Five Things That Will Happen in Chinese Craft Beer in 2018 (or They Won’t Happen, No One Fucking Knows)
Five Things That Will Happen in Chinese Craft Beer in 2018 (or They Won’t Happen, No One Fucking Knows)
December 29, 2017

Regardless of the industry, industry professionals in China love rumors. Craft brewing is no different. A prediction is a rumor that hasn’t started yet, so, let’s predict some shit.

 

1.More breweries will open that are themed after gargoyles, Satan, demons, etc.

The naming of breweries in China follows trends of international craft beer brands that find a market in China. For the first ten years of “handmade beer” in China, it was all cut and paste Paulaner brands like Ellinger, Furst Carl, Golden Hans, Gold Hansen (or the other fifteen copies of a copies of copies that were all gold versions of Hans, etc. Even the original branding of Master Gao’s was “Oktoberfest Brewing” until 2012/13.) Then in 2008, Boxing Cat opened and over the next two to three years one of the most successful-by-sales brands imported into China was BrewDog. This led to a cavalcade of Chinese local brands that were named after pets. Cats, dogs, monkeys, pandas, rhinos, horses, more cats, cats. Lots of animals out there. Monkeys of poor social reputation and morals. It was like if your uncle opened the world’s shittiest zoo at his house in Iowa. Basically just household pets, a couple of different unaffiliated monkeys of varying bad behavior, and Tyler Durden’s least favorite bear. Whatever, it was a growth period.

Now we’ve got the well-advertised “Hello, China” tour of Stone Brewing and more and more grey market Three Floyds (also 3F, also FFF) and Surly Brewing beers that are all death-themed in one way or another. From animals to death metal chic. Inspiration comes from a bunch of different sources, but we’re about to be fucking crushed with death metal album artwork from 1978 to roughly 1993. Basically, the era before Dave Mustaine got saved and came to Jesus. These are trends in Basic Branding 101. Animals are out, things that make your conservative cousins (in north eastern Ohio/rural Hubei Province) uncomfortable are in. I’m looking forward to pretending that pentagrams and exaggerated muscled demons aren’t derivative, but are in fact, another level of NB-ness. Seriously, this is fine. Let’s just get it over with.

2.More and more impatient money enters the market with “groundbreaking” strategies

For this to make sense we basically need to admit that the China beer support and services industry has been sustained by two diametrically opposed markets: the domestic commercial brewing industry that has recently seen decline and the OEM equipment fabrication, export, and service market that is slowing down with the plateauing of American craft beer growth.

i) Chinese mega breweries have been consolidating and folding under pressure to privatize and increase efficiencies for decades. We’re basically left with four major players and a couple of regional players that have survived. Fifteen of the last twenty years of commercial brewing economics have mimicked the rest of Chinese economic growth; the last five years have seen a downturn that is a little bit more abrupt than was predicted or planned. This has sent everyone from raw material vendors to distributors into a period of forced evolution that has pushed them into new markets like craft beer, premium, It’s not a new story. It’s just not what a lot of these companies were planning to do to supplement their lost revenues, so we’ve been left with a bit of an education gap and an urgency that is boorish and discomforting.

ii) An entire generation of Chinese service, equipment, and support providers has been quietly targeting the American craft beer revolution for the past ten years with the help of North American engineers and OEM partners. There is a lot of context and detail required here – I can get into that in another piece – but the ecosystem for servicing the American market is undergoing an awkward transition of its own. This is because breweries in America are transitioning in professionalization of management and funding that is shifting much of the existing projects away from Chinese suppliers and towards solely North American and European consultants and engineering firms. What is left is much smaller, domestic Chinese brewpub projects that don’t yield the kind of profit that Chinese firms were experiencing with the robust brewery expansions of a couple years ago. They’ll all deny this, but whatever. Look at the market. This is the reality.

These two contingencies have created a bit of, what I would call, an aggressive market of desperate service providers who are supplementing losses from former revenue streams in commercial brewing domestically as well as one of smaller engineering firms who could play a “shoot from the hip” role in the lower-end services market in America. However, that market is now shrinking because of more readily available turnkey brokered second hand systems from failed brewpub projects that are liquidating assets.

Therefore, the shrinking of that previous channel to the US market has redirected their attention to a new, growing, and green market in China that lacks a lot of the osmosis style solutions to less-than-market-standard equipment quality and engineering support.

Alright, that took some time to write. All that adds up to a lot of bad advice from desperate service providers preying on the assumed lack of experience of eager and motivated craft brewery owners in a market as competitive as China. As a result, often this bad experience encourages inexperienced money to invest in poorly thought out projects, out of either ignorance or desperation.

This means strategies like putting craft beer in 500ml PET bottles, (OR PLASTIC BAGS, WHAT THE FUCK PEOPLE!!??), or making beer out of syrup and hate that is ready to drink within twenty-four hours of being “brewed”, or most likely unrolling “end-to-end” brewery to bar proprietary channels. These will most likely be brands that you’ve never heard of and will focus on third- or fourth-tier cities in what is obviously a “packaged to market for acquisition” ploy that appeals to other major commercial or strategic investors looking to purchase a turnkey solution for China. This will also fuel the growth of craft beer in less developed markets in China, which is totally great… unless the beer isn’t good. Then what we have is an education problem that will need to be fixed quickly before it has a negative impact on markets that will actually represent the future of China craft. This is less of a prediction and more of a guarantee. You can’t hide bad beer in smaller markets. That’s literally the opposite of what created the backbone of craft beer growth in America and other developed craft beer markets, and it may be what forces a recession in Chinese craft in the coming years. Think I’m being paranoid? Look at what happened in America in the late 1990s and try to tell me the same shit isn’t about to happen here.

So now I’m talking directly to you, whoever you are random-investor-that-wants-to-make-a-pile-of-money-in-five-years-or-less in the China craft beer market. Everyone else can skip this. If you want to raise around a hundred million RMB to build or buy a small craft beer brewery and some bars in underdeveloped markets, please, please, please for the love of fucking god, give a shit. Make some good beer. Surprise us. Please. And thank you.

3.Anheuser Busch InBev will continue to do weird and shitty things

ABI will continue doing shitty things around the world and in China if we continue to try to ignore it because no one wants the trouble of having to explain why any of this matters. Goose Island, Boxing Cat (calm down, we still love you), and everyone’s favorite single-wort-strain “beer brand” Kaiba will continue to buy ad placements and sponsored content in “beer industry” media channels. Eyes will continue to roll when people use the word craft to describe these brands. Most consumers won’t care. By doing this ABI will continue to try to affect market price in China by stuffing product into channels that are already over-saturated and under-consumed.

ABI will continue to say that they are really our allies and our friends and we’re all in this “together”, while simultaneously head hunting our employees, taking away our distribution channels, hijacking words like “craft” and “local”, and sucking data out of our peer breweries under the auspice of the potential windfall acquisition. Everyone thinks their gonna get a check that takes two people to hold, but in the end they are just giving the ABI rep all of their data and consumer demographics. We’ll all just ignore it and try to continue to build something that can survive whatever it is that they are doing. It’s all fine. Everything is fine.

4.We’re going to have too many fucking beer festivals

We’ve reached critical mass. These aren’t that fun anymore. It’s gotten to the point where breweries just need to assume that they aren’t going to sell all of their beer and that they need to arrange for a bar(s) to take the product and pre-schedule a tap takeover post event. It’s not a bad thing, it’s just hard to organize and execute a beer fest with the same 20-30 brands that have just done four other beer fests of the same template and foot traffic in the six weeks prior to your beer fest.

A new model for beer fests needs to be introduced. I look to one of the best fests in North America that has inspired others to follow their template recently, and that’s the Madison, Wisconsin born-and-bred festival, “The Great Taste of the Midwest”, or just “The Great Taste”. The Great Taste doesn’t have the overwhelming vibe of the Great American Beer Fest. The Great Taste is still independently operated and showcases the best brands from around the Midwest region. Beers are bought by the fest organizers from the breweries directly and the beers are then served by brewery reps at stands inside. It’s an outdoor event. Last year a couple hundred breweries attended. The year I attended the larger Midwest brands did big “fuck you” tents with concerts or interactive set-ups. It’s one day long. Visitors buy limited door tickets and get unlimited pours. It’s the future. Someone in China will figure that out and pull one off that shows that it works. Breweries know what the profits are up front; there’s no loss. Punters get a day to stand in lines or get hammered trying newer breweries’ beers. Etc., etc.

My point is that when Great Leap and Boxing Cat started doing big outdoor festivals, Chinese craft beer was a simpler market. If you got 10 breweries to come from all around China with their beer and rent a tent it was a success. We need to retool the current model to evolve beyond what we set up when pickings were slim.

5.We’re about to be drowned in over extended, and yet still awesome, international craft beer brands

Supporting point #2 above, these branding inspirations will increase because we’re about to see the increase of brands available in the market. I should’ve put this higher up on the list, but I wanted to get that other shit out before I ranted about WHY we are seeing more availability in China. Back in 2014, I remember being frustrated with the responses I was getting for our first Beijing Invitational Craft Beer Festival. We had enthusiastic responses from the breweries that came, and a lot of tepid or apathetic responses from breweries that didn’t see China as a competent channel for sales. The reasons for not coming ranged from the reputation of Chinese importers and distributors (at the time, very valid) to borderline xenophobic opinions on the ability of Chinese consumers to “get it”, coupled with some pretty sensitive opinions about politics that we’ll avoid here because, well, they are sensitive. Liu Fang and I were bummed.

Nunzino Pizza of Hop Head Farms and Revolution Brewing Company told me at the time to just keep pushing forward. That kind of a fest was fairly progressive at the time for China, but since 2014 has had three total iterations and has built steam and momentum every year and inspired some similar, um, not copycat festivals. Nunz told me that I shouldn’t worry too much because eventually people would request my time and attention because the market in America was, and is, becoming overpopulated and exposure was shrinking. His point was correct, but at the time I blew it off because I was frustrated. In the last eighteen months, I have changed Nunzino’s nickname from Funzino to Nunzstredamus. The man saw the future. Basically, a lot of American breweries exposed themselves to bank debt or private equity investment (either mezzanine debt or equity sale), and that kind of money comes with strings. Most banks and funds look at – in the case of America specifically – intrastate distribution very positively. It shows market growth and, concerning the case of slower repayment on the principle, they are willing to focus on the long term and recall the debt less aggressively, especially when breweries expand their brand presence into export to international markets. Probably the earliest to see the value of international distribution was Founders Brewing in Grand Rapids, Michigan.

Founders’ beer found itself to Hong Kong and Japan in 2011 and then to China two years ago. These types of international sales channels helped with their financial debt position, but are less important for a brand like Founders now that they have taken on strategic money from San Miguel (Spain, not Philippines) and are in less of a position of debt exposure than they were five years ago. But that investment became easier as a result of their international position. The opposite is Bell’s Beer. Bell’s is who Founders has been chasing in Michigan and America for the last decade plus. 80% of Bell’s beer is sold in the tri-state area and their only export market is Puerto Rico. With the right money and the right growth strategy, you don’t have to be exposed to those potential risks. But first and foremost, make great beer.

As the American market continues to grow and distribution in local markets gets more competitive, overseas markets like China seem like a great way to place product and satiate investment terms or bank expectations on money borrowed, while at the same time getting some cool selfies with enthusiastic drinkers in new markets and stamps in your passport. The problem with this narrative is that most of the truly great beer in America was grown responsibly and organically over time and never really exposed itself to too much risk. You just have to ask yourself, does this brand want to be here, or are they being pressured to be here? As a result, are we going to be exposed to their A-game, or just what doesn’t move in their larger markets?

Keep this in mind when considering China’s future as a consumer of international brands. More importantly, Chinese breweries need to make decisions in order to avoid the mistakes of our elder statesman abroad. This means making decisions to actively avoid forced market entries and over exposure of brands to export markets that are either not ready for them or that will judge them unfairly due to trade damage and inability to ensure quality so far away from home.

 

Alright, so those are my five predictions. Some might happen, some will definitely happen. Some might never happen, whatever. It’s the end of the year and I felt like making some prophecies. We can check back next year when I do the 2018 version of this and see where we are. The only thing that needs to happen is people need to care. People need to be transparent and people need to make great beer. Everything else is just noise.

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