China’s emerging craft beer market is creating opportunities for entrepreneurs
China is now the world’s largest beer market, accounting for a quarter of global beer volume. Eighty percent of the industry is controlled by five major Chinese beer-producing companies, including the world’s best-selling beer brand, Snow, according to a Reuters study in 2015. But rising incomes and a growing middle class are also leading to a heightened interest in craft beer.
Premium beers are expected to make up over a third of China’s US$80 billion beer market by the end of the decade, and the number of brewpubs in Shanghai alone has tripled since 2010, creating a niche market for people who enjoy more flavorful brews – and for those entrepreneurs who want to sell them.
Gary Brown, co-founder of craft beer import company Top Shelf Asia, saw the potential of this niche market in 2012. He moved here from South Africa in 2001 with another U.S. company and quickly became tired of the lack of variety in imported craft beers.
“I sensed an opportunity to get into a burgeoning market at the beginning and just got right into it,” he says. “This is still a young industry with great growth potential and a strong growing customer base.”
Top Shelf Asia now imports craft beer from America’s Rogue Brewery, Tuatura of New Zealand, BrewDog of Scotland and the German brewer Merchant & Co.
“We are very selective in the brands we represent. We look for breweries that want to be in China and that we feel the Chinese consumer would want to see in the market,” says Brown.
Today, his company distributes to outlets in Shanghai, Beijing, Guangzhou and most second-tier cities in China. He counts over 500 bars, restaurants and grocery stores as clients.
“We are not about acquiring as many brands as we can into our portfolio. We want to ensure that we will be able to devote the time and resources needed to grow the brand label and accompanying market share. When we take on a brand, it’s for the long term,” he says.
Top Shelf Asia exclusively imports and distributes their own brands and works closely together with the craft breweries abroad to meet their objectives for the China market. They distribute to Western-style bars and restaurants in Shanghai including Liquid Laundry, Olé Supermarket and Funkadelino.
Brown describes craft beer as anything brewed in batches with fine quality ingredients and made on a limited basis or seasonally. Imported beers such as BrewDog and Tuatara have a much stronger flavor than mass-produced beers such as Tsingtao. They usually include a higher amount of hops [the bittering agent in beer production] and often have higher alcohol levels.
Brown’s success in China as a craft beer enthusiast-turned-entrepreneur is not unique, as middle class Chinese consumers are increasingly looking beyond mass-produced local beers to imports and local craft beers. Sales of imported high-end beers such as “Shakespeare Oatmeal Stout” and “Punk IPA” saw a 60 percent jump in 2015, Reuters said in a report. The Chinese middle class includes many young, affluent professionals who are willing to spend money on overseas brands and who in many cases have been educated abroad and understand the tastes of many different countries.
“The popularity of craft beer in China is another sign that people are upgrading their lifestyles and experiences,” says Brown. “For an increasing number of people Carlsberg just doesn’t cut it anymore. China’s market is so vast that a small shift in a different direction can open up huge opportunities.”
As a foreign entrepreneur in China with a wholly foreign-owned business, Brown says he is exposed to a number of challenges. Starting the business was “extremely difficult,” he says, pointing to the many requirements necessary to legally register a business as a foreign-owned enterprise involved in the import and distribution of alcohol.
“Startup costs and investment costs vary per city and even per district within the cities. Of course from an operations side there are also a number of upfront and expensive costs including office space, cold storage warehousing in Guangzhou and Shanghai, delivery vans, staff and of course the actual beer,” he says.
Then there are on-going problems such as managing customs-related import issues. “There are a multitude of documents and certificates needed to legally import beer. This can create real challenges,” says Brown. “Different ports require different documentation. We have learned a lot of very costly lessons, but all we can do is learn from our mistakes and move forward.”
As with many import companies, Top Shelf Asia also struggles with parallel importers who bring in craft beer through grey channels without paying duties. These grey channel imports often do not obtain government-issued sanitary certificates and don’t use refrigerated shipping or storage, sometimes resulting in off-flavors and contamination.
“Those grey companies don’t respect the beers they import, nor the brands. They do not care about quality of the beers and they have a blatant disregard for import regulations and taxes,” says Brown. Further complications include the power that the mass-market beer companies have in the beer industry in China. “They use their superior financial positions to buy taps, control distributors and generally undermine any competition,” he says.
Despite the challenges of running an import business in China, Brown can also point to upsides, including the enthusiasm of his Chinese employees to act as professional ambassadors for the brands.
“I have been very lucky with my staff – they are craft beer drinkers themselves,” he says. “What’s more, most of the bars we distribute to act as ambassadors for our brands and they are excited to be able to offer craft beer.”
Brown is confident that the business will continue to grow as China’s middle class drinkers increasingly reach for beers that offer something different from mass-produced lagers such as Snow or Suntory.
Michelle Wang, a craft beer fan from Wuxi who organizes the annual Shanghai Craft Beer Conference, says craft beer represents individuality.
“Craft beer has more varieties and personalities – each beer has its own story and people behind it. It’s something different.
I much prefer the taste of stronger beers to light lagers and it is worth the extra cost,” says Wang.
That extra cost can be quite high. The average price of a high-end imported beer is RMB30, around ten times more expensive than China’s cheapest mass-marketed beers. But the willingness to spend more on higher-end beers has attracted craft breweries such as New York’s Brooklyn Brewery, which was one of the first craft beers in the Chinese market when it arrived in 2008.
Co-founder and brewmaster at Brooklyn Brewery Garrett Oliver is amazed to see how quickly craft beer appreciation has taken hold in China.
“China is a huge market for us and we’re here to stay. People say odd things like ‘Chinese don’t enjoy bitter beers’, but I think this is nonsense,” says Oliver. “Chinese consumers are just like everyone else – there is a process of getting used to a certain taste but the Chinese are very curious about different food and drink.”
Brooklyn Brewery’s flagship “Brooklyn Lager” costs RMB35 on average and can be found in most Western-style bars and imported grocery stores in Shanghai.