China Beer Industry:Price hikes suggest rising competitiveness for domestic brands

According to media reportslast Friday, local brewers such as China Resources (CR) Beer, Tsingtao and Yanjing Beer have raised their wholesale prices by 10-20% YoYin Jan-18. Accordingly, CR Beer has hiked the retail prices of550ml beer for its major product series, including Snow Draft Beer and Brave the World Series, by an average of RMB2-10/unit, whereas the extent of price increase by Tsingtao was unclear.

    There was no official announcement of the price adjustment by mostof the companies, but we believe the news source haslikely come from the brewers’ internal price revision announcementsissued to their respective distributors. Nonetheless, it reaffirms our findings of last Dec that domestic beer brands have hiked prices oftheir mid-to-high end product series.

    Such price adjustment on an industry-wide basis, which has not happenedin the past decade, indicates that the competitive landscape is currently undergoing a change in favour of the domestic brewers. Domestic brewers have struggledin the past due to the severe competition from foreign beer brands. However, over the past three years, domestic brewers have been catching up rapidly onproduct upgrades, and hence, we expect to see the gap between domestic and foreign beer brands to narrowfurther going forward. We continue to prefer CR Beer (291.HK, BUY) over Tsingtao Brewery (168.HK, HOLD) on the back of CR Beer’s higher operating leverage.