Medium Summary: Forbidden City - Launching a Craft Beer in China

The case study focuses on the Eurasian Brewing Company (EBC) in China. The vice
president of EBC's China and East Asia operations, Le Jie, aims to introduce a new craft beer
to increase market share and profitability. However, the director of marketing and export
sales, Vivian Chin, is also launching a small-batch craft beer, creating a conflict. EBC's
managing director, Victor Wang, suggests a meeting between Le and Chin in Shanghai to
resolve the issue.

The history of beer brewing is discussed, emphasizing its role in cultural shifts and
consumption growth. Technological advances in the 18th and 19th centuries facilitated
brewing as a stable production process, making transportation, packaging, and distribution
more efficient. Each country developed its own brewing traditions, and in the United States,
lighter beers emerged due to agricultural shocks, Prohibition, and the Great Depression. The
beer industry experienced growth after World War II, with imported beers gaining
popularity in the 1980s and 1990s. Mergers and acquisitions in the early 2000s resulted in
four dominant players, focusing on vertical integration for increased profitability.

From 2013 to 2018, the beer industry faced stagnation, prompting a shift towards premium
products and expansion into emerging markets like China. China is the largest beer market
globally, but it presents challenges for foreign companies due to competition from local
brands and price sensitivity. China Resources, with their Snow Beer brand, holds the
highest market share in China. Craft beer, defined by the Brewers Association, is produced
by small and independent breweries, although the term is often used more broadly to
describe innovative or high-quality beers.

China's beer market consists of mature, slowly growing popularly priced brands, as well as
higher-priced premium and super-premium brands. Craft beer has gained popularity, with
over 1,000 craft breweries opening in China, driven by younger, affluent consumers in
larger cities. Despite this growth, craft beers only account for a small portion of the market.
Foreign brewers are uncertain about how to respond to this trend due to past market
miscalculations. While total beer consumption is expected to decline slightly, industry
revenues are projected to grow as affluent Chinese consumers shift to premium beers. The
Eurasian Brewing Company (EBC), formed through a 2011 merger, faced challenges in
China's mass-market segment. The CEO implemented cost-cutting, supply chain
improvements, and a focus on higher-margin premium products, leading to increased
profitability. Tensions arose between EBC's CEO and the head of marketing and branding,
but they aimed to build premium Asian beer brands for regional and global exports. EBC's
strategy involved pan-Asian and worldwide expansion driven by a global branding
approach.

Latecomer EBC capitalized on its location and experience in Asian markets to respond to
local preferences, aiming to be both high-quality and low-cost. However, there were
differing opinions within EBC on how to achieve this vision. Despite debates, EBC made
progress by focusing on premium products and reducing costs in China. By 2018, all East
Asian operations except Korea were profitable, with China contributing significantly to
EBC's income. EBC partnered with Euromalt to ensure consistent quality. In 2012, Le
entered a joint venture with Euromalt, but financial difficulties led to increased costs. Le
recommended acquiring Emperor Holdings in 2016 to tap into South Korea's growing beer
market. Tensions later arose between Le and Chin over craft brewing in China. The
emergence of high-end Chinese craft brews threatens the market, and Le's proposal to
launch Forbidden City clashes with the global team's plan for Wild Dog. Despite opposition,
Le remains adamant about launching Forbidden City exclusively in China.

Le argues that capitalizing on national pride with an authentic brand like Forbidden City
will resonate more with the market than a competitor named Wild Dog. On the other hand,
Chin believes a global marketing strategy, like Heineken's recent investment in another
company, is necessary. Le counters with AB InBev's purchase of a Chinese microbrewery,
suggesting that global players would face difficulty launching their craft beers in China. Chin
argues for an integrated brand strategy instead of localized products for different markets.
Both acknowledge the influence of Victor Wang and as they prepare for a meeting with him,
they appreciate the strengths in each other's arguments. Additionally, the text provides
profit statements for EBC and EBC China Operations from 2015 to 2018.

Long Summary: Forbidden City - Launching a Craft Beer in China

This case study discusses the situation of the Eurasian Brewing Company (EBC) in China. Le
Jie, the vice president of EBC's China and East Asia operations, is pleased with the
company's market share increase in China in 2018. However, he plans to introduce a new
craft beer to further boost market share and profitability. This idea is challenged by Vivian
Chin, EBC's director of marketing and export sales, who is also launching a small-batch craft
beer. To resolve this, Victor Wang, the managing director of EBC, wants Le to meet with
Chin in Shanghai. The outcome of this decision will have a significant impact on the
company. The case also provides a background on the history of beer brewing, highlighting
its role in cultural shifts and the growth of consumption.

The development of regional brewing practices based on local crops led to the diverse range
of beer styles available today. Technological advances in the 18th and 19th centuries turned
brewing into a stable production process. Improved transportation, packaging, and
distribution allowed beer to be produced at scale and distributed widely. Major breweries
were established worldwide, with each country having its own brewing traditions. In the
United States, agricultural shocks resulted in lighter beers compared to their European
counterparts. Prohibition and the Great Depression affected American breweries, but the
industry experienced growth after World War II. In the 1980s and 1990s, imported beers
gained popularity, creating a market niche. Mergers and acquisitions in the early 2000s led
to four dominant players in the industry. These companies accounted for almost half of
global beer volume and 75% of industry profits. To increase profitability, global brewers
focused on vertical integration, investing in the entire value chain. However, growth
stagnated from 2013 to 2018, prompting players to shift focus to premium products and
expand into emerging markets in Asia, Latin America, and Eastern Europe. China, in
particular, became a major target due to its status as the largest beer market by volume.

Craft beer, as defined by the Brewers Association, is produced by small and independent
breweries. However, many beers marketed as craft do not meet this definition and the term
is often used to describe innovative or high-quality beers. China is the largest beer producer
globally, accounting for 23% of global volume in 2017. Traditionally, China's beer market
was dominated by local breweries producing inexpensive pale lagers, but growth has
recently stalled due to government regulations and declining consumption. Foreign
companies entering the Chinese market face challenges, including competition from
established local brands and price sensitivity of consumers. The largest competitor is China
Resources, with their Snow Beer brand holding the highest market share. While the
popularly priced segment of the beer market is mature and forecasted to grow slowly,
higher-priced domestic and imported premium brands make up a significant portion of
China's beer market. Additionally, the super-premium segment is growing rapidly, but faces
competition from craft beers sold in pubs.

Craft beer has gained popularity in China, with over 1,000 craft breweries opening, offering
unique flavors such as tea-infused and chili pepper beers. This emerging trend is driven by
younger, affluent consumers in larger cities. Despite a 40% increase in craft beer sales
between 2015 and 2018, craft beers only account for 5% of the super-premium segment
and 1% of China's total beer sales. Foreign brewers who have experienced similar growth in
their home markets are uncertain about how to respond to this market trend. While total
beer consumption is expected to decline slightly from 2019 to 2023, industry revenues are
projected to grow as affluent Chinese consumers shift from mass-market to premium beers.
Memories of previous market miscalculations in the 1990s make foreign brewers cautious.
The Eurasian Brewing Company (EBC) was formed in 2011 through a merger between the
Indochina Beverage Group (IBG) and Dragon Spring Brewery (DSB). IBG, based in
Singapore, focused on Southeast Asian markets and had a strong presence in the region
since the 1930s. DSB, a Chinese company, started as a local brewery before expanding
nationally and into other East Asian countries.

Dragon Spring Brewery (DSB) grew by acquiring small beer companies in its region and
expanded beyond its home province. In 2005, it formed an alliance with Denmark's
Carlsberg group and acquired breweries in South Korea, Macau, Taiwan, and Hong Kong.
DSB owned 12 breweries in China and five in East Asia. While it had premium brands, most
of its business focused on the popular and lower-priced market segments. When integrating
DSB and IBG, Victor Wang focused on cost structure, finding managers who could control
expenses while driving growth, and identifying expansion opportunities in South Asia. After
the merger, ex-IBG executives took leadership roles in EBC, including Vivian Chin as
director of marketing and export sales. Wang later turned his focus to DSB's former
operations and found that its managing director, Le Jie, was leading a turnaround. Despite
well-run bottling facilities, DSB's China business faced challenges due to inconsistent
marketing and positioning between local brews and premium brands.

DSB, a beer company, faced challenges due to mass-market price competition and supply
chain issues in China. Le, the CEO, implemented strategies to cut costs, secure the supply
chain, and focus on higher-margin premium products. The initiatives led to increased
profitability and sales growth in China. Le also implemented a turnaround strategy in DSB's
Korean operation. However, tensions arose between Le and Chin, as the executive team at
EBC, DSB's parent company, had a tendency to involve itself in East Asian market decisions.
To reduce tension, Wang, the CEO of EBC, had Le report to him on division profitability, but
did not intervene in marketing and branding disputes. Wang and Chin envisioned EBC as a
global beverage company and aimed to build premium Asian beer brands for regional and
global exports.

Singapore-based brewery EastBrew Co. (EBC) adopted a strategy of pan-Asian and

worldwide expansion driven by a global branding strategy. As a late mover in the market,
EBC capitalized on its location in one of the world's largest and fastest-growing markets and
its experience in creating products for Asian consumers. Unlike foreign brewers, EBC was
not bound by traditions and legal constraints, allowing them to respond to local tastes and
preferences. EBC aimed to be both a high-quality and low-cost producer, which would help
them enter Western markets successfully. However, there were varying opinions within
EBC about how to achieve this vision. Some believed that headquarters should lead brand
strategy, while others argued for focusing on distribution and building relationships with
resellers in the Chinese market. Despite these debates, EBC made progress by pruning low-
cost brands, focusing on premium products, and reducing production costs in China. By
2018, all East Asian operations were profitable except for Korea, and China accounted for
one-third of EBC's income and almost half of its after-tax profits. Additionally, EBC
addressed supply chain concerns by partnering with Euromalt, a German barley
cooperative, to ensure consistent quality for their premium products.

In 2012, Le entered into a joint venture with Euromalt to expand his business. However, in
2015, Euromalt faced financial difficulties and this led to significant cost increases for Le's
division. Le had trouble finding trustworthy subordinates to delegate work to, which
further complicated matters. In 2016, Le recommended acquiring Emperor Holdings, a
South Korean brewery, as a strategic move to tap into the growing South Korean beer
market. The South Korean beer market was predominantly local, but import sales were
increasing. Le believed that Emperor could enhance its image and profitability by offering
quality niche beers in response to changing consumer tastes. The acquisition was approved,
but concerns remained about Le's ability to handle multiple responsibilities. In late 2018, Le
and Chin faced tension over the emergence of craft brewing products in China and their
potential impact on premium and super-premium beer segments.

The craft beer market in China is experiencing a shift, with high-end Chinese craft brews
gaining market share similar to the craft beer movement in the United States in the 1990s.
Chinese craft brewers are poised to disrupt the market and steal a significant portion of the
high-end segment. One brand, Forbidden City, has been developed under the leadership of
Le and his local marketing team. They plan to market the product exclusively in China with
an airplane- and airman-themed visual image. Le aims to set up brewing operations in
Beijing and Shanghai, along with pubs and retail stores. However, this proposal clashes with
the global marketing team's plan to launch their own craft-style beer called Wild Dog,
targeting affluent males. They believe Wild Dog could compete with international brands
like Tsingtao. The global team argues that launching Forbidden City would confuse
distributors in China and overlap with Wild Dog. Despite this opposition, Le is standing firm
in his proposal.

The text describes a disagreement between two individuals, Le and Chin, regarding the
launch of a craft beer called Forbidden City. Le argues that the market is ready for a strong
brand that builds on national pride and believes that the authenticity of Forbidden City will
appeal more than a competitor called Wild Dog. Chin disagrees and believes that a global
marketing strategy is needed, pointing to Heineken's recent agreement to buy a stake in
another company. Le counters that the recent purchase of a Chinese microbrewery by AB
InBev suggests that launching their own craft beers in China would be difficult for global
players. Chin insists on an integrated brand strategy rather than localized products for
different markets. Both parties recognize the involvement of another individual, Victor
Wang. As they prepare for a meeting with Wang, they acknowledge the merits of each
other's arguments. The text also includes profit statements for EBC and EBC China
Operations from 2015 to 2018.