Western shopper manufacturers in China have lengthy been coming to phrases with the prospect of decrease progress on this planet’s second-largest financial system. However demand for Heineken’s beers tells a unique story.

In 2023, gross sales volumes for the Dutch lager maker’s varied manufacturers, together with Amstel, rose greater than 50 per cent. Final 12 months, as the general mainland China beer market shrank, its volumes elevated practically 20 per cent to simply underneath 700mn litres — virtually sufficient to serve a pint to everybody within the nation.

Heineken’s progress comes after a deal agreed in 2018 with China Assets Beer, China’s greatest brewer, which gave the state-owned group rights to the model on the mainland whereas Heineken took a stake in China Assets Beer and will get royalties from the deal.

The method factors to pockets of alternative for well-known overseas names in China’s fast-evolving shopper sector, even when the broader markets wherein they function are saturated.

“This is a very healthy transactional relationship,” stated Tristan van Strien, world investor relations director at Heineken of the connection with China Assets Beer. “They need us and we need them.”

Heineken’s progress charges “have undoubtedly outperformed”, stated Euan McLeish, an analyst at Bernstein. “None of the other premium brands have been talking about double digits.” 

China’s general beer market is in decline. Gross sales fell an estimated 4 to five per cent final 12 months amid issues over shopper confidence.

However for China Assets Beer, whose gross sales dropped 2.5 per cent in 2024, Heineken is a pick-me-up.

Its take care of Heineken gave it rights to the Dutch beer in China for an preliminary 20 years, in change for a stake in one in all its holding corporations that provides Heineken an efficient curiosity of about 21 per cent in China Assets Beer.

The lager, beforehand primarily bought in two southern provinces, was rolled out throughout the nation. Progress has been speedy, helped by sponsorship of occasions such because the Shanghai Components 1 grand prix in March, the place 500ml servings have been on sale for Rmb40 ($5.5).

A 500ml serving of Heineken in China prices a median of Rmb12-15 ($1.67-2.08), in keeping with Morningstar, although costs fluctuate considerably throughout areas and from bars to outlets.

Heineken has grown by “leveraging the distribution network of China Resources Beer”, stated Jacky Tsang, an analyst at Morningstar. 

China Assets Beer, whose native Snow beer is the nation’s best-seller, is utilizing Heineken to push into China’s premium market — typically outlined as beers that value a minimum of 20 per cent greater than the typical.

“The overall beer volume in China is on a gradual decline trend,” stated Tsang, which means China Assets had “to go after price growth to drive profit growth”.

Heineken’s progress, from a low base, contrasts with different western manufacturers, which have additionally typically positioned themselves as premium choices in China.

Danish brewer Carlsberg, which has about 10 per cent of China’s beer market, reported that gross sales edged 1 per cent decrease final 12 months. Jacob Aarup-Andersen, chief government, stated final month the market had been “structurally declining” for 15 years, however there have been nonetheless “ample growth opportunities”.

Anheuser-Busch-owned Budweiser, which, not like Heineken, has constructed a big distribution community in China, has additionally reported declining gross sales.

Competitors between the 2 “is viewed as a winner-takes-all celebrity death match in the mind of many investors”, stated McLeish, in reference to the still-developing premium market.

It now takes simply 37 minutes of labor for the typical Chinese language to afford 500ml of premium beer, Bernstein estimated, in contrast with nicely over an hour a decade in the past — near a worldwide definition of affordability.

“We think in 20-year cycles, and this is the premium development cycle that’s happening in China,” stated van Strien, who added that “premium beer tends to do really well” in downturns.

“You’re not talking about a huge capital outlay for someone to have a nice sociable evening.”

For McLeish, China Useful resource’s technique poses a threat to “brand positioning” if the speedy enlargement has an opposed impression on worth and its premium standing.

China Assets Beer “does not really have experience building premium brands” however “if they had taken their time . . . the growth rates would never have been nearly as fast”, he stated.

Kevin Leung, investor relations director at China Assets Beer, stated there have been some promotions however no “significant price drop on any Heineken product”.

There are different dangers. Heineken’s publicity to China Assets Beer’s falling share worth led it to take a €874mn impairment cost final 12 months, at the same time as its personal volumes sharply elevated.

The Dutch firm doesn’t disclose its dividends and royalty revenue from the deal, however stated its share of revenue from China Assets Beer and its royalties from China equate to about 6 to 7 per cent of web revenue globally.

Van Strien stated volumes grew sooner than 20 per cent within the first quarter of this 12 months, and that in the identical interval, volumes of its Amstel model doubled.

The take care of China Assets had “no planned endpoint”, stated van Strien. “The reality is, having a local ownership is often a good thing for us,” he stated.