The most profitable beverage company in China

What is the most profitable beverage company in the world?
Almost everyone will acquiesce, Coca Cola. Although Coca Cola always beats Pepsi Cola in consumers’ mouths, it actually doesn’t make any money from Pepsi.
But strictly speaking, PepsiCo is not purely a beverage company. PepsiCo’s most profitable business is in the food industry. Both PepsiCo and Doritos are cash generators with annual sales of 10 billion yuan.
The one who really earns the world’s first place through beverages is Budweiser InBev. One of the top five consumer goods companies and the world’s largest beer manufacturer, with over 500 beer brands in hand, such as Budweiser, Corona, and Fujiabai.
Beer is the most profitable beverage in the world.
Although it missed the American craft brewing revolution, Budweiser’s march into China has been very successful, and it has consistently ranked first in high-end beer in China.
According to Euromonitor data, Budweiser held 42% of the high-end beer market in China in 2020.
1、 Acquisition penetration
In the same year, AB InBev’s global revenue reached $54.619 billion, or about 375 billion yuan, which means that the average daily revenue exceeds 1 billion yuan. For every four bottles of wine sold worldwide, one bottle is an AB InBev brand, a higher proportion in China.
Budweiser uses the same collection and penetration approach throughout the world and in the Chinese market.
As early as 1993, Budweiser began to invest and hold shares in Qingdao Beer Co., Ltd., the leading beer brand with the longest history in China, as a foreign capital.
After two years of market research, risk assessment, and stress testing, Budweiser’s headquarters has basically figured out the operation of the Chinese beer market from the operation of leading brands. Subsequently, Budweiser chose Wuhan, the “thoroughfare of the nine provinces”, as the starting point to facilitate the import of raw materials and the transportation of products. It invested more than 100 million US dollars to establish Budweiser International Beer Co., Ltd., becoming the first foreign enterprise to establish a brewery in China, namely Budweiser China.
At that time, Wuhan was the closest big city to China’s economic zone and population center. It not only had a huge population, but also had not yet formed a large beer brand, with large vacancies and low competition, which was very beneficial for foreign brands.
Budweiser, which entered the Chinese market for the first time, only focused on two products: Budweiser beer and Budweiser ice beer. It entered the mid to high-end price band as an import, and immediately became the most popular beer brand in China at that time, with an annual output of 250000 tons.
Budweiser’s initial start in China was very smooth, and it began to weave a web of dots to threads into the Chinese beer market through multi-point acquisitions. Behind Budweiser is the direct acquisition of small beer brands for personal use, while for larger brands with a slightly larger scale, investment and equity penetration are conducted.
Jinling Beer, Weixue Beer, Daxue Beer, Mudanjiang Beer, Tangshan Beer, Jinshibai Beer, the Pearl River Beer… are all under the control of Budweiser. As a result, Budweiser, which has been the annual sales champion beer brand in China since 2001, has now become the most profitable beer company in China.
The first two mainly focus on the low and medium price band, and AB InBev has occupied the remaining blank.
Budweiser InBev currently has four core brands in China, one is Xuejin, mainly in Fujian and Jiangxi, with a focus on mid tier and high-end brands; One is Harbin Beer, which is the main product of Budweiser InBev’s medium to high-end products and has become a core revenue contributor; These two local brands focus on price performance and customer familiarity. One is Budweiser, a leading brand in the high-end market; There is also Belgian era beer, positioned as an ultra high-end brand. Therefore, in the high-end beer market, Budweiser, which has acquired several brands and has a more complete and complementary brand structure, is still the overwhelming first.
The multi brand architecture system has been used for reference by many manufacturers. Yanjing Beer launched the “1+3” strategy, and Qingdao Beer launched the “1+1+N” strategy, both derived from Budweiser’s thinking.
Merger and acquisition growth is not only Budweiser’s starting method, but also the jungle rule of the entire industry.
In terms of logistics costs, the price of a single bottle of beer is low, and it is not cost-effective to sell beer across regions and over long distances. Therefore, compared with red wine and Baijiu, beer has strong regional characteristics. Therefore, the early beer industry presented a pattern of geographical separation of various brands. Therefore, compared to the high cost of bringing the line from the headquarters to the target market, it is better to directly acquire beer brands in the target region, so as to take over the local supply chain and channel resources that have been laid out before, and lay out the market at a low cost.
In terms of market effect, the beer market has a significant siphon effect. The larger the market share, the more resources can be rolled up, and the higher the profit. When the market share is twice that of the opponent, the profit will reach more than twice that of the opponent. AB InBev’s market share in the Americas is far higher than that in the Asia Pacific region, with pricing power in hand. Accordingly, the profit margin in the Americas is also higher.
The same is true in the Asia Pacific region:
The revenue of China Resources Beer in 2018 was 31.87 billion yuan, equivalent to 55.3% of Budweiser Asia Pacific; Net profit was 977 million yuan, only 10.2% of Budweiser Asia Pacific’s net profit last year. Last year, Qingdao Beer had an operating revenue of 26.58 billion yuan and a net profit of 1.561 billion yuan. Its revenue is less than half that of Budweiser Asia Pacific, while its net profit is 16.3% of the latter.
2、 Distribution network
Budweiser’s distribution system ensures that this “network” can operate efficiently with accuracy to the particle level. This particle can be nuanced to the taste preferences and price acceptance of the population in every pub and retail store in Shanghai.
Accurate data acquisition comes from the “BudNet” intelligent sales system established by Budweiser Group.
“Without the best sales channels and brewing networks in the industry, we would not have been able to achieve such success. Our more than 600 distributors have received the most complete training and are the most engaged sales team in the entire industry.” Budweiser’s 2002 annual report disclosed to the outside world for the first time the importance of the “BudNet” system, which is also one of the keys to achieving stability in the industry downturn.https://store.stoneitech.com/
At that time, the federal government raised the alcohol tax higher and higher, and beer sales throughout the United States were declining. However, during the same period, Budweiser’s market share rose above 50%, with a sales revenue of 16 billion yuan a year.
From the perspective of an ordinary BudNet dealer, “BudNet” is more like a street detective organization:
Drake is one of Budweiser’s numerous distributors, mainly overseeing 24-hour convenience stores, liquor stores, and catering stores in the mountains of central California. At each location, he will first investigate the accounts receivable status of the store to ensure that there are not too many bad debts (receivables that may become bad debts), and then take stock of the goods warehousing flow of the store within a month, so as to understand all retail details such as the past sales volume, the proportion of various products, and so on.
Then he will talk with the retailer for a while, and then send the general information of other beer manufacturers near the retail location, such as product placement and promotion activities, back to the headquarters.
Each Drake is the eye and ear of BudNet’s system, constantly transmitting various important data to the headquarters through distribution channels, including sales, retail store container displays and visits, and the operating conditions of distributors of all sizes:
(1) Budweiser’s sales representatives collect marketing dynamics from competitors while accepting new sales orders;
(2) Budweiser’s suppliers collect and sort out all scattered data and continuously transmit it to Budweiser’s headquarters every day;
(3) Budweiser brand managers began analyzing the collected data;
(4) Budweiser brand managers timely adjust their strategies and issue new action instructions to major distributors;
(5) Distributors connect to BudNet to obtain the latest market conditions;
(6) Budweiser’s sales personnel rearrange the product placement and timely turnover of inventory in the store based on the company’s and distributor’s recommendations.
A distribution system that can adjust its strategy in real time allows Budweiser to adapt to the market faster than other brands. Even though Budweiser has always kept the details of this BudNet secret and easily kept it from appearing, many very patient peers have figured out many ways.
They believe that the most competitive feature of BudNet is its ability to discover exactly what beer enthusiasts are buying, where they are buying, and why they prefer one brand over another. For example, a consumer purchased a bottle of Budweiser light beer in a bar, and Budweiser distributors have recorded how much they spent, whether the beer they purchased was warm or cold, where the beer they purchased was brewed, and whether they have the opportunity to buy cheaper, similar quality beer nearby… to detect consumer preferences and competitors’ trends in a timely manner.
Although it seems that this dynamic system of big data is no longer surprising, 20 years ago, BudNet’s design philosophy was quite advanced. In an era when consumer information is still communicated through word of mouth in China, BudNet introduced by Budweiser has been a dimensionality reduction blow to China’s beer and even the entire FMCG industry.
3、 Brand Value
Although Budweiser’s market share has been continuously increasing through mergers and acquisitions since its entry into China, compared to the United States, the brand “Budweiser” is still far from forming the recognition of the first tier in China. Even now, there are still a large number of consumers who still believe that Harbin Beer is a state-owned brand.
Budweiser, which has just entered the Chinese market, has adopted a completely different market strategy from the United States in its pursuit of pricing power.
In the United States, Budweiser’s product line encompasses high, medium, and low end markets. However, due to the price difference between high-end and medium to low grade beer, which is generally only 20-30%, Budweiser’s products in the United States are in the popular price band. However, in China, the market retail price of large bottle Budweiser beer is at least 10 yuan or more, which is 4-8 times the price of ordinary local beer.
The price is more expensive, but it sells even better.
According to the 2021 financial report, Budweiser Asia Pacific (01786. HK) achieved a revenue of $6.788 billion, a year-on-year increase of 14.9%, and achieved a net profit of $980 million, a year-on-year increase of 84.8%. The announcement shows that sales of high-end and mass products in all major markets have achieved double-digit growth driven by positive packaging and brand mix.
Although major liquor companies have begun to imitate Budweiser’s high-end approach, it still lacks Budweiser’s cognitive strength.
Brand value determines the highest price a brand can sell similar products at.
As for brand value, there was an interesting case: First, the original packaging of Coca Cola and Pepsi Cola was sent to consumers for tasting. Everyone generally believed that Coca Cola was better to drink. After that, the tester exchanged the drinks in the bottle and distributed them to everyone after a period of time. As a result, consumers generally believed that the cola in the Coca Cola bottle was better to drink. Brands can even influence people’s taste of cola.https://forum.stoneitech.com/
For beer, too.
At a beer conference held in the United States, the organizers tore off the labels of 30 types of beer and placed them in the same opaque packaging, allowing brewery owners to taste them one by one. As a result, few people were able to correctly find their own beer. Through these blind tests, it can be seen that most of the diverse distinctions people make about beer still come from brand emotions, and the emotional value and spiritual identity of products have gradually become the core of market competition. Especially when products between brands are comparable, they are often more useful than price.
Budweiser does not hesitate to invest in building a high-end brand image. It has always been the company that invests the most in marketing expenses in the Chinese beer industry, with annual investment in advertising, distribution, and promotion exceeding hundreds of millions of yuan. As early as January to September 2000, television advertising expenses in the beer industry accounted for 24.0% of the industry’s television advertising expenses during the same period. Among them, Budweiser Beer ranked first among numerous brands for two consecutive years, 100% higher than the advertising volume of the second place.
Budweiser spends the most on sports among various types of advertising. In order to match its identity as the world’s top beer manufacturer, Budweiser basically selects global focus events such as the Olympic Games, World Cup football matches, and NBA basketball matches for output. In 2008, Budweiser sponsored the Beijing Olympic Games, which brought about a huge sales transformation.
Next is music. An endless stream of music festivals, beer festivals, and audio parties, Budweiser’s sponsorship and advertising are almost never absent. Prior to the epidemic, Budweiser held the “storm syllable” in Shanghai every year, making it the largest outdoor electronic music festival in Greater China, and its penetration into young people cannot be ignored. In contrast, China Resources, Tsingtao Beer, and other state-owned beer brands have significantly less penetration in music than Budweiser. In addition to boosting brand value in emotional consumption, Budweiser is also more diligent in sales channels.
It mainly adopts a key customer model, expands cooperation in existing drinking channels (catering, night clubs), and focuses on distributing high-end products. In 2020, Budweiser (China) accounted for 60% of the total sales in the current drinking channel, significantly higher than other beer companies.
Compared to non current drinking channels (retail, KA), current drinking channels consume more high-end beer. Consumers in this channel have low sensitivity to price and high requirements for brand image, which is more in line with the characteristics of high-end brands.
Especially when drinking at a bar night or at a dining table, people tend to prefer to come to Budweiser for a dozen rather than venturing into the world.
From the perspective of channel price increases, the rate of price increases for non current drinking channels is generally within 30%, while the rate of price increases for mass catering is as high as 40-100%, while the rate of price increases for high-end catering and night clubs is as high as 100-200%.
In terms of gross profit sharing, high-end beer can generally create a gross profit margin of 50-60%, significantly higher than the gross profit margin of 35-40% for affordable beer. Therefore, the current drinking channel is the sector with high profits for beer companies.
With the advantage of the current drinking channel, Budweiser has maintained a gross profit margin of over 50% for many years, making it difficult for domestic beer companies to easily catch up.
With many big strokes, domestic brands can only rank third in the high-end market. In 2020, Qingdao Beer accounted for 7% of the high-end market, far lower than Budweiser and Carlsberg.
The stock market and high-end transformation of state-owned brands still have a long way to go before Budweiser.

By orchioo

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