Australia & China: Australian craft brewers exploring China market opportunities

A two-week, four-city export roadshow through China is the sort of business trip that exhausts most entrepreneurs. But for a group of craft brewers who were recently on the Australian craft beer roadshow in China, it was a glimpse of a big future market, The Australian Financial Review reported on March 21.

"I'm tired but really excited," says general manager of Moon Dog Brewing, Josh Uljans, who spoke to The Australian Financial Review on the morning he arrived back from China. "There is so much happening in China and so much interest in Australian food and beverage."

Uljans co-founded Moon Dog Brewing six years ago as a craft brewery and tap room for tastings, in Melbourne. But like many craft brewers that do very well in their niche, the niche has grown and growth has meant sales into the big and growing Asian beer markets.

In 2015, according to Euromonitor, 25 billion litres of beer was consumed in China alone, which was twice the beer consumed in the United States. In 2014, according to the Kirin company's research, China had 23.7 per cent of global share of beer consumption, compared to the US on 12.8 per cent.

Moon Dog produces around 1 million litres of beer per year and nine months ago decided to try the China market.

"China's obviously a very large market, but it's the fast-growing middle class that is relevant to our products."

Uljans says China's domestic beer makers – Tsingtao and Snow – make light lagers with relatively low alcohol content, which sell at corner stores for less than A$1 per can. The Australian craft beers, at premium venues, are selling for up to A$10 per can, putting the craft beers in a different market altogether.

"Chinese incomes are growing so they can buy their low-cost domestic beer, if they want, or they can try beers that they see as high quality, different and interesting. It's a very exciting market."

Moon Dog is one of many Australian craft brewers that are testing the Asian beer markets, knowing that if they can get the same craft-brew drinkers that exist in Australia and North America, they do not have to chase the high-volume and low-price model.

"Because of our production costs, there's no way we can compete with Tsingtao or Snow, on their home turf," says Uljans. "But we can offer a premium, high-quality beer, from a country that is known for clean produce."

Moon Dog is currently sending one container per month to China, Singapore and Hong Kong and has a much higher ratio of kegs to cases than other craft brewers. Because of a partnership with TopShelf – a Guangzhou-based distributor of foreign craft beer – Moon Dog's exports to China are 50 per cent kegs.

"We have taps across a lot of bars in Guangzhou, Shanghai and Beijing," says Uljans. "And we're in the Great Leap Brewhouses in Beijing."

He says the Moon Dog beer most consumed in China is the Old Mate pale ale, which is also Moon Dog's most popular in Australia.

He says the brewery has developed a beer with the China market in mind – "Beer Can" – which is a light ale with cold-pressed peach and mango through it. He says the concept of a "Chinese beer palate" is not entirely accurate, but the most-consumed beers in China are light lagers, with mid-range alcohol and no bitter taste.

"Chinese craft beer drinkers seem to like the Aussie pale ales, with a preference for not too bitter."

Uljans says Australia has good beer products, and the China market is very large and growing with a lot of large cities, which cannot be addressed all at once.

"We're focused on being patient, doing this properly and building our business for the long term. There are so many really big cities in China."

He says one of the challenges is assuring quality, so the drinkers get the same premium taste that they get at a brewery tasting.

"We've been working with TopShelf to make sure we have the quality logistics for our product. We're going into cans and making sure they're cold stored and cold shipped and there's fast turnover of product."

The Australian Brewery, a craft brewing company from Rouse Hill in Sydney, is also making inroads in Asia, predominantly from Japan.

David Ward, sales and marketing manager for The Australian Brewery, says the company has been exporting since 2014 and is now in Japan, India, Hong Kong, Singapore and China.

"We have 20 taps in Japan," says Ward. "But China will be our biggest market."

He says the market for Australian craft beer is driven by the expanding middle class of China and its disposable income. However, while the US craft beer makers have taken a lead in China, Australia enjoys a significant reputational advantage.

"Australian food and beverage in China starts with a strong reputation for clean, quality products," says Ward. "The American craft beer brands are quite established but we start with the healthy perception of Australian products."

He says the Australian Brewery beers that sell the best in Asia – the pale ale and pilsner – are both medal-winners from the 2016 Beer Challenge in London, giving them visibility to Asian consumers.

"As the craft beer market gets going, having international awards is important to the local consumers."

He says the argument that beer drinkers have a different palate in Asia is not conclusive. "When we go to the events [on the Craft Beer Roadshow], the Chinese distributors say they want the bitter beers. But we know from our sales that they like them on the less bitter side."

He says the Australian Brewery pale ale is made from Galaxy Tasmanian hops, giving a strong taste but not too bitter.

"This is part of a global move for people to drink better and drink less, and because the middle classes of China and Asia are growing so fast, the craft brewers are seeing a growing opportunity.

"We're doing well domestically," says Ward, "but exporting is driving our growth."

An Australian craft brewer about to export into China is Kaiju Beer, the Dandenong-based company with distinctive, cartoony labels.

Already exporting to Hong Kong, Taiwan and Singapore, Kaiju has developed a "tropical pale ale" beer called Kaiju Krush, with its Asian market in mind.

"It's a pale ale with low bitterness and low alcohol," says co-owner of Kaiju, Callum Reeves. "It has a distinctive label that wraps around the whole can."

Reeves says the argument about what sort of beer palate exists in China or Asia was not totally relevant.

"We're seeing the same range of preferences for different styles of beer that you see in America or Australia," says Reeves. "What we do see in our Asian markets is the preference for a balanced beer."

He says Kaiju already sends up to eight containers each year to its Asian markets and it will enter the China market this year. However, he says China is shaping as a low-margin market for craft beer makers meaning brewers will have to pick their market entry carefully.

Reeves also notes that the biggest international beer brands – Heineken and Budweiser – are not swamping the China market, which could yield some lessons for the craft brewers.

One of the most ambitious forays into China and Asia is being rolled out by Melbourne craft brewer Temple Brewing Company. The company with a staff of 11 has just set up its own operation in Shanghai which will represent the brewery's business interests in China and Hong Kong and act as a hub for the markets they service in Japan and Taiwan.

The managing director of Temple, Nicholas Pang, says the company sees export sales as a driver for the brewer's growth and it wanted to enter Asia in the most efficient way.

"If we set up in Shanghai, we can hold stock and meet orders very quickly in our Asian markets," says Pang. "It's important to meet orders quickly."

Pang says there is not an "Asian beer palate", because every country has a different approach to beer. But the company does service two separate tastes in China.

"The most popular of our beers in China are the Bicycle Beer summer ale and the Anytime pale ale," says Pang. "The expats in Shanghai drink the Anytime, because it's hoppy and bitter, and the locals prefer Bicycle Beer, because it's less bitter – it's more easy-drinking."

Pang says Australian craft brewers have to be careful about their pricing assumptions because the American and German craft brewers are forcing the prices lower in China.

"The Americans and Germans are making their beers in such volumes that they can reduce their prices," says Pang.

Temple produced around 600,000 litres last financial year and will produce 800,000 this year. He says it is incorrect to think of an "Asian" market, because each country has its own tax regimes, tastes and has different habits for food and drink.

"We're concentrating on three markets – China, Japan and Taiwan – and we'll service them out of Shanghai. There's a very big market there, but you have to be smart about it."

21 March, 2017