The more it sells, the more expensive it becomes, and the beer giant earns 100 billion a year

The more it sells, the more expensive it becomes, and the beer giant earns 100 billion a year

The more it sells, the more expensive it becomes, and the beer giant earns 100 billion a year

Since the establishment of China Resources Snowflake in 1993, a joint venture with Shenyang Brewery, China Resources Group has put forward a huge "wine game" in the past 30 years, relying on mergers and acquisitions and integration. The core territory of this wine bureau is China Resources Beer.

As the largest company in China's beer market, China Resources Beer has been the "first brother" for many years. When growth became difficult, China Resources Beer began to "buy, buy, buy" again, first winning Heineken China and gaining a place in the high-end market, and then entering the liquor market through acquisitions and starting to "drink beer for all".

In the liquor industry, China Resources Group has successively controlled and participated in Shanxi Fenjiu, Shandong Jingzhi, Golden Seed Liquor and Jinsha Liquor through its subsidiaries. Among them, China Resources Beer, a listed company, indirectly participated in and controlled two - Shandong Jingzhi and Jinsha Liquor.

The more it sells, the more expensive it becomes, and the beer giant earns 100 billion a year

However, China Resources Beer, which is accustomed to beer and has successful experience, does not seem to have found a sense in the operation of liquor.

At the beginning of 2023, China Resources Beer announced the establishment of two business divisions, beer and liquor. 2023 is the first time that CR Beer has consolidated its liquor business in its annual results. However, baijiu has yet to become a major driver of its growth.

Growth, for CR Beer, is very urgent. In the past year, Hou Xiaohai, chairman of the board of directors of China Resources Beer, has repeatedly emphasized that "growth is the first strategy".

01. Heineken pulls, with an annual income of 39 billion

2023 is called a milestone year by China Resources Beer.

2023 is the 30th anniversary of CR Beer, and from the perspective of financial statements, it is also the year of its official entry into the liquor market, the 150th anniversary of Heineken Beer, and the final year of the first five years of cooperation between CR Beer and Heineken.

Beer companies are involuted in the stock competition, and it is becoming more and more difficult to grow their performance. In the case of a slight increase in revenue and a decline in net profit in 2022, what kind of report card China Resources Beer will hand over in such an important 2023 will naturally attract much attention.

According to the annual results announcement released by China Resources Beer on March 18, in 2023, the consolidated turnover of China Resources Beer will be 38.932 billion yuan, a year-on-year increase of 10.4%, and the profit attributable to shareholders will be 5.153 billion yuan, a year-on-year increase of 18.6%.

Compared to the previous year, this is not a bad increase. However, at the results meeting, Hou Xiaohai said that "in 2023, we still have something to do short", and in terms of overall beer sales, it only increased by 0.5%, "not very satisfied".

Hou Xiaohai said that in 2023, the overall consumer market will perform better in the first quarter, and some pressure will begin to appear in the second quarter, with a decline in the third quarter and pressure in the fourth quarter.

In 2023, the overall beer sales volume of China Resources Beer will be about 11.15 million kiloliters, an increase of 0.5% year-on-year. According to the National Bureau of Statistics, in 2023, the beer output of enterprises above designated size in China will only increase by 0.3% to 35.555 million kiloliters. It can be seen that China Resources Beer has not escaped the cycle of the industry, but its sales volume is still nearly one-third of the beer output of enterprises above designated size.

So, where does the growth of China Resources Beer's performance, especially the growth rate of net profit, far exceed the growth rate of operating income, come from?

In fact, the beer industry has long said goodbye to volume growth. The sales volume of China Resources Beer in 2023 will be almost the same as that of the previous year, and the growth of revenue is naturally inseparable from the increase in the overall tonnage price brought about by the premiumization.

In 2023, the average selling price of CR Beer will be 3,306 yuan/kiloliter, an increase of 4% over the previous year. Among them, the sales volume of sub-premium and above beer was about 2.5 million kiloliters, an increase of 18.9% over last year, and the sales of Heineken, Xuehua Chunsheng, Lao Xue and Hongjue all recorded double-digit growth year-on-year.

The more it sells, the more expensive it becomes, and the beer giant earns 100 billion a year

The high-end product endorsed by Wang Yibo bravely enters the world, and the sales scale in 2023 will only be 400,000 tons. In Hou Xiaohai's view, the growth is small and less than expected.

In regional markets such as Shandong, sales of the superX fluctuated due to price increases and increased competition. Shandong is the base camp of Tsingtao Beer, another major domestic beer giant.

If the biggest credit for driving performance is probably attributed to Heineken.

The acquisition of Heineken's China business is an important milestone in the high-end road of China Resources Beer. In the early years, China Resources Beer dominated the world with low-cost products, but did not take the lead in the high-end market. Until April 2019, China Resources Beer completed the acquisition and integration of Heineken China, and got a trump card in the process of premiumization.

In the international high-end beer market, Heineken is one of the giants.

At that time, in China's high-end and above beer market, AB InBev, the international beer hegemon that had been deployed early, was dominant, and its market share far exceeded that of several other beer giants; although China Resources Beer ranked first in overall beer sales all year round, it ranked third in market share in the high-end and above markets, ranking behind AB InBev and Tsingtao Beer.

After getting the high-end brand of Heineken, the high-end road of China Resources Beer has also accelerated. Hou Xiaohai also shouted the slogan of "winning the high-end". 2023 is the final year of the first five-year plan of cooperation between CR Beer and Heineken.

In the financial report, Heineken is always highlighted by China Resources Beer.

In 2023, as the strongest driving force for the premiumization of China Resources Beer, the sales volume of the Heineken brand will record a year-on-year growth of nearly 60%. In the results announcement, China Resources Beer said: "The first five-year plan of our cooperation, the goal of selling 600,000 kiloliters of Heineken brand beer in China, has been successfully achieved, and China has become the second largest market for Heineken in the world. ”

Under the change of product structure, Choice data shows that in 2023, the gross profit margin of China Resources Beer's sales will rise to 41.36%, a new high in the past ten years.

02. The liquor business has to take its time

Among the five giants in the Chinese beer market - China Resources Beer, Tsingtao Beer, AB InBev, Chongqing Beer and Yanjing Beer, China Resources Beer is the only beer company that has entered the liquor industry.

In December 2020, China Resources Beer established a wholly-owned subsidiary, China Resources Liquor, which became the beginning of China Resources Beer's official entry into liquor.

In August 2021, China Resources Beer acquired a 40% stake in Shandong Jingzhi Liquor Co., Ltd. through China Resources Liquor.

In the acquisition announcement, CR Beer mentioned that the company has been reviewing its strategy and exploring business opportunities to further develop its business. "The investment is a significant milestone that signifies the Group's entry into the Chinese liquor market, which will benefit the Group's potential subsequent business development and diversification of its product portfolio and revenue streams. ”

A year later, in October 2022, China Resources Beer announced that China Resources Liquor planned to spend 12.3 billion yuan to acquire Guizhou Jinshajiao Liquor Co., Ltd. (hereinafter referred to as "Jinsha Liquor") through capital increase and share expansion and equity purchase.

In January 2023, the equity transfer was completed. After closing, China Resources Liquor holds a 55.19% stake in Jinsha Liquor. As a result, the largest merger and acquisition case in China's liquor industry was born.

In 2023, China Resources Beer will consolidate its liquor business for the first time. In the same year, CR Beer's liquor business generated revenue of RMB2,067 million and EBIT of RMB130 million, with earnings before interest and tax of RMB797 million excluding the impact of amortization of intangible assets arising from the acquisition of Jinsha Liquor.

According to China Resources Beer's previous announcement, from 2019 to 2021, Jinsha Liquor achieved revenue of 878 million yuan, 1.767 billion yuan and 3.641 billion yuan respectively, and net profit after tax was 156 million yuan, 615 million yuan and 1.315 billion yuan respectively.

The more it sells, the more expensive it becomes, and the beer giant earns 100 billion a year

CR Beer wants to promote the dual empowerment of "beer + liquor" and the business model of "liquor + liquor" co-growth. However, judging from the performance after the first consolidation, China Resources Beer's successful experience in operating beer has not yet improved significantly. In other words, the beer giant is still "unaccustomed" to baijiu for the time being.

Jinsha Liquor is located in Jinsha County, Guizhou Province, in the Jinsha production area in the upper reaches of the Chishui River. According to the official website, Jinsha Liquor is one of the earliest state-owned liquor production enterprises in Guizhou. In 2007, the state-owned Guizhou Jinshajiao Distillery was restructured into Jinsha Distillery.

"Jinsha Huisha" and "Summary" are the two major brands of Jinsha Liquor. Among them, the abstract is positioned as "high-end sauce-flavored liquor from Guizhou Jinsha", and Jinsha Huisha is positioned as "famous sauce-flavored liquor from Guizhou Jinsha".

In 2023, the liquor industry is in a new period of adjustment, with high inventories and inverted prices in the industry. Moreover, the liquor industry is squeezing growth, with strong players such as Moutai, Wuliangye, Luzhou Laojiao, Yanghe, Gujing Gongjiu and other Hengqiang, while the survival of small and medium-sized liquor companies is becoming more and more difficult, such as the Golden Seed Liquor invested by China Resources Group through China Resources Strategic Investment.

Jinsha Wine is no exception. Hou Xiaohai bluntly said at the 2023 performance briefing that Jinsha Wine's inventory and price problems exceeded expectations.

Wei Qiang, vice president of China Resources Beer, general manager of China Resources Liquor and chairman of Jinsha Wine, said that China Resources faced great challenges after taking over Sands: first, the high inventory caused by the original management team's blind pressure on goods and products, and second, the serious price inversion. Therefore, destocking and stabilizing prices are the primary measures taken by China Resources after becoming the owner.

In the face of questions from the outside world about whether China Resources Beer can do a good job of liquor, Hou Xiaohai said, "No matter what others say about your performance, your feet, or your legs, these are not important, doing the right thing is the most important content of China Resources Wine."

Hou Xiaohai, a native of Shandong, is a veteran of the beer industry, who joined China Resources Snowflake in 2002 and has been associated with the beer industry since then. At a time when his peers were focusing on fresh, cool, pure and other selling points, he operated a series of marketing for Snowflake, such as "Brave the World", which achieved great success and helped China Resources Snowflake become the champion of beer sales in China.

The development and growth of China Resources Beer can be said to be closely related to Hou Xiaohai. Baijiu, though, is another battleground.

03. Beer will become more and more expensive the more it is sold

The liquor division is still solving the problems left over from history, and the burden of growth is still on the beer division. The future growth of beer still depends on high-end, product structure upgrading and price increases.

Hou Xiaohai also mentioned at the performance meeting that China Resources Beer has no idea of cutting prices or fighting a price war in 2024, and at present, there is no plan to increase prices as a whole, but it still maintains price elasticity in the local market and some varieties and products, and will also look for opportunities to further increase the price as much as possible.

In other words, in the future, beer will become more and more expensive. In fact, this is already an industry trend.

In 2023, Tsingtao Brewery's operating income will be 33.937 billion yuan, a year-on-year increase of 5.49%, and its net profit attributable to the parent company will be 4.268 billion yuan, a year-on-year increase of 15.02%.

The growth of this performance is mainly due to the optimization of high-end and product structure. In 2023, Tsingtao Beer will achieve product sales of 8.007 million kiloliters, a year-on-year decrease of 0.82%. However, the sales volume of mid-to-high-end products reached 3.24 million kiloliters, a year-on-year increase of 10.5%.

Yanjing Beer's operating income in 2023 will be 14.213 billion yuan, an increase of 7.66% over the previous year, and the net profit attributable to the parent company will be 645 million yuan, an increase of 83.02%. A large part of the reason for the growth of performance is the promotion of high-end products such as Yanjing U8.

The other two giants, Budweiser APAC and Chongqing Beer, are actually similar.

The beer giants revealed a commonality from the 2023 annual report: the sales volume is slightly increasing or declining, and the overall stability is stable, and the growth of performance, especially profit, is basically not brought by the increase in volume, but through the increase in ton price.

"Quantity parity, price increase, and profit increase will be the norm. Fang Gang, an expert in the beer industry, analyzed to the "city boundary" that the total growth space of the beer industry is very limited, and even negative growth, but there is still a lot of room for profit growth.

The CEO of Budweiser APAC also mentioned at the earnings conference that the sales volume of the low-end beer market in China has declined, but the growth of the high-end and ultra-high-end beer market is still "very good". Facing 2024, Budweiser APAC said that it will continue its high-end strategy.

The beer industry has experienced extensive growth in the early stage, and after the output reached its peak in 2013, it bid farewell to the volume increase drive and began to compete in the stock market.

According to the analysis of Founder Securities, from 2014 to 2017, the beer industry experienced a period of adjustment, and in the early stage, the liquor companies still competed extensively under the inertia, and seized the share by sacrificing profits and low-price competition.

The more it sells, the more expensive it becomes, and the beer giant earns 100 billion a year

At the end of 2017, under the stability of the competition pattern and the pressure of external costs, the industry collectively raised prices and reached a consensus on high-end and high-quality development.

Since 2018, the beer industry has entered a new stage of high-end, and various wine companies have used three axes to reduce costs and increase efficiency-through high-end efficiency, cost reduction through the closure of inefficient factories, and layoffs + incentive optimization, and gross profit margin and profitability have continued to increase.

Since then, the industry has entered a new stage of high-end, the price war in the beer industry has slowed down, and the potential energy of consumption upgrading accumulated in the early stage has been released. In addition, listed companies have taken the initiative to focus on high-end products, shrink low-end products, and accelerate the upgrading of the industry structure.

High-end and product structure upgrades are still in progress, and the growth of performance in 2023 is the beginning of the results of the previous layout.

According to Hua Chuang Securities, among the top five giants in China's beer industry in 2023, Tsingtao Beer will account for the largest proportion of 8-10 yuan price band, reaching 30%, Budweiser APAC will account for the largest proportion of 10-15 yuan and above 15 yuan, reaching 36% and 52% respectively, and China Resources Beer is accelerating its capture of the 10-15 yuan price band through Heineken.

China Resources Beer said that in 2024, "growth will still be the first strategy", and it will continue to strive for "good" growth in scale and quality.

Author | Lei Yanpeng

Edit | Chen Fang

Operations | Liu Shan

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