December 15, Brewers in China including China Resources Snow Breweries Co. Ltd. (CR Snow) and Belgium’s Anheuser-Busch InBev NV (AB-InBev) have started to increase product prices, as rising production costs bite into profit margins.
CR Snow has raised the price of a 500ml bottle beer from RMB 3 ($0.47) to as much as RMB 3.5 per bottle in Changchun, the capital of northeastern Jilin province, the China Business News reported, citing people from the brewer’s local sales office.
Changchun’s local brand Ginsber Beer Co. Ltd. has also upped prices by 10-14% for a 500ml bottle, according to the report.
AB-InBev, which dominates the East China beer market, raised prices by around 10% for every box of its 330ml bottled beer in Shanghai in late November.
None of the companies have directly commented on the recent price hikes.
Industry Trend
The recent beer price hikes are a precursor to wider price increases that industry analysts believe will take place in January, when brewers traditionally raise their prices in the domestic market.
“Normally brewers raise prices once a year and most of them choose to do so during off-seasons, not just to test consumers’ acceptance but also pave the way for strategic pricing when the peak seasons come,” said Li Baojun, president of private data and consulting services firm Societ, Insights & Decision.
Li said beer makers in China are being squeezed by rising production and marketing costs and decreasing profit margins, a problem that has persisted for 5 years.
“Brewers have to spend more on marketing and human resources, but given the cutthroat competition and shrinking profitability, I don’t think they are able to hang on there without raising product prices,” Li said in June in response to industry rumors that beer producers were mulling price increases in the second half of the year.
Analysts believe the new round of increases won’t affect sales at CR Snow, Ginsber and AB-InBev, as the hikes were introduced in areas where they enjoy a strong advantage in the local market.
CR Snow has a market share of 49% and 46% in Jilin and Heilongjiang provinces, respectively.
Inflation Pressure
In January CR Snow, China’s largest brewer by production volume, raised prices by more than 10% in several provinces. Its biggest domestic competitor, Tsingtao Brewery Co. Ltd. (600600.SH), followed suit, raising the prices of some products by an average of 10%.
Three months later, in April, China’s price-setting agency, the National Development and Reform Commission (NDRC), stepped in to halt the wave of price hikes amid rising inflation concerns.
The NDRC asked China’s 4 biggest brewers -- CR Snow, Tsingtao, AB-InBev and Beijing Yanjing Brewery Co. Ltd. (000729.SZ) -- to stabilize prices at a time of soaring inflation.
China’s inflation started to ease 3 months ago after hitting a 3-year high of 6.5% in July. November’s consumer price index (CPI) rose 4.2% year-on-year, down from 5.5% in October mainly due to falling food prices, the National Bureau of Statistics said.
But inflation remains a problem, and the government will struggle to meet its full-year growth control target of 4%. The CPI growth was 5.5% in the first 11 months.