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The promise of premium: AB InBev confident in Chinese beer strategy

By Rachel Arthur+

03-Aug-2015
Last updated on 03-Aug-2015 at 14:27 GMT2015-08-03T14:27:13Z

The promise of premium: AB InBev confident in Chinese beer strategy

AB InBev says its premium and super-premium strategy in China is paying off, with the brewing giant building the category to meet ‘pent up demand.’ 

While industry beer volumes have struggled and declined in recent months, Budweiser saw double digit growth in the latest quarter.

And brands like Stella and Corona offer what CEO Carlos Brito describes as “amazing growth and profit opportunities.”

Bucking the trend

Total industry volumes in China fell by around 6.5% in the latest quarter, estimates AB InBev, and down 4.5% in the last half year. In contrast, AB InBev’s beer volumes were flat in the quarter, and up 1.7% in the half year. It estimates its market share has reached 18%.  

In the quarter the three main brands – Budweiser, Harbin and Sedrin – grew by 3.5%, while Budweiser’s double digit growth continued. Revenue per hectolitre increased by 6.5%.

AB InBev’s strategy in the country has, in recent years, been to develop its brands in the premium segment. CEO Carlos Brito said it’s a strategy he will continue to pursue.

“When you look at the industry decline, what's really declining more than anything else is the core and value segments. And because we have an amazing leadership position in the premium segment, we will just put more fuel on the fire in China, and there are many programmes to do that.

“The super-premium segment, that's new to our business in China. So, our business used to be a lot about premium in China, with Budweiser mainly. Now, we have Corona, we have Stella and those brands are growing at a price point above Budweiser which, again, provides amazing growth opportunities and amazing profit opportunities.”

The trio of top brands – Budweiser, Harbin and Sedrin – makes up 72% of AB InBev’s volumes in China.

“Our strategy will remain the same. To try to increase the importance of those premium brands or our focus brands… so continue to increase that, because they're more profitable, and because the dynamics of the industry is more favourable to them, even in tough times.”

Boosting premium brands is Ab InBev’s ‘Brewed the Hard Way since 1876” campaign, which focuses on the quality of beers (the campaign also featured during Super Bowl XLIX in the US). It was stepped up over the last quarter to included 12,000 market activations.  

Building a category

China’s decline in volumes has been attributed to cool weather and economic headwinds. However, AB InBev predicts a return to growth in the second half of the year.

Brito says AB InBev has a number of strategies that will help it grow in the country.

“Different from some years ago, today more than 90% of our business is in our hands. So, the whole thing about joint ventures is going down, fast, because they're mostly based on core and value. And when you talk about profitability, it's around 96% to 98%, around 100%, controlled by ourselves.

“So, you put a portfolio that's right positioned, you put the momentum we have, the fact that we have 90% plus now in our hands, I think that builds for a great future.”

Until a few months ago, Budweiser was the top in terms of pricing, he said.  

“Now, you put Stella and Corona on top of that, and you again raise that ceiling and you start building that super-premium segment in which there was  pent-up demand there that now out there because now we have products to offer.”

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