With the increasing demand of consumers, the beer industry is developing towards high-end. Among them, well-known brands such as Budweiser Asia Pacific, China Resources Beer, Tsingtao Brewery, Yanjing Beer, Carlsberg and other brands continue to fight fiercely in the high-end market. The actual results can also be determined from their performance. check it out.
Take Budweiser Asia Pacific as an example. On August 3, Budweiser Asia Pacific released its financial report for the first half of 2023. According to the financial report data, the company’s revenue in the first half of the year was US$3.666 billion, a year-on-year increase of 14%; the normalized profit before interest and taxes was US$850 million, a year-on-year increase of 15.9%.
It can be seen that Budweiser Asia Pacific has shown a good growth trend on the road to high-end. However, in the face of continuous intensification of competition and various obstacles to the development of the industry, can Budweiser Asia Pacific continue to grow steadily?
Total sales in the first half of the year increased by 9.4%. What did Budweiser Asia Pacific do right?
2023 is generally regarded by the market as the "big year of beer", and Budweiser Asia Pacific also produced revenue performance in line with expectations in the first half of this year. According to financial report data, in the first half of 2023, the total sales volume of Budweiser Asia Pacific beer was about 4.946 billion liters, a year-on-year increase of 9.4%, driving revenue growth.
Specifically, thanks to the in-depth adjustment of the domestic market and the reshaping of consumption logic, the beer industry as a whole has ushered in a favorable situation of rising volume and price. According to data from the official website of the National Bureau of Statistics, from January to June 2023, the beer production of beer enterprises above a certain scale reached 19.28 million kiloliters, a year-on-year increase of 7%. In this case, Budweiser Asia Pacific is the first to benefit as the leading brand. In the first half of 2023, Budweiser Asia Pacific China will achieve revenue and EBITDA growth of 15.4% and 17.2% year-on-year, and sales volume will increase by 9.4% year-on-year.
At the same time, Budweiser Asia Pacific has also continued to make efforts on the brand and channel sides, further clarifying the growth trend of performance. Financial report data show that in the second quarter of 2023, Budweiser Asia Pacific benefited from multi-brand cooperation and the reopening of channels, with an overall sales increase of 11.0%, and revenue per hectoliter also achieved high single-digit growth, driving overall revenue growth of 19.6%.
However, focusing on the channel side, it can be found that compared with the domestic market, Budweiser's performance in the Asia-Pacific overseas market is relatively differentiated. Financial report data show that in the first half of 2023, the eastern part of the Asia-Pacific region achieved a sales growth of 3.0%, while revenue increased by 1.9%; revenue per hectoliter decreased by 1.1%, and normalized EBITDA decreased by 15.9%.
In response to this phenomenon, Budweiser Asia Pacific stated in its financial report that due to the high comparison base in the second quarter of 2022, Budweiser Asia Pacific South Korea's sales fell by a low single digit. At the same time, since April 1, 2023, AB InBev Asia Pacific's revenue per hectoliter in South Korea has dropped by a mid-single digit due to the two factors of unfavorable packaging mix and a 3.57% increase in consumption tax.
Although the South Korean market is under pressure, India, as part of Budweiser Asia-Pacific's overseas layout, has gradually become its fourth largest market, driving revenue in Western Asia to achieve double-digit growth. According to financial report data, in the first half of 2023, the sales volume in the western part of the Asia-Pacific region will increase by 10.2%, while revenue and revenue per hectoliter will increase by 16.6% and 5.8% respectively.
In fact, the current Indian region is still a fast-growing beer market with a large room for development. It is expected to bring more growth to Budweiser Asia Pacific’s performance in the future. It is reported that the sales of the Indian beer market in 2022 will be 8 billion US dollars, and will grow to 20 billion US dollars by 2030, which shows that the growth potential is huge.
On the whole, although the performance of the Korean market is not good, the growth momentum of China and India, the two major markets with large population bases, makes Budweiser Asia Pacific still achieve relatively satisfactory results in 2023H1.
However, while Budweiser Asia Pacific has achieved a steady increase in revenue, the profit side has a downward trend. Does it indicate that Budweiser Asia Pacific is facing a high-end dilemma?
The cost side is under pressure, the market competition is fierce, and Budweiser's high-end road is in trouble?
Although Budweiser Asia Pacific achieved double-digit revenue growth in the first half of 2023, the profit attributable to its equity holders is decreasing, from US$625 million in the first half of 2022 to US$575 million in the first half of 2023.
On the whole, there are two main reasons for the decline in net profit. First, the rise in raw material prices has increased the cost of sales by 13.3%. Taking barley as an example, as the main raw material for making beer, it is a small variety of crops in China, and the relevant policy subsidies are relatively small, and large-scale planting has not been formed.
In addition, in recent years, due to the continuous adjustment of the domestic planting structure, the decline in the economic benefits of barley and the reduction of land resources and other factors, the sown area of barley in my country has been decreasing. According to data from the China Agricultural Information Network, in 2022 my country's barley sown area will be 517,000 hectares, a decrease of 3.13% from the previous year; the output will be 2.068 million tons, a decrease of 0.10% from the previous year.
The reduction in acreage and production has led to a continued upward trend in barley prices. It is understood that in June 2022, the price of domestic barley will be 3043 yuan/ton, a month-on-month increase of 2.28% and a year-on-year increase of 29.70%. From January to June 2022, the average price of domestic barley is 2,808 yuan/ton, a year-on-year increase of 22.5%.
Under the situation of declining domestic barley production and rising prices, the beer industry has to rely on imports to meet domestic demand, resulting in an increase in overall costs. According to Chinese customs data, China's barley imports in April 2023 will be 1 million tons, a year-on-year increase of 24.6%; the import value will be 373 million US dollars, a year-on-year increase of 37.2%.
From this point of view, Budweiser Asia Pacific's profit in the first half of this year is closely related to "high cost".
Another reason is that the high-end market is highly competitive, leading to higher cost of sales. Budweiser Asia Pacific, as a leading brand, once occupied half of China's high-end market. It has a number of high-end large single products, such as Budweiser, ultra-high-end brands Lanmei, Corona, etc., which are loved by consumers.
Since the domestic beer production peaked in 2013, it has been declining year by year, and the industry has officially entered the stock era. Domestic brands have reached a consensus to develop mid-to-high-end products and continue to share the market share of Budweiser Asia Pacific.
For example, in 2021, China Resources Beer will launch the high-end product "Li", priced at 999 yuan/999ml*2 bottles, pushing the price of beer to 1,000 yuan; in 2022, Tsingtao Brewery will release "Legend of the World", priced at 1399 yuan/1.5L .
Major beer brands continue to make efforts to open up the price ceiling of the industry, reshape consumers' perception of beer with high-end routes, and simultaneously raise the height of their own brands.
With the intensifying competition among leading beer brands, Budweiser's Asia-Pacific market share has declined significantly. According to Euromonitor data, in recent years, Budweiser's high-end market share in China has dropped from nearly 50% to about 40%. It is not difficult to see from this that even though Budweiser has established its leading position in the high-end market, Budweiser Asia Pacific still faces the crisis of being shaken.
However, Budweiser Asia Pacific did not stick to a corner and wait to be surpassed. On the one hand, it has established a new goal and regards the ultra-high-end category as the next blue ocean market.
Financial report data show that Budweiser’s innovative products, including Budweiser Gold and Black Gold, have achieved strong double-digit growth in revenue. By the end of 2021, the volumes of Fujia, Corona, and Lanmei have reached 7.4/13.5/143,000 kiloliters respectively, accounting for 52% of my country's ultra-high-end beer brand power.
With the help of multiple brands, Budweiser Asia Pacific's combined sales of high-end and ultra-high-end categories in the second quarter of 2023 will increase by about 25% year-on-year, and the revenue of its high-end single product Budweiser will increase by more than 20%. It can be seen that the high-end and ultra-high-end strategies implemented by Budweiser Asia Pacific are still effective.
On the other hand, Budweiser Asia Pacific has also increased its beer and non-beer business. It has successively strengthened its advantages in the field of craft beer through the acquisition of Chinese craft beer brands Kaiba and Boxing Cat, the opening of Goose Island Restaurant, and the construction of Wuhan and Putian craft beer factories.
At the same time, Budweiser Asia Pacific is also relying on the existing channels, supply chain foundation and brand building capabilities accumulated over the years to increase its non-beer business, which mainly focuses on RTDs, energy drinks and spirits.
But it is still unclear which route will become Budweiser Asia Pacific's new boost. However, it is clear that Budweiser Asia Pacific will be able to bring more surprises to the market with the forward-looking layout of the ultra-high-end line.
epilogue
In the first half of this year, Budweiser Asia-Pacific had to face the problem of high raw material costs internally, and the dilemma of intensified competition in the high-end market externally. Therefore, it is expected that the profit side will continue to be "cold", but even In this way, in the first half of this year, Budweiser Asia Pacific still achieved double-digit revenue growth, which shows that its brand and channels have a deep foundation.
In the context of increasingly fierce high-end competition, the brand power accumulated over the years is still the core competitiveness of Budweiser Asia Pacific. In the future, Budweiser Asia Pacific's pioneering layout of ultra-high-end and non-beer businesses may tap greater growth potential, but it will take time to verify.
Source: Hong Kong Stock Research Institute