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Goose Island, dubbed by Fortune magazine China’s “craft beer bully”.
Goose Island, dubbed by Fortune magazine China’s “craft beer bully”.

BusinessDecember 18, 2017

There’s a massive craft beer opportunity in China. Are Kiwis missing out?

Goose Island, dubbed by Fortune magazine China’s “craft beer bully”.
Goose Island, dubbed by Fortune magazine China’s “craft beer bully”.

China is the biggest beer market in the world and craft beer is a fast-rising category. Sam Gaskin looks at how China could become a multi-million dollar venture for local craft brewers in New Zealand. 

On a dark section of Shanghai’s Fahuazhen Road, a violently bright sign tells you when you’ve arrived at The Beer Lady. A stock-market style ticker lists off the names of over 300 beers crammed into dozens of fridges, including Kiwi craft beers such as Tuatara and Epic.

The Beer Lady is 54-year-old Zhang Yindi, and her shop’s name is derived from another Shanghai shopkeeper known for sourcing hard to find items — the Avocado Lady. Zhang originally owned a convenience store, which also sold overpriced photocopies to foreigners registering at the police station opposite. Thinking how else she could cater to her clientele of foreign adventurers, Zhang started stocking craft beers. Business boomed, and now the store has more Chinese patrons than foreigners.

That shouldn’t be much of a surprise. China is the biggest beer market in the world. Of the top ten beers sold by volume, four are Chinese — Tsingtao, Yanjing, Harbin and the global leader, Snow, which sold 105.6 million hectolitres in 2016. That’s more than Budweiser (46.7 million), Heineken (31.9 million) and Corona (24 million) combined.

These are, it should be pointed out, uninspiring beers. After ten years in China, I’ve been back in New Zealand for less than two months and already I can tell you almost nothing about my favourite, Tsingtao, except that it’s a watery lager that pairs well with flavourful, often spicy Chinese cuisine from Hunan and Sichuan. All I can tell you about the others is that they taste like Tsingtao.

It’s perhaps unsurprising then that while the total volume of beer sold is declining globally, imported beer has gone up 15.8% in China in the past year with craft beer a fast-rising category.

While Australia is the top destination for our full flavour beers (>5%ABV) with $2.7 million worth sold in 2016 (up from $600,000 in 2010), China is second at $700,000 in 2016 (up from under $100,000 in 2010). Growth is almost twice as fast in China, and the price per litre is almost triple.

Matt Tapper, global markets managing director at Lion, the owner of brands such as Mac’s, Emerson’s and Panhead, says “the craft beer scene in China is still in [its] early stages, but there’s certainly growing interest in both on and off-premise. The opportunity to share quality, flavoursome craft beer from our part of the world with China exists, and clearly, the sheer size of the major cities in China equates to a significant value pool by Australian and New Zealand standards.”

And New Zealand seems well positioned to take a piece of the growing craft beer market in China. We now have 194 craft breweries, one for every 24,000 New Zealanders, and several Kiwi brands have grown rapidly after impressing discerning domestic beer drinkers.

Tsingtao: “a watery lager that pairs well with flavourful, often spicy Chinese cuisine from Hunan and Sichuan’ (Flickr/Alpha)

In its latest insight report into the craft beer business, ANZ describes the industry as being in a “start-up phase” in New Zealand. Small brewers are being acquired for large sums, with Panhead bought by Lion (Kirin) in May 2016 for $25 million, and Tuatara by DB (Heineken) in February for an undisclosed sum. Yeastie Boys, Parrotdog and Renaissance have all raised hundreds of thousands in crowdfunding in the past, while Moa went public in October 2012 being listed on the NZX.

Of course, other countries are also looking at the Chinese opportunity. Having largely missed out on the craft beer boom in the United States, beer industry behemoth AB InBev is aggressively marketing its craft offering, Goose Island, in China. They’ve been so pushy, in fact, that Fortune dubbed them China’s “craft-beer bully”.

Lion’s approach in China is also to focus on craft beer with Australia’s Little Creatures opening a microbrewery in Hobsonville, Auckland, next year. It’s the next step in Little Creature’s Asia-Pacific expansion strategy; the company already has two sites in Australia, and one in Hong Kong.

“We believe Little Creatures fits that bill because it’s a highly credentialed beer, it’s very inclusive and it goes very well with food,” Tapper says. “We’re also considering the role of a number of our New Zealand brands as we establish our route to market. However it’s very much ‘one step at a time’.”

A patient approach is needed, he says, because “building brands in China takes time, sustained investment, strong relationships and [a strong] route to market, and we need to deliver consistent premium brand experiences.”

Stalls filled with beer products are seen in a supermarket in Beijing (NICOLAS ASFOURI/AFP/Getty Images)

That might make sense from the perspective of Big Beer, but it’s not very inspiring as a drinker. The pleasure of craft beers comes from experimenting, trying something new, and sharing your discoveries with friends. It’s more like choosing a wine for the evening than having your go-to box of Tui every weekend. The Beer Lady isn’t renowned in Shanghai because she stocks three middling craft beers.

Epic founder Luke Nicholas has been selling in China since May 2015. He reckons the major marketing push by beer behemoths “raises awareness for craft beer, and means more people start drinking craft,” paving the way for smaller breweries.

Nicholas says his sales in China have grown, but so have the challenges. More brewers are entering the market, prices for craft beer are falling, and every shipment throws up a new issue with packaging, labelling or compliance.

“The Chinese beer drinker is looking for the next new thing just like every craft beer consumer in the world right now,” he says. “That makes it hard to build a brand when popular styles are changing month to month.” And freshness is a particular issue in such a fickle market. “Many beers in China from imports are old, and taste bad. We don’t want our beer to be the same,” says Nicholas.

If it’s tough for Kiwi brewers to compete on their own, maybe they can look forward to being acquired by Chinese companies?

Epic founder Luke Nicholas in China (supplied)

China’s own beer behemoths are sleeping giant pandas. China Resources, which owns Snow, is a state-owned enterprise that once raised funds and purchased supplies for the People’s Liberation Army. Ninety percent of its sales volume comes from Snow, and they show little interest in acquiring foreign craft brands. “Our super premium bottle can be regarded as China’s version of craft beer,” China Resources’ Frank Lai Ni-hium told the South China Morning Post in a moment of particular delusion back in 2015.

Nicholas doesn’t see China Resources acquiring the next Panhead or Tuatara.

“[China] is all about copying what the rest of the world does,” he says. “They can build cheap breweries locally, hire brewers from around the world, and learn how to make beer. Then they will be able to have all of it to themselves.“

That makes it all the more imperative that New Zealand brewers establish themselves in the market before China’s sleeping giants wake up to the craft beer opportunity.

Nicholas has heard of the Beer Lady but has no idea how she sources all her beers. One thing I can tell you for sure: she still sells photocopies in her store.

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