The domestic beer distribution across the nation is a two-tiered enterprise with the densely populated tier-1 cities receiving their supply through well organized sales channels including supermarkets and online stores. In comparison, tier-2 cities and rural areas are characterized with fewer sales outlets and higher transportation costs which subsequently result in fewer brands available for consumption in these less lucrative markets. Since its establishment as an industry of prominence, the Chinese beer industry has displayed a fast growth over its period of existence. However, recent years have witnessed a significant increase in competition faced by domestic breweries, with a surge in local producers of beer resulting in competitive pricing and a reduced profit margin for producers.
With lower-end products accounting for the majority of sales volume, combined with the aforementioned reduction in profit margin, the growth rate of the Chinese beer industry has witnessed a decline compared to other beer industries worldwide. The local industry is further affected by ever fluctuating production and prices of the available raw materials like barley and hops across the country. Furthermore, the market for high-end products has experienced stiff competition from imported brands of beer, with the urban consumers preferring imported brands, mainly Europe based breweries, over locally brewed beer. This has led to the beer import industry to concentrate on the urban demographic and high-income consumers with the high-end products to expand its consumer base.
The above mentioned consequences of competition, both domestic and foreign, had rendered the beer industry in China stagnant. Thus, forcing the domestic industry to experiment and delve into the field of brewing craft beer. The beginnings of a craft beer industry in China can be placed in the late 2000’s, when the craft beer trend was already established in the European and American beer industry. Recent years have witnessed an unprecedented growth in micro-breweries across China, with an aim to popularize high quality beer over cheaper, mass produced varieties. The niche market of craft beer is projected to grow exponentially over the next few decades influencing a change in preference for quality over quantity in the country.