China's taste for craft offers fizz for global brewers

Mon Mar 7, 2016 4:43am EST
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By Adam Jourdan

SHANGHAI (Reuters) - Small-scale brewers from Brooklyn to Beijing are tapping growing demand from cosmopolitan Chinese consumers for high-end beers, a trend which could also help global brewing giants finally unlock frothier profits in the world's largest beer market.

China is key for the biggest international beer brands as growth elsewhere stalls, accounting for half of the industry's global volume increase last year.

But while China drinks a quarter of the world's beer, it accounts for only 3 percent of brewers' profits, Deutsche Bank analysts estimate.

"The premium segment will be an important battle ground for brewers going forward because it will be the main growth driver," said Shanghai-based Rabobank analyst Katharine Song.

"Brewers are adjusting their strategy to focus more on high-end products."

Until recently, volume and distribution networks have been the name of the game, driving global industry consolidation through ever larger deals and crushing margins.

In 2004, about half the world market by volume was controlled by the biggest 10 brewers, according to industry data. By 2014, 47 percent of volumes and three-quarters of profits were controlled by just four brewers - AB InBev (ABI.BR: Quote), SABMiller SAB.L, Heineken NV (HEIN.AS: Quote) and Carlsberg (CARLb.CO: Quote).

That number is soon to drop to three, with the planned $100 billion-plus takeover of SAB Miller by AB Inbev.   Continued...

Customer Wang Wenqian (R) and her husband Meng Lu drink craft beer at microbrewery NBeer Pub in Beijing, China, March 6, 2016. REUTERS/Kim Kyung-Hoon