A battle is brewing between China's two largest beer-makers Tsingtao and Yanjing. Tsingtao has announced that it is going to start marketing its low-end beer in Beijing, the home of Yanjing.

The low-end product of Tsingtao, which is known as Tsingtao Premium-quality Beer, will be available in Beijing in days, according to Sui Zhanping, general manager of Tsingtao Beer's north department.

One bottle of the beer will be priced from 2 yuan to 3 yuan (24 to 36 US cents), depending on the different retailers, according to Sui.

Sui says it is a strategic move for Tsingtao, the country's biggest brewer, as it launched all lines of its products on the Beijing market, the base of the country's second largest brewer, Yanjing Beer.

Before the move, only the high-end Tsingtao beer was available in Beijing, on average priced at more than 10 yuan (US$1.20).

The low-end Beijing market is mostly controlled by Yanjing Beer, which has about 90 per cent of the market and prices its low-end product even below 2 yuan (24 US cents). Beijing consumes 600,000 to 650,000 tons of low-end beer annually.

The high-end market, smaller than the low-end in Beijing, is shared by Yanjing, Tsingtao, Budweiser and Corona.

Sui expected Tsingtao Beer may capture about 20 per cent of the low-end market by 2008.

"But we will not grab the market by offering lower prices than competitors," Sui said.

A box (two dozen) of Tsingtao Premium-quality Beer costs 2 or 3 yuan (24-36 US cents) more than Yanjing beer of the same level.

Sui said it was a principle of Tsingtao that it priced its products higher than other brands at the same level.

Sui, confident of the taste of Tsingtao beer, said he believed Beijing consumers would like to have more choices.

Besides the taste, special distribution will help Tsingtao win the market, Sui said.

Rather than selling through other distributing companies, Tsingtao has set up its own delivery team in Beijing, Sui said.

The team will deliver Tsingtao beer directly to restaurants and retail stores.

Currently, the team is equipped with 500 vehicles and has 1,000 employees. And the number is expected to hit 3,000 in May, the beer season in China.

"Small restaurants and community shops will be the marketing priority for the low-end beer," Sui said.

Before this Friday, the Tsingtao beer is expected to be available in 10,000 such restaurants and stores.

A Yanjing spokesman refused to comment on the Tsingtao move.

An official from the China Brewery Industry Association said it is hard to estimate the battle result.

"Yanjing is very strong in the North China market, especially in Beijing," said the official who declined to be named.

The distribution channel is the key to the battle, he said. Yanjing has powerful and efficient distributors.

"That is why Tsingtao chose a special distribution way," he said.

He said he thought Tsingtao Beer has the capability to challenge Yanjing's monopoly in the market.

Many beer makers have plans to enter the low-end market in Beijing, but Yanjing is a big stumbling block.

The country's third largest beer maker China Resources has moved its marketing department for Snow Beer to Beijing. The Japanese Asahi breweries has also launched its low-end Beijing Beer on the market.

Tsingtao did not enter the battle with Yanjing in a hurry.

It acquired two Beijing beer plants in 2000 and 2001. But it spent more than three years upgrading their technology.

The battle in the Beijing market will be decisive for the future development of the two beer giants, the official said.

According to Tsingtao's financial report, its production volume reached 3.13 million tons in the first three quarters last year, up 14 per cent year-on-year. Sales income totalled 7.1 billion yuan (US$858 million) in the same period, up 14 per cent.

The production volume of Yanjing amounted to 2.18 million tons in the first three quarters, rising nearly 29 per cent. Its sales income totalled 3.85 billion yuan (US$465 million).

Both have not released their annual reports.

China is still a very large potential market for domestic and foreign beer makers. Though the country has been the world's largest producer, its per capita consumption is small.

Per capita consumption of beer in China is only 19 litres a year, compared with 75 litres in Western Europe and 84 liters in the United States. The room for further growth in China is obvious.

As the beer markets in Western Europe and the United States are saturated and beginning to shrink, China is widely expected to grow by an average of 10 per cent a year in the foreseeable future.

(China Daily January 12, 2005)