China’s top beer makers lift prices in tandem for the first time in a decade

The moves come as the country’s brewers suffer from low profit margins because of rising labour costs, higher material prices after China’s new environmental policy, as well as increased competition from imported brands

PUBLISHED : Monday, 08 January, 2018, 7:17pm
UPDATED : Monday, 08 January, 2018, 10:41pm

China’s largest brewers have raised beer prices in tandem, marking the first such move by leading brands in a decade, which analysts say is driven by rising labour costs, higher material prices after China’s new environmental protection tax and growing market competition from imported brands.

Increasing industry consolidation in the world’s largest beer market and the upgrade in China’s consumption pattern also offer them an impetus.

China Resources Beer Holdings (CRB), the country’s largest brewer, announced on Monday it was “moderately adjusting the prices of some of its products in certain regions to mitigate the heightened costs pressure”.

“We have been trying to cope with the rising prices in raw materials, packing and labour through streamlining production, marketing, distribution, as well as developing premium products,” the company said in the statement.

The statement was in response to recent media reports that said CRB’s Snow Brewery unit and Tsingtao Brewery would significantly increase the prices of some products from the start of 2018.

Snow Beer, one of the best-sellers in China, had planned to raise the prices of nine mid-to-lower end products by 10 to 20 per cent, according to previous media reports.

Tsingtao Brewery, China’s second largest, said last Friday that it would increase prices of some products by “an average of no more than 5 per cent” to “partially offset rising cost pressure”.

“We are facing higher prices in packaging materials and rising production costs in 2018,” it said, without mentioning the quantum of increase or the products.

Rival Beijing Yanjing Brewery has already upped the price of its best selling mass market product by more than 20 per cent since last month.

“This is the first extensive price rise [by main brewers] in 10 years,” said Li Qiang, an analyst for Northeast Securities.

“The fundamental reason is that Chinese beer makers, which already suffer low profit margins, are feeling the pain of a rapid rise in the production cost, especially after new environmental policies are expected to trigger a rise in the packaging material prices.”

The country’s first environmental protection tax, which came into effect on January 1, is expected to have a big impact on a broad range of industries, including heavy industries and consumer goods.

That could add to beer makers’ operating stress, as they have already been struggling with increased competition from imported brands in the past few years. For the first half of 2017, eight of the country’s largest brewers posted an average net profit margin of 7 per cent.

“Inflation levels are rising, said Wang Yang, an analyst for Soochow Securities. “Producer prices are passing through to consumer prices. Companies in beer, furniture, and glass fibre industries are all raising the prices.”

Meanwhile, growing market dominance by a handful of big players has encouraged them to make the move.

“Now is a good time [to lift prices], as they [brewers] have more bargaining power following years of consolidation,” said Sam Chi Yung, a senior strategist for South China Securities.

Currently, the top five brands – CRB’s Snow Beer, Tsingtao Brewery, Beijing Yanjing, Budweiser, and Carlsberg – account for about 80 per cent of China’s market.

Rising personal income and the upgrade in the consumption pattern are also part of the driving force, said Li of Northeast Securities.

“We expect more beer suppliers to follow the industry leaders in 2018,” said Su Cheng, an analyst for Essence Securities.

“The price increase is not yet over.”