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Heineken Deal with China Resources

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Heineken sealed on Friday a $3.1 billion deal with China Resources Beer, which is the largest beer player in China, the world’s biggest beer market in volume terms. At 45.5 billion litres last year, the Chinese beer market is almost twice as large as that of the US, which ranked second globally at 24 billion litres.

China: The Largest Beer Market in the World

A rapidly expanding middle class means disposable incomes in China are rising much faster than in most developed markets. Together with growing urbanisation, this boosts opportunities for socialising and interest in higher-end drinks, including beers. The rise of craft fits within this trend.

While imported brands remain significant to the craft segment in China, increasing numbers of microbreweries are opening across the country; the craft segment has expanded beyond just first- and second-tier cities. China is the world’s largest beer market by volume, yet it performs relatively poorly in terms of profitability for many brewers. Therefore, as well as working to premiumise their mainstream portfolios, major brewers are also looking tap into the high expectations for craft beer.

In 2017, A-B InBev purchased a stake in Boxing Cat Brewery in Shanghai, through its ZX Ventures unit. In early 2018, A-B InBev inaugurated a new brewery in Wuhan in central China that will produce its craft-style global brand Goose Island, as well as the local Boxing Cat and Kaiba beers. As in the US, these takeovers are proving controversial – there is still considerable debate regarding the impact on local independent brewers and the ways in which brands are presented to consumers. Although the dynamic growth of craft presents a huge opportunity, its market share currently remains small. Mainstream lager is still very much a key focus for major brewers.

Heineken and China Resources Target Beer Premiumisation Trend in China

Heineken currently has a very limited share of the world’s biggest beer market, being responsible for less than 1% of total volumes in China in 2017, quite some way behind its key international rival, A-B InBev, which holds 16%. However, a significantly improved market share is, although advantageous, not the primary aim of Heineken’s purchase. Partnering with China Resources provides Heineken access to a vastly improved distribution network through which to expand the footprint of its premium beers.  The company’s eponymous brand has so far made little progress in capitalising on the rapid expansion of higher-end beers in the country. With China expected to account for over a quarter of the global rise in premium lager volumes between 2017 and 2022, this is a weakness Heineken is undoubtedly keen to rectify.

China Resources faces a similar challenge – and opportunity – from the strength of the premiumisation trend in China. Its sales are very much focused on lower-priced beers, placing it out of step with prevailing consumer trends. Gaining the licence to the Heineken brand will go quite some way towards improving its premium presence.

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Euromonitor International 17 January 2023

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