Key Takeaways:

Budweiser APAC’s profit fell 15% in the first nine months of the year as its revenue in China fell 16.1% in the third quarter
The mainstream beer maker’s efforts to develop higher-end products may be meeting with headwinds from increasingly cautious Chinese consumer

By Lau Chi Hang

If 2023 was a year to celebrate with the end of the pandemic, then this year is looking far more sober for Budweiser Brewing Co. APAC Ltd. (OTC: BDWBF), the Asia arm of one of the world’s top beer makers. After booming last year, the company’s business has gone into reverse in 2024, dragged down by weakness in China, its largest market.

Budweiser APAC said it sold 7.12 billion liters of beer in the first nine months of this year, down 8.1% year-on-year, according to a third-quarter business review issued at the end of last month. Its revenue slipped by a slightly smaller 6.1% to $5.1 billion, while its profit fell by 15% to $780 million. The company said China’s economic slowdown was the biggest drag on its overall sales, partly offset by a strong performance in South Korea.

Budweiser APAC operates across East and South Asia, with markets including South Korea, Japan, China, India and Southeast Asia, as well as New Zealand. The company didn’t break down revenue for China specifically in the nine-month figures. But the market dominates the company’s West APAC region, which accounts for nearly 90% of its overall sales.

Sliding China Business

Budweiser APAC’s China business has been declining since the end of 2023, starting with a 3.1% drop in its sales volume during last year’s fourth quarter. The rate of decline accelerated to 6.2% in the first quarter of 2024, with revenue also down 2.7% for the period. The situation further deteriorated in the second quarter, with sales volume down 10.3% year-on-year and revenue plummeting 15.2%.

Things didn’t get any better from there, as the company’s China sales volume plunged 14.2% in the third quarter and revenue tumbled by an even larger 16.1% year-on-year, according to the latest report. Weak consumer sentiment, driven largely by people eating and drinking out less, were mainly to blame for the drastic business drop, the company said.

The declines mark the latest twist in a Chinese beer market that has been evolving nearly nonstop since Western brands first entered the market back in the 1980s and 1990s. Sales rocketed during that early period as China’s economy started to take off in its Reform Era dating back to 1978. An emerging middle class more willing to spend bigger sums on beer drove the boom, helping China to pass the U.S. to become the world’s largest beer market.

Turning point

But the market eventually became saturated as companies built more breweries and consumers with discretionary income diversified into other beverage types. Demographics also played a role, especially among the 26- to 35-year-olds that are the main drinkers of beer in China, accounting for 40% of total consumption. The number of people in that age bracket is declining as the population ages and replacement birth rates fall, taking a direct toll on beer sales.

Demographic changes aside, changing lifestyles and improving living standards are also taking a swig out of beer sales. That’s showing up most notably as people turn their attention to healthier diets and avoid less healthy foods and beverages like beer. Adding to beer’s woes are growing alternatives bubbling up, including other alcoholic drinks with different ingredients and flavors.

A confluence of those factors led to a turning point for China’s beer production in 2013. Before that year, production had been on a steady rise, hitting 50 million kiloliters in 2013. But the volumes have been falling since then.

High-end Strategy Clipped By Consumption Downgrade

Leading beer makers in China haven’t simply sat idle as their market changes, and going upscale is one common tactic many have tried to keep consumers coming back. Lee Chee Kong, president of Carlsberg China, previously pointed out that such up-market movements have become a broader industry trend in China, similar to the Western embrace of pricier micro-brewery beers over the last three decades. Such movement in China entails not only the rollout of new products, but also improvements to existing ones. Companies are also placing a greater emphasis on packaging to give consumers a sense of luxury when they drink.

While such talk sounds good in theory, it may be easier said than done. That’s especially true in the current market, where a sluggish Chinese economy is leading consumers to rein in their spending on the finer things in life, especially for non-essentials like beer.

After a period of major consolidation in the 1990s and early 2000s, China’s beer market is currently dominated by five major companies: China Resources Beer (0291.HK), Tsingtao Brewery (168.HK), Budweiser, Yanjing and Carlsberg. That group alone accounts for 92% of the market, with Budweiser ranking third at about 20%.

The weak environment has left Budweiser and its peers with few options other than trying to seize share from each other in the dwindling market. Despite its stumbling business, the company still leads most of its publicly traded peers with a trailing price-to-earnings (P/E) ratio of nearly 19 times, ahead of the 17 for China Resources Beer and just 14 for Tsingtao Brewery.

Investment banks also have their reservations about Budweiser APAC. Morgan Stanley pointed out the company’s China sales were weaker than expected and lowered its full-year sales forecast by 2% after the latest update. Goldman Sachs also lowered its sales forecast for the company from 2024 to 2026 by between 1% and 3%. It maintained its “buy” rating but lowered its target price by 8.2% to HK$10.10. UBS also maintained its “buy” rating, but, like Goldman Sachs, lowered its target price from HK$13.78 to HK$11.72.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

Comments

Budweiser Brewing Co APAC Stock News

News

Latest Budweiser Brewing Co APAC Stock News | OTC:BDWBF | Benzinga

Monday, November 11, 2024

Popular Channels

Tools & Features

Partners & Contributors

About Benzinga