Should Aire Valley Breweries Do Business In China

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COMPANY

Aire Valley Breweries plc is a medium-sized UK brewing company and all of its operations are based in UK. It is engaged into manufacturing of premium bottled Beers, Lagers and Stouts. It's an effective company but efficiency is its weakness due to very high cost structure. But it's not a major hurdle since it premium bottled beers are sold at premium prices through both "off-trade" and "on-trade" channels of distribution.

CONSUMERS

China is the largest beer consuming and producing country in the world. The output of Chinese beer has been consistently number 1 for many years and one of the fastest growing beer markets in the world [1] . In the next 10 years it is estimated that 50% of the increased consumption of the global beer is going to come from the Chinese market. Currently almost all the local Chinese beer brewery has foreign investment directly or indirectly. The top ten beer breweries of the world have made investments in China. [2] 

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At 12% volume growth the total sales volume of beer reached 43 billion liters in 2008. The fastest growth rate of 17% came from the domestic premium lager in 2008.In the year 2008 average unit price increased by 5%. It is expected that Chinese beer sector will maintain its good growth with a CAGR of 8% in volume. 41% of the sales volume comes from the top three companies. In China health and wellness is a new market trend. (Euromonitor, Beer - China, 2010).

COMPETITORS

In the present scenario Chinese beer industry is seeing a mid and late integration phase. Slightly affected by the current financial crisis it is still seeing violent competition in the beer market. Presently the Chinese beer industry is moving towards oligarch competition and monopolistic competition. [3] The 3 major domestic players who account for 41.1% of the markets are has given below; (Euromonitor, Sector data, Beer - China, 2010)

Figure 1: Major competitors in the Chinese beer market.

Source: Official statistics, trade associations, trade press, company research, store checks, trade interviews, Euromonitor International estimates.

PEST ANALYSIS

Political

Economical

Social

Technological

1. People republic of China was founded in 1949 after the defeat of nationalist Kuomintang in a civil war. [4] 

2. The communist party is the world's biggest political party. [4] 

3. It has monopoly on power and strict control over the people. [4] 

1. China became world's 2nd largest economy in 09, overtaking Japan with GDP of US$4.6 Trillion. [5] 

2. It the world's fastest growing economy.

3. There is high income inequality in china and it has further increased in recent times. [4] 

1. In china the number of population leaving below poverty line reduced to 4% in 2007. [6] 

2. With a population of 1.3 billion people it is world's most populous country. [7] 

3. The literacy rate in china is 93.3%. [8] 

1.  "It (science and technology) is key to China's economic development". [9] 

SWOT ANALYSIS

According to Euromonitor, Beer - China, 2010

STRENGHTS

It's an effective company.

Premium bottled beer are sold at premium prices.

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Engaged in both the channels of distribution "On - trade" as well as "Off - trade".

WEAKNESS

It has quite a high cost structure compared to its Chinese counterparts.

Only into Premium beers and not the economy beer which has the major market share.

Stouts and Dark beer have negligible market in china.

It's a medium sized company.

OPPORTUNITIES

It is the world's fastest growing beer market.

Consumer expenditure highest in the world at US$10,024 million. [10] (Euromonitor, Consumer spending on beer, 2010).

Western Europe beer volumes to decline and emerging economies expected to perform better in times of economical instability.(Euromonitor, Global alcoholic drinks :beer - opportunities in niche market, 2010)

Due to high disposable income sales of premium beers has seen a high growth.

THREATS

Imported beer sales are very less in compared to domestic beer sales.

Bigger companies are increasing their market share to mergers and acquisition, which it can't do due to limited capital.

Rising cost is going to be one of the major concerns for the china beer market.

CHINESE MARKET SEGMENTATION

China is the largest producing as well as the largest consuming beer market in the world. It is the fastest growing beer market in the world due to its economic growth and high population. The following is the market segmentation of Chinese beer market:

GEOGRAPHIC

According to the Euromonitor, Alcoholic Drinks - China, 2010

Chinese beer market is geographically segmented into six different territories they are: East China, Mid China, North and Northeast China, Northwest China, South China and Southwest China.

East China is the largest market for beer. East China is experiencing imported brands gaining popularity and people are willing to pay the higher price for imported brands.

In Mid China Local brands of beer dominate the market compared to imported beer because few can afford to spend that much because of low income. Consumers over here tend to choose lower alcohol products which are comfortable for drinking and healthier.

North and Northeast China is one of the most important markets for alcoholic drinks as it covers Beijing China's capital which has higher purchasing power as well as sophisticated demands. Due to health consciousness in this region low alcohol and low calorie content beer are very much in demand. Along with the price of beer its flavor is still an important factor in deciding the consumer purchasing choice.

Northwest China experiences large gap in market trends due to high income disparities between the urban and rural area in this region. In Northwest China beer is the most popular alcoholic drink in the summers due to the hot and dry weather in this region. People over here tend not to pay much attention to health when making purchase decision. Urban consumers pay attention to its quality while the rural consumers buy on the basis of price.

In South China due to its hot and humid climate beer is the most popular alcoholic drink. Preference for lower ABV product is a major trend in beer. Consumers in this region prefer well known brands to smaller brands. The popularity of healthier drinking is gaining popularity.

With the entry of imported brands like Carlsberg and Budweiser which have created a very strong presence in the modern retail channels the structure of the beer in Southwest China is changing. Economy beer still dominates the region due to limited income of the people, but it has seen slower growth compared to premium and standard beers. The beer growth in this region lagged behind the country growth as a whole and this region is experiencing consolidation among limited big players.

DEMOGRAPHIC

The beer consumption per capita of china in 2004 is way behind at 22 liters when compared to Czech Republic which is no1 at 159liters. [1] 4

But it's by far the highest consuming beer market in the world in 2004 with total national consumption of 4.67 million kl more than US. [1] 5

BEHAVIOURAL

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According to, Euromonitor, Consumers lifestyle in China, drinking habits, 2010.

Traditionally special occasions and family gatherings were the main occasion to drink. But today China has seen a shift towards social drinking, going out with friends and colleagues as well as evening entertainment is becoming a part of Chinese urban culture. Middle-class, young, educated Chinese men make the majority of this culture. From virtually being non-existence a few decades ago female drinkers are increasing at a great pace.

Alcohol consumption is low compared to western culture but it is soon catching up pace.

MARKETING MIX(4 P's)

PRODUCT

Following are the products that Aire Valley Breweries plc wants to sell in the Chinese market:

PRODUCTS

TYPE OF BEER

ALCOHOL %

QUANTITY

HOSTENBECK

European style lager beer

5%

260ml

SAN BERNARDO

European style lager beer

5.5%

240ml

CAMELOT

British style dark bitter beer

4.5%

500ml

ARK ROYAL

British style dark bitter beer

5.6%

500ml

POT OF GOLD

Irish style dark stout beer

5.2%

500ml

These are the products which they currently produced but if need arises they can introduce new products according to the needs and preferences of the Chinese consumers.

PLACE

As Aire Valley Breweries is into Premium beers it should target those markets where there is good demand for premium imported beers. It should target all the major urban cities of China like Beijing, Shanghai, Hangzhou, Tianjin, Shenyang, Lanzhou, Xi'an, Guangzhou, Shenzhen, etc. Targeting these cities is very essential has these cities have the highest demands for premium beers has the consumers over here have very high disposable income. Moreover it should focus more on the "On - trade" has it sells premium beer at premium prices it will find more takers in "on-trade" channel of distribution because of growing number of clubs, pubs, restaurants, and more and more people going out at nights for entertainment having high disposable income it is more favorable channel of distribution rather than "Off - trade" even though "Off-trade" accounts for nearly 68%(Euromonitor, Beer - China, 2010) of sales. And it can go for Off-trade in smaller cities and big retail outlets like Walmart, carrfoure etc in big cities.

Figure 2: Pie-chart showing sales % through distribution channels.

Source: Official statistics, trade associations, trade press, company research, store checks, trade interviews, Euromonitor International estimates.

PRICE

Pricing of a product plays a very important part in the success of the product, if it's not priced properly considering various aspects the product might fail to achieve its objective. Consumers should feel that the product which they getting is worth the money. Since it's into premium beers selling at premium price it should cater to those section of society who are willing to pay for it. It should sell the product at niche night clubs and restaurants where it will find its buyers. As consumers in china are willing to pay premium prices for high quality and imported branded products.

At the same time it should try to be more efficient so this will not only decrease the cost of the beer but also increase the profits of the company.

PROMOTION

Promotion plays a very important part in the success of the product in the market, even if the product is amazing, competitively priced and better than its competitor's product but is not promoted properly in the market it will fail to reach the eyes of the consumers. Therefore it becomes vital to advertise your product properly using the different modes of advertising.

Promotion of our product can be done in 2 ways namely by using both above the line marketing and below the line marketing. Initially we can start by advertising through hoardings, banners, pamphlets in and around clubs and restaurants and then after it gets recognized among the people we can start advertising in television, internet etc to increase the sales further.

TARGETING

Aire Valley Breweries should start with the targeting of the 2 most important regions namely East China and North and North-east China. East china because it is the largest market for beer in China and moreover it has 2 key cities namely Shanghai and Hangzhou which are cosmopolitan cities so imported premium beer would find buyers in them which will help us. And secondly North and Northeast China which comprises of Beijing which is China's capital and 1 of the most important markets for beer having high purchasing power and more sophisticated demands, which guides the market as retailers in Beijing offer more imported products than other markets.(Euromonitor, Alcoholic drinks - China, Territory key trends and development, 2010).These two regions should be our main targets to drive our sales.

RECOMMENDATION

It could consider acquisition of other small companies in China but since it is a medium-sized company it would require a lot of capital. So it can merge with one of top companies in the beer market and gain market access through merger.

It should try to be more efficient and reduce its cost since it is going to face heavy competition.

It should come up with premium health conscious drink since Chinese people have become more health conscious.

It can also setup a brewing plant in china though its going to be capital intensive but the future market growth in china is tremendous so it would be profitable afterwards.

It should use full advantage of Brand positioning and project its brand meticulously.

CONCLUSION

It can be easily seen from all the information that China is the most important market for any beer company from highest consumption to the fastest growth. The world's top 10 beer companies have in some way or the other presence in china. Due to the growing economy and increase in purchasing power imported beers are going to be in great demand and since ours is a premium beer it has got even more potential. It would catapult our company to great heights if it becomes successful.