Read the linked article and answer the five questions that follow.
Big Volumes Don’t Mean Big Profits in China’s Beer Market
Click here to view the full article on WSJ.com
SUMMARY: This article focuses primarily on industry analysis. It concerns China’s beer market, where despite big volumes, intense competition among large brewers keeps a tight lid on margins. In the US, AB InBev and SAB MillerCoors hold more than 70% of the market by volume, with margins of 38% and 18% in 2014. In China, the same 70% market share is split among five robust competitors whose EBIT margins range between 6% and 9%. Now, after decades of robust growth, beer volumes in China are slumping and turning a profit is posed to get even tougher.
1. On the surface, why does the Chinese market for beer seem attractive? In fact, why is the Chinese market an irresistible one for major Western beer producers to enter?
2. In reality, why is the “structure” of the Chinese beer market not so favorable? In terms of Porter’s Five Forces, why is the Chinese beer industry not necessarily that attractive? And why might this market actually become less attractive in the near future?
3. Reflecting on the previous question, do you think the Chinese beer industry will actually remain rather unattractive for a long time? Or do you think the market will consolidate one day?
4. How is SAB dealing with the problem? Which strategy is it using to raise margins in the Chinese market? How has AB InBev utilized this strategy?
5. According to the article, why is SAB’s strategy being criticized? What is SAB doing differently from InBev, for example? Do you think SAB is on the right track in the long run, or does it need to introduce more of its own Western brands into China?