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Growth Strategy in Action

'The hand you are deal is determinism; The way you play it is free will . ' – Jawaharlal Nehru

The move of economic power to the East is also taking place in the beer industry. The Chinese market has already become the world's largest, with volumes nearly twice those of the USA, and is set to overtake the latter as the world's largest market by value by 2020. An average annual consumption of 34 liters per capita; Well below the 100 liters in some European countries, and an increasing disposable income within and beyond urban centers, offer the potential of a growing client base and an upgrade to premium beers

China's market is very competitive. A wave of consolidation has reduced the number of breweries from 800 in the mid-1990s (when having their own local brewery was a matter of prestige for local party officials) to today's 300 foreign and domestic brands. As a result, the top five breweries – China Resources Enterprise (which is popular Snow beer is a joint-venture with multinational SABMiller), Tsingtao Brewery, Belgium-headquartered Anheuser-Busch InBev (which makes Budweiser), Beijing Yanjing Brewery and Danish Carlsberg – Increased their share of total volume from 55% in 2008 to 70%. The resulting cut-throat competition has slimmed down operating margins across the board to less than 10% in some cases.

In such growing but competitive market, generating profitable growth becomes an imperative. It often assumes going on the offensive, it being looking for new markets, inventing new products, teaming up with adversaries, innovating or investing to connect with customers while nearly managing the cost base. Faced with normalizing growth, one of China's top five beer makers, Tsingtao Brewery Co. Ltd (pronounced 'Ching Dow') is trying to move beyond its traditional low-cost provider play, and presents a good example of a profitable growth strategy:

Looking for new markets. For Tsingtao, this means moving in the fast-growing premium market (currently only 5% of the market versus 30% in the US, but it offers larger margins despite higher costs of production) with high-end products such as Tsingtao Gold beer or Tsingtao Pure Draft beer, aimed at satisfying demand from city dwellers (and their ability to pay and willingness to trade up) for taste, quality and freshness, as well as for dining out and night-clubbing.

Overseas, where it has been available since the 1950s in the UK and 1972 in the US , Tsingtao is now trying to move beyond Chinatowns and into downtown areas with its lighter products, to be enjoyed either with Asia-inspired foods, or even without food . It has also signed a multi-year agreement with the Cleveland Cavaliers basketball team, the first such agreement signed by a Chinese beer brand in the USA.

Inventing new products . For a single product company, this can represent a challenge but it often takes the form of product extension such as fruit-enhanced, low-calorie or non-alcoholic brews to respond to customers' quest for healthy living, or of diversification into bees that Match Chinese regional tastes eg a round type of beer in the north, a gentler taste for the South, and higher alcohol content and a bitter taste for the Guangdong and Fujian coastal areas. It is also experimenting with event-related designs, such as a canned beer and aluminum-bottled beer with a football theme for the FIFA World Cup, an aluminum-bottled beer designed after its beer festival, or a "Tsingtao Beer Classic 1903".

Teaming up with adversaries . Tsingtao's part Japanese-ownership through Asahi Breweries' 19.9% ​​stake has bought best-in-class practices such as stock management. Its joint-venture with Suntory to produce and distribute beer in Shanghai and Jiangsu province will give it access to new markets. In Mexico, it has signed a distribution contract with Grupo Modelo, the country's largest brewer and producer of Corona.

Innovating – in the case of Tsingtao, towards more environmentally responsibly brewing. Through a partnership with a local university in Qingdao, it explores ways to re-use brewery wastewater and other waste through techniques such as bio-contact oxidation. It not only treats high volumes of bio-solids efficiently by adding live cultures to the wastewater, but also allows methane generated in the process to be piped to households for cooking, while the remaining waste is used in fertilizers and animal feed. Tsingtao beer topped its rival on the 2014 list of top 100 China Green companies.

Investing to connect with customers . Access to different markets, it being on-trade channels (such as hotels, restaurants, etc) or off-trade channels (supermarkets, malls, convenience stores, etc) is dependent on distributors who often put the their own interests above those of the Beer companies'. Tsingtao is the first brewer to reduce this reliance and to develop its online sales channels including with branded flagship stores on third-party e-commerce platforms such as Jingdong, Amazon, or WeChat. Being perceived as a Northern beer, Tsingtao has also developed a social network strategy to communicate frequently and directly with its customers, taking the opportunity to educate them about its products eg offering advice for food pairing with regional cuisine.

It is also investing to optimize and consolidate its portfolio of brands, using its strong national brand image as a quality beer (Tsingtao beer) to supplement the regional brand's perceived value brands including Laoshan, Hans, Shanshui and Yinmai.

Managing a lean cost base . As raw materials such as barley are mostly imported, Tsingtao tries to forge long-term strategic partnerships with local barley producers. It invites them to its annual global suppliers' conference and has named Mogao Industrial Development Company as its sole strategic malt supplier in Gansu Province.

Since 2009, it has also invested in five new greenfield production sites across key regions, thereby reducing its transportation costs and better controlling the quality of its products.

Today, Tsingtao remains state-controlled and has a portfolio of 55 breweries, and 12 joint-investment breweries across 20 provinces in China. With 2014 revenues of US $ 4.7bn, it claims an 18% market share in China. Its growth strategy has yet to show whether it can translate into a fresh growth impetus but, like many large Chinese companies, it is rapidly adapting from its origins as a low-cost provider to become a quality and brand-oriented company, adapting its approaches Both in China and abroad.

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