Taiwanese beer: China offers profits for Taiwanese brewers

Visitors to Taiwan in the 1980s were often told that Taiwan Beer was the best beer in the world.

When asked what other beers they had tasted, the informant would reply with a straight face: "None." That was possible, because Taiwan Beer, a product of the Taiwan Tobacco and Wine Monopoly Bureau, was the only beer that could be legally sold on the island.

Today Taiwan Beer still rules, despite a quarter century of market changes and gleeful predictions of its demise. Last year, Euromonitor says the former Government monopoly, since privatised and renamed Taiwan Tobacco & Liquor Corp (TTL), had a 75.7 per cent volume share of the island's 461.8 million litre beer market that is worth NT$60.3 billion (US$1.8 billion).

Left squabbling over the dregs were a handful of imported premium brews, all that remain of the 120 brands that stormed the island in 1987 when Taiwan was forced by the US Government to open its market. Tariffs were high initially, but were gradually reduced and finally eliminated, when Taiwan joined the World Trade Organisation in 2002.

Heineken led imports last year, according to Euromonitor, with a 4.8 per cent volume share, followed by Kirin at 4.2 per cent, last was Carlsberg with one per cent.

How has TTL defended its turf? Certainly, Western-style marketing isn't its forte as it has always been a reluctant advertiser. Heineken, for example, outspends TTL above the line. Last year, Nielsen Taiwan showed Heineken with adspend of NT$67.7 million, compared to NT$57 million for TTL. Tsingtao ranked third and in fourth place was Kirin with adspend dropping precipitously thereafter.

In the early days, Taiwan Beer didn't advertise as alcohol advertising was prohibited. Instead TTL relied on its amazing distribution network. Even today, in the remotest corners of Taiwan, the smallest shop will likely stock cans of Taiwan Beer.

TTL's biggest marketing challenge has been wooing young drinkers away from higher status imported beers. One initiative has been the introduction of its own premium beers. "In 2003,
Taiwan Beer launched two premium variants, Taiwan Beer Gold and Taiwan Beer Draft," says Jack Chiu, associate director, TNS Taiwan. "TTL put a lot of money into consumer activities and, by 2006, these brand extensions began converting share."

TTL priced Taiwan Beer Gold in the low premium range. Key to linking it to youth culture was the sponsorship deals with rock guitarist, Wu Bai, and diva, A-Mei.

Even so, TTL faced a grim market, as Taiwan became mired in a protracted economic downturn that began in the middle of this decade. The local economy has since improved, but the beer market is shrinking. "For the 12 months ended in May, beer experienced a four per cent negative value growth for the retail channels Nielsen Taiwan covers," says Jesse Lai, retail measurement service director, Nielsen Taiwan. "Hypermarkets and convenience stores, the two main channels for beer, both struggled with decreases. Only supermarkets saw positive growth, mainly due to outlet
expansion."

Conversely, Chiu believes tough times actually helped premium beer sales. "Retail sales of beers like Heineken are increasing in supermarkets," he says. "People say to themselves, ‘The economy is so bad. How can I make myself feel better?' For a small price difference, they can console themselves at home with a premium beer."

However, the restaurant channel that once commanded two-thirds of all beer sales, has been declining for more than a decade.

Ironically, TTL's best prospects are not at home, but in China. Attempts to register its trademark there only succeeded in May 2009, but two months after that TTL was shipping Taiwan Beer to China, and in November 2009, TTL was the official beer partner of the 16th Asian Games in Guangzhou. This year TTL began brewing in Jiangsu Province.

Analyst comment

James Roy, analyst, China Market Research Group, Shanghai:

"TTL has ambitious plans for Taiwan Beer in China, a market where more beer is drunk than anywhere else in the world. Last year, 43 million kilolitres were consumed, and sales are growing at 10 to 15 per cent annually. Yet the flipside is that Taiwan Beer is a late entrant in an extremely competitive market.

Taiwan Beer's first challenge is distribution. To crack second-, third-, and fourth-tier cities, where personal incomes are growing the fastest, Taiwan Beer must go head-to-head with strong established domestic brewers such as Snow, Tsingtao, and Yanjing. Even small local beers enjoy brand loyalty for their premium brews.

One possibility for Taiwan Beer is to expand through acquisitions. Several foreign brewers, for example, Carlsberg, have bought into local producers and have found western China a particularly good place to sell.

Taiwan Beer's second challenge is price point. Most mass-market beers have razor-thin margins - approximately Rmb3 to Rmb4 per 600 ml bottle. Some domestic brews are priced even lower than bottled water. Taiwan Beer should not compete at this level. Instead, its best chance at profitability is probably pricing its products in the low premium range (Rmb6 to Rmb8 per 600 ml bottle) along with Budweiser.

Whether Chinese beer drinkers will pay that much will depend on Taiwan Beer's quality and the image it projects. In China, Taiwan is associated with pop stars, snack food, and low-cost electronics. Taiwan Beer must foster an image that resonates with the aspirations of young Chinese people."

This article was originally published in the 15 July 2010 issue of Media.