Western consumer brands in China have long been coming to terms with the prospect of lower growth in the world’s second-largest economy. But demand for Heineken’s beers tells a different story.
In 2023, sales volumes for the Dutch lager maker’s various brands, including Amstel, rose more than 50 per cent. Last year, as the overall mainland China beer market shrank, its volumes increased nearly 20 per cent to just under 700mn litres — almost enough to serve a pint to everyone in the country.
Heineken’s growth comes after a deal agreed in 2018 with China Resources Beer, China’s biggest brewer, which gave the state-owned group rights to the brand on the mainland while Heineken took a stake in China Resources Beer and gets royalties from the deal.
The approach points to pockets of opportunity for well-known foreign names in China’s fast-evolving consumer sector, even if the wider markets in which they operate are saturated.
“This is a very healthy transactional relationship,” said Tristan van Strien, global investor relations director at Heineken of the relationship with China Resources Beer. “They need us and we need them.”
Heineken’s growth rates “have undoubtedly outperformed”, said Euan McLeish, an analyst at Bernstein. “None of the other premium brands have been talking about double digits.”
China’s overall beer market is in decline. Sales fell an estimated 4 to 5 per cent last year amid concerns over consumer confidence.
But for China Resources Beer, whose sales dropped 2.5 per cent in 2024, Heineken is a pick-me-up.
Its deal with Heineken gave it rights to the Dutch beer in China for an initial 20 years, in exchange for a stake in one of its holding companies that gives Heineken an effective interest of about 21 per cent in China Resources Beer.
The lager, previously mainly sold in two southern provinces, was rolled out across the country. Growth has been rapid, helped by sponsorship of events such as the Shanghai Formula 1 grand prix in March, where 500ml servings were on sale for Rmb40 ($5.5).
A 500ml serving of Heineken in China costs an average of Rmb12-15 ($1.67-2.08), according to Morningstar, though prices vary significantly across regions and from bars to shops.
Heineken has grown by “leveraging the distribution network of China Resources Beer”, said Jacky Tsang, an analyst at Morningstar.
China Resources Beer, whose local Snow beer is the country’s best-seller, is using Heineken to push into China’s premium market — often defined as beers that cost at least 20 per cent more than the average.
“The overall beer volume in China is on a gradual decline trend,” said Tsang, meaning China Resources had “to go after price growth to drive profit growth”.
Heineken’s growth, from a low base, contrasts with other western brands, which have also generally positioned themselves as premium options in China.
Danish brewer Carlsberg, which has about 10 per cent of China’s beer market, reported that sales edged 1 per cent lower last year. Jacob Aarup-Andersen, chief executive, said last month the market had been “structurally declining” for 15 years, but there were still “ample growth opportunities”.
Anheuser-Busch-owned Budweiser, which, unlike Heineken, has built a significant distribution network in China, has also reported declining sales.
Competition between the two “is viewed as a winner-takes-all celebrity death match in the mind of many investors”, said McLeish, in reference to the still-developing premium market.
It now takes just 37 minutes of work for the average Chinese to afford 500ml of premium beer, Bernstein estimated, compared with well over an hour a decade ago — close to a global definition of affordability.
“We think in 20-year cycles, and this is the premium development cycle that’s happening in China,” said van Strien, who added that “premium beer tends to do really well” in downturns.
“You’re not talking about a huge capital outlay for someone to have a nice sociable evening.”
For McLeish, China Resource’s strategy poses a risk to “brand positioning” if the rapid expansion has an adverse impact on price and its premium status.
China Resources Beer “does not really have experience building premium brands” but “if they had taken their time . . . the growth rates would never have been nearly as fast”, he said.
Kevin Leung, investor relations director at China Resources Beer, said there were some promotions but no “significant price drop on any Heineken product”.
There are other risks. Heineken’s exposure to China Resources Beer’s falling share price led it to take a €874mn impairment charge last year, even as its own volumes sharply increased.
The Dutch company does not disclose its dividends and royalty income from the deal, but said its share of income from China Resources Beer and its royalties from China equate to about 6 to 7 per cent of net income globally.
Van Strien said volumes grew faster than 20 per cent in the first quarter of this year, and that in the same period, volumes of its Amstel brand doubled.
The deal with China Resources had “no planned endpoint”, said van Strien. “The reality is, having a local ownership is often a good thing for us,” he said.
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