Following AIRE VALLEY BREWERIES entering China

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Aire Valley Breweries plc is the midsized; UK based brewing company manufacturing and retailing premium bottled beers, lagers and stout. Its operations are all based in UK. The company has a high cost structure but it does not pose as a major problem because the company sells premium bottled beer at premium prices both off-trade and on-trade.

The company is planning to expands its operations and make its presence felt internationally. For this purpose, the company has decided to start its internationalisation from China which has huge untapped potential and unexplored markets. The beer market in china has grown at a very fast pace in the recent years. Substantial levels of foreign investment and the rising consumer expenditure in China further contributed to the growth which has now also led to china overtaking US as the largest national beer market in the world

China as a market for beer has a lot to offer. To actually study in detail where we stand if we want to make our presence felt in China is very important. For that, a SWOT analysis of Aire Valley Brewery and a PESTLE analysis of China are required.

SWOT ANALYSIS OF AIRE VALLEY BREWERY

Strengths:

Aire Valley Brewery has its operations based in the UK where it produces 'premium' and 'high quality' beer- lager, stouts.

Weakness:

Aire Valley Brewery is a company with its operations and cost structure very high. The high cost structure results in high prices of its products which in a market like china's can be a drawback. Though the quality of beer is very good but still with prices high, we can't target the masses. In china, consumers already have a brand loyalty towards their local brands, in order to attract them towards AVB's products pricing had to be worked out.

The company though is effective but efficiency and competitiveness is not one of its strengths. When a company operates on its home turf, it can still manage to survive if the organisational structure is not very strong. But when we plan to expand and internationalise the product and the brand, inefficiency and lack of organisational and managerial structure can act as huge hurdles.

Opportunities:

AVB has a plethora of opportunities waiting for it. They have huge unexplored markets to sell their products. In case of selling its products in China it has a lot to gain.

Threats:

In the coming times, Chinese main large-scale beer companies will take the benefit of investments to face its competetors in market. The competition will become more upfront. Beer manufacturers will compete directly in price and market regions, and also in promotions. Chinese business weekly estimated that in the future 3 to 5 years, after the further scale integration, Chinese beer industry will form the domestic beer market which is monopolized by Tsingtao Brewery Company Limited, Beijing Yanjing Beer Group Corporation, China Resources Snow Breweries Co., Ltd, Zhujiang Brewery Co., Ltd, Harbin brewing (Shen Yang) Co., Ltd, Chongqing Beer (Group) Co., Ltd, Kingstar Beer (Group) Corporation and other four large-scale beer manufacturers.

CHINA - Country Overview

CHINESE BEER MARKET

Overview:

Chinese beer market has been growing rapidly and it has become one of the largest in the world. According to Chinese Business weekly, Chinese beer industry is still in the mid and late integration phase. The financial crisis has had its effect but still the competition keeps growing stronger. China's huge market size opens a number of opportunities.

The Chinese Business weekly also says that the per capita beer consumption of Chinese population has gone up and a urban middle class consumer is now being targeted as a consumer for premium brand beers. The market has now changed from simply targeting to fill the market at national and regional in terms of volume capacity to grabbing national and regional brand share.

Market Segmentation:

The beer market in china can be segmented on the following basis:

TYPE OF BEER:

In china, main revenues in the beer industry, around 81.2% are generated from the standard lager beers. Dark beer or stouts are almost non-existent because of their bitter taste and high prices.

After the standard lager beers comes the sale of premium lager beers which accounts to around 18% followed by the negligible sales of speciality beers and ales/stout/bitter beer.

The market can be segmented into 2 sections which are - the standard lager and the premium lager. The prices for these in the Chinese market, on an average are over 20¥(CNY)/litre (around £1.8), the Standard sector, with an average price of 7-20¥/litre (£0.63 - £1.8)

COMPETITIVE LANDSCAPE:

The Beer sector in China is dominated by three companies which are - China Resources Enterprise Co Ltd, Tsingtao Brewery Co Ltd and Beijing Yanjing Brewing Corp. Though, the top three brewers are domestic companies, but these are followed by the two global leading international companies InBev and Anheuser-Busch. [Euromonitor]

ENTERERING CHINA

Anheuser-Busch entered china in the mid 90's. If Aire Valley Brewery wants to enter the Chinese beer market and benefit from the ever rising demand for beer in china it has to deeply study and structure its footsteps by going through the case of Anheuser-Busch and SAB Millers, the South-African company operating in china.

In case of SAB Millers, it moved to china by acquiring a number of small breweries over various geographical regions throughout china but avoided main cities like shanghai where competition was tougher. They got a strong foothold in China, by spreading themselves slowly across the country.

If Aire Valley Brewery has to expand and sell its products in China, it has to be by the means of an acquisition or joint venture.

OBJECTIVES - Financial

The current financial situation of Aire Valley Brewery in UK is very strong and allows it to expand and internationalise. AVB's market share data clearly shows that it has been generating a very good amount of revenue (almost £1 billion) by the sales of lager and has a very strong position in the UK beer market.

AVB has managed to get a very stable on trade and off trade selling and distributing channel which has allowed it to make sure that it sells it premium brands to the masses and generates maximum profit.

While the company plans to move to China, it has to make sure it uses the financial resources it has in the best possible manner to generate best possible revenues and profit by minimising its cost and maximising sales. It has to achieve its break even as soon it can, and double the profits it gets in the UK per annum in the first 5 years of its operations in China.

OBJECTIVES - Marketing

MARKETING PLAN

Targeting:

An increase in consumption among female

consumers has made low alcoholic content beer more popular, as they prefer the light taste and are typically not heavy

drinkers. Flavoured beer products, like pineapple beer, with a low alcohol content, are popular among women, as they

enjoy the fresh taste.

China's growing economy and the rising incomes of the Chinese people are the main

drivers of the development of China's beer sector. According to China's National Bureau of Statistics, average GDP growth

in China was around 11% over the review period.

4P's -

Product

As we have seen, AVB has been a major producer and supplier of lagers in the UK, it is lagers again in china which will help AVB to make a mark in the market. As we have already studied above, china has a more than 80% consumption rate of lagers and almost non-existent dark/bitter beer or stouts, it clearly shows that AVB's brands -Hostenbeck and San Bernardo will be the products which will be accepted by the consumers in China. AVB has the advantage of already understanding and performing in such a market with such consumer behaviours.

So to start with, AVB should introduce its European style lager, HOSTENBECK (abv 5%, 260 ml bottle) and European style lager, SAN BERNARDO (abv 5.5%, 240 ml bottle) in the Chinese market. It can later on introduce its dark beer and stouts as well. Also, as china is witnessing an increasing acceptance in flavoured beers, low alcohol beers and even Wines, AVB has to, once established in China, introduce the above new products so as to increase its reach and get a Brand acceptance in the traditionally brand loyal Chinese beer market.

Pricing

The per capita expenditure of the consumers in china is rising but so are the costs. Prices of beer in china are very low. The domestic brands sell in the market for as low as 2-4 Yen and the premium or international brands at a 7-12 Yen at the most. Aire Valley has to keep the prices of its lager very competitive and low so as to gain the acceptance of consumers. The table below shows the Euro monitor's research on the prices of beer in the Chinese market. AVB, has to price its Hostenbeck and San Bernardo somewhere between a 5-8 Yen to maintain its 'premium and high quality' status and to become acceptable to the masses. For this AVB will have to work hard and find means to reduce costs because it basically is a high cost structure company.

Placing

DATAMONITOR 2009

As we see above in the table that the main channels of distribution of beer in china is off trade, we have to make sure that the lagers reach the hypermarkets and supermarkets so as to increase the sales. Most of the non-urban population buys beer from such markets or retail stores, that's why to reach out to the prospective consumer, the off trade distribution has to be wide and very strong.

Selling on trade, for AVB can be advantageous because in places like restaurants and bars, it can assure itself for higher profit rates while also securing the position of a premium brand of beer.

According to Datamonitor 2009, 'Currently Chinese beer market is in regional distribution, which means that every market is occupied by certain beer companies. For example, China Resources and Harbin beers occupy the Northeast China; Yanjing beer occupies North China; Tsingtao beer occupies East China; Chongqing beer occupies the West; Zhujiang beer occupies South China; Kingstar beer occupies Central China. Tsingtao, Yanjing and China Resources beers have formed a stalemate in the markets of the Northeast, North China and the Southwest.'

With such clear market share and borderlines, AVB has to strategically place itself so as to penetrate the market in the minimum time possible and to reach the maximum consumers it can

Promotion

IMPLEMENTATION:

Action Plan

Organisation Structure

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