to raise prices is generally in the hands of the leader with the strongest brand power.

Beginning in the second half of 2020, due to the sharp rise in raw materials, various beer companies have started a new round of price increases, and began to touch mid-to-high-end categories. According to the different markets and channels they occupy, they will implement price increase strategies at different rhythms. This is more of a “passive price increase”.

The cost of brewers mainly comes from raw materials and packaging materials. Taking the cost structure of Tsingtao Beer as an example, packaging materials and brewing raw materials account for 50.5% and 23.6% of the cost, respectively. Among them, the prices of packaging materials such as glass and corrugated paper have increased by about 24% and 13% year-on-year in January 2021. Coupled with the high price of raw materials, if prices do not rise, its profit margins will continue to be under pressure.

For brewers, raising prices can hedge against rising costs and even boost profits.

However, as mentioned above, the core consumer groups of beer are relatively price-sensitive. If the price increase is too fast, all the cost pressure will be passed on to consumers (and even more profits will be achieved), some consumers will inevitably decrease or even give up consumption.

The price increase and good performance of beer companies in the past two years are closely related to the high price of liquor. In addition, when the price of a commodity increases, people will reduce the demand for that commodity and increase the demand for substitutes. If as a functional substitute, the total price of beer per table is too close to liquor, which will cause some demand to be transferred back to liquor.

On the whole, implementing price increases too quickly and too aggressively will discourage some of the elastic demand among consumers and affect the development space of the entire industry.

In addition, shifting costs to channels is also seen as a way to increase profits. However, the industrial chain of beer is completely different from that of liquor, and its channels have a strong right to speak, and there is not much room for manoeuvre in the case of the industry’s meager profits for many years.

Unlike liquor, beer does not have much profit margin for the channel.

Raising prices is still the most important way to break the situation in the beer industry. But when this strategy can be used, it has become the most worrying thing for investors – the diminishing marginal utility of increasing profits brought about by price increases is bound to occur.

04 Write at the end

2021 is the first year for the high-end upgrade of beer. The beer industry has stepped out of the bottom and ushered in the era of “profit return”.

According to Euromonitor data, the proportion of high-end beer continues to increase, and the growth rate is much higher than that of low-end beer. In 2025, high-end beer sales are expected to reach 14% of the overall beer sales.

Will this 14% be the peak of the high-end beer share?

Manufacturers obviously have strong confidence in this, otherwise they will never continue to guide the market with the strategy of “thousand yuan beer”. It is foreseeable that domestic beer companies will continue to increase prices and adjust product structure. As the one with the most brand heritage and high-end acceptance, Tsingtao Brewery will be the one with the highest chance of winning in the whole process.