Chinese Western consumer brands have long built the conditions with the prospect of the world’s second-largest economic growth rate. But the demand for Heineken beer is a different story.
In 2023, sales volumes of various brands of Dutch lager makers, including Amstel, rose by more than 50%. Last year, when the beer market across mainland China contracted, its volume rose by nearly 20% to just under 700mn litres.
Heineken’s growth came in 2018 after agreeing to China’s biggest brewer, China’s resource beer, and then granting the state-run group rights to mainland brands, Heineken acquired a share in China’s resource beer and earned royalty from the deal.
This approach refers to a pocket of opportunity for famous foreign names in China’s rapidly evolving consumer sector, even when the wider markets operating are saturated.
“This is a very healthy business relationship,” said Tristan Vanstrien, director of Global Investors Relations at Heineken about its relationship with China Resource Beer. “They need us, and we need them.”
Bernstein analyst Euan McLeash said Heineken’s growth rate is “undetectedly outperforming.” “None of the other premium brands talk about double digits.”
The overall Chinese beer market is declining. Sales fell by an estimated 4-5% last year amid concerns over consumer confidence.
However, for Chinese Resource Beer, which saw sales decline by 2.5% in 2024, Heineken is the pick.
The deal with Heineken gave rights to Chinese Dutch beer for the first 20 years in exchange for a share in one of the holding companies that gives Heineken an effective interest of about 21% with Chinese resource beer.
Previously, lagers were sold mainly in two southern states, and were distributed nationwide. Growth was rapidly supported by sponsorships for events such as the Shanghai Formula 1 Grand Prix in March, with 500ml servings being sold for RMB40 ($5.5).
According to Morningstar, a 500ml serving of Heineken in China costs an average RMB12-15 ($1.67-2.08), but prices vary significantly between regions, from bars to shops.
Heineken grew by “utilizing the distribution network of Chinese resource beer,” said Morningstar analyst Jackie Tsang.
Local snow beer is the country’s bestseller, Chinese resource beer uses Heineken to push it into the premium Chinese market.
“The overall amount of beer in China is slowly decreasing,” Tsang said. This means that Chinese resources will “continue growing prices to drive profit growth.”
Heineken’s growth from a low base contrasts with other Western brands, generally positioning itself as a premium option in China.
Danish brewer Carlsberg, who owns around 10% of the Chinese beer market, reported sales were 1% lower last year. Chief Executive Jacob Aarup Andersen said last month that the market has been “structurally declining” for 15 years, but still had “enough growth opportunities.”
Budweiser, owned by Anheuser-Busch, unlike Heineken, has built a significant distribution network in China and has also reported a decline in sales.
The competition between the two is “althought in the minds of many investors as a match of death for all celebrities,” says McLeish in connection with the premium market still under development.
Today, the average Chinese needs just 37 minutes to get a premium beer of 500ml, and Bernstein estimates it’s close to the global definition of affordable prices over an hour ago.
“We’re thinking about it in a 20-year cycle. This is the premium development cycle that’s happening in China,” Van Strien said.
“You’re not talking about huge capital expenditures for someone to have a nice, social night.”
For McLeish, China’s resource strategy poses a risk to “brand positioning” if rapid expansion negatively affects prices and its premium status.
China Resources Beer “we don’t have the experience of building premium brands,” but “if they had spent time…the growth rate wouldn’t have been that fast,” he said.
Kevin Leung, director of investor relations at China Resources Beer, said there are several promotions, but there is no “significant price drop for Heineken products.”
There are other risks. Heineken’s stock price of beer exposed to Chinese resources costing 874 million euros impairment costs last year, but this has increased significantly in itself.
The Dutch company has not disclosed dividends and royalty revenues from the transaction, but it says that the share of revenue from Chinese resources and royalties from China amounts to around 6-7% of its net profit worldwide.
Van Strien said volumes grew faster than 20% in the first quarter of this year, and the Amstel brand volume doubled during the same period.
The contract with Chinese resources “has no planned endpoints,” Van Strien said. “The reality is that having local ownership is often a good thing for us,” he said.
