Molson Canadian Beer to China Essay

This paper will analyze a products potential to enter a foreign market. The product, Molson Canadian, is a well known and reputable Canadian beer with a rich history. For our purposes, we have attempted to formulate a plan for Molson Canadian to enter the Chinese beer market. Utilizing empirical data, statistics and research on the Chinese beer market, we have gathered significant information regarding entry into this market. After analyzing China as a country, their beer market and relevant business information, we developed an effective way for Molson Canadian to be introduced into the Chinese market. In addition, we have highlighted some potential opportunities and threats associated with this plan, thereby rationalizing the entry mode we have chosen. After all the information was presented, we concluded that the most effective way to introduce Molson Canadian to the Chinese market was to export the product, utilizing distributor and import contacts to have the beer sold at on-trade sites such as upscale bars and eateries. The following information provided explains our direction and reinforces our decision to enter the market in this fashion. Introduction. The beer brand Molson is one of Canada’s oldest consumer brand names and one of North America’s oldest brands. John Molson established Canada’s oldest brewery in 1786 near the St. Lawrence River in Montreal, Quebec. The Molson company has a range of beer selection including: Molson Canadian, a lager beer containing 5% of alcohol per volume, Molson Canadian Light contains about 2% of alc/vol, Molson Canadian 6. 0 Cold Shots (6% of alc/vol), Molson Canadian Sub Zero (it can served at temperatures below freezing through innovative technology) and its new Molson Canadian 67 (contains only 67 calories). Along with the Molson brand of beverages, Molson also owns the rights to other brands such as the various Rickards brands as well as distribution rights of popular imports such as Heineken from Holland. Molson Canadian is the company’s signature beer, using freshwater from Canadian lakes and the best quality barley in the recipe. Molson’s brewing methods do not utilize preservatives in order to maintain crisp, clean and fresh taste. Instead, they use traditional best methods along with skilled brew masters to ensure best quality from suppliers to retailers. As a result, Molson has received numerous awards in the past, including the gold for â€Å"North American Style Lager† in 2008. In 2005 Molson Brewery merged in equal parts with American brewing company Coors, forming the Molson Coors Brewing Company. The purpose of this report is to introduce a marketing plan for Molson to enter the Chinese consumer market. The main objective is to analyze and determine possible ways to successfully distribute Molson’s signature beer (Molson Canadian) to the Chinese consumer market. The next sections provide country and business analysis as well as the marketing mix in order to construct an effective and efficient marketing plan. Also, an action plan will be prepared to consider implementation of strategies and their associated budgets. Country Analysis China is located in eastern Asia and is the fourth largest country in the world. It borders a number of countries including Vietnam, North Korea, India and Pakistan. China also has the largest population in the world with more than 1. 3 billion (1,338,612,968) people. China also has several languages and dialects spoken throughout the country, but the major ones are mandarin and Cantonese. (CIA Fact book 2010) China is a communist state, however in the last 30 years the nation has gradually changed from a centrally planned economy to a more market oriented economy. This transition has benefited China because it opened its’ boarders to international trade, increasing the countries import/export figures dramatically over the years. In addition, the more open economic system allowed for an influx of foreign direct investment into the country. China’s rampant growth in the past 30 years is evident in the country’s economic statistics. 2009 country GDP numbers place China as 3rd overall worldwide in total GDP with $8. 791 Trillion (US$), only second to the European Union and the United States. (CIA Fact book 2010) This figure can be put into perspective however when analyzing GDP per capita where China places 128th worldwide with only $6,500 (US$), a figure which has been improving throughout the years. Although china is one of the fastest developing countries in the world, its’ government still faces several challenges including reducing corruption, sustaining adequate job growth rates and environmental concerns such as pollution. In addition, China has long been perceived by other nations as a country not up code regarding certain policies such as human rights and intellectual property rights. However, their inclusion into the World Trade Organization in 2001 has vastly improved their global standing and many joint and domestic initiatives have been undertaken to improve the perception of China globally. Rationale for Choosing China There were several key reasons for choosing China as our target market. China’s vast population was an influence because it provided a large potential consumer base. Another reason is the large demand for beer which continues to grow as middle and upper class income levels continue to rise in the country (Datamonitor 2004). In addition, several international beer brands have not managed to effectively penetrate the Chinese market. Therefore, if an international beer company in china survives an initial tough few years, it has the potential to make significant profits going forward. The beer industry in China will be analyzed in more detail in the following sections. Other important reasons for the selection of China was that its’ healthy trade relations with Canada throughout the years. China is Canada’s 2nd largest trading partner, only second to the United States of America with bilateral trade between China and Canada reaching over $50 billion(CAN) in 2009 (Statscan, 2010). Finally, notion that China is the fastest growing nation in the world and is predicted to be the world’s largest economy by 2025 had a significant impact on our selection. (Foreign affairs and international trade Canada, 2005) (See Appendix A) Environment of the Beer Industry in China â€Å"China is one of the world’s largest alcohol producers in the world and in the next few years it is expected to go surpass the United States as the largest alcohol producer in the world† (Newman, Ian 2006). China has a very large beer market worth around $6. 154 billion (USD$) and produced more than 26,244 million litres in 2004 (Datamonitor 2004). Both of these figures are significant increases from the previous year 2003. For the majority of brewers around the world, the Chinese beer market is too large to ignore and at times, too hard to grasp because of its complicity. China is viewed as the next big opportunity in the beer industry because its large population and its high economic growth is unmatchable elsewhere. However, many international brewers have failed to penetrate the Chinese beer market. This could be due to unfamiliar market dynamics and the presence of too many domestic beer brands in the Chinese market. Although many international brands have failed, some like SAB Miller have succeeded. It is believed that focus on quality brands and long term entry plans were contributors to the success companies like SAB Miller have had in the Chinese market. Some of the leading brewers in China include Tsingato brewery, SAB Miller, Fosters Group Limited and Noble China Inc. (Datamonitor 2004) Threats and Opportunities Having looked at the general environment of the beer industry in China, our focus will now shift to the threats and opportunities in the market. First, one of the main threats is the other large beer companies and breweries that we are going to be competing with, both domestic and international. Chinese domestic beer accounts for a large percentage of consumption in the country, and as an international product, we will be facing stiff competition from other international companies already present in the market. A less concerning threat is that the older demographics in China prefer to drink more wine than they do beer. This however is contrasted by the increasing popularity of beer in the nation. The biggest opportunity is the fact that the China has largest population in the world and also that it is the world’s fastest growing country. Another opportunity is that there is steady growth rate predicted in the next few years for the beer industry (Datamonitor 2004). Another key opportunity is that Chinese consumer’s value taste and reputation in their beverage products, we believe that Molson Canadian can cater to this need with our product implementation. (Industry Digest, 2005) On the technological side, the Chinese market has several domestic brewing companies in the nation. This could be very useful because the technology to produce beer in China is readily available. On the negative side, China incorporates strict restrictions on content through various media. For example, internet censorship is common in the nation, leaving marketers with limited when choosing which type of media to use for marketing purposes (Human Rights Watch, 2006). Socially, alcohol plays an important role in Chinese tradition and Chinese society as a whole. Alcohol is used in a lot of Chinese traditional festivals and celebrations, as well as it is also a very important part of Chinese religions. Alcohol can also be found in traditional Chinese medication and also used for cooking (Newman, Ian 2006). Market Buyer Characteristics Many of the beer buyer characteristics in the Chinese market are similar to those of Canada. First, gender plays a large role in that the majority of beer consumers are males. However, the female segment of the market has steadily continued to increase as china develops further, mainly due to increased spending power of Chinese women. However, this gender bias cannot be overlooked as the female segment of the buyers is very important because in some major cities like Beijing, women make up to around 30% of beer drinkers in the city. Most of the buyers of beer in china are between the age groups of 25 to 44, similar to the demographics found in Canada (Industry Digest, 2005). Another important aspect about buyer behaviour in China is that it varies according to the region or province. The same applies for the beer market in China, for example people from the southern regions of China drink more beer at bars an pubs and banquets whereas people in the northern regions are more likely to drink beer while dining because they believe that it ads flavour to their dining. Also in the south of China the climate is very hot so casual drinking as a means to cool down is common similar to Canada in the summer months. (Industry Digest, 2005) Furthermore, reasons why people buy beer in China are important aspect for marketers. For consumers in China, value and good taste are important characteristics that consumers tend to look for. These qualities of beer products precede the importance of other factors such as price and brand reputation. Brand loyalty to domestic brands is more common in certain locations such as Beijing, but brand loyalty overall in general is not a decisive factor for many consumers in the Chinese beer industry. â€Å"People between the ages of 16 to 44 who live in Guangzhou and shanghai, switch brands on a regular basis† (Industry Digest, 2005). Selection of and Rationale for Chosen Mode of Entry into the Target Country The entry mode that we have chosen for entering into China will be exporting through an import contact that will then use local distributors to sell our product. The reason that we have selected this option is that although there is a huge potential for companies to succeed in the Chinese beer market, there are still many risks of doing business in China. By choosing exporting as our first step, it allows us to reduce financial and investment risks. Many studies have shown that having a good relationship with the Chinese government and business owners is a significantly important factor for foreign companies to success in China (Owen, 2010). Therefore, before moving into further actions such as partnerships and joint ventures, we want to have Molson establish a good working relationship with the Chinese government. At the same time, this entry mode will also give Molson ample time to develop the relationship with potential Chinese partners, as well as get better understanding about the government regulations for foreign ownership of land & building resources. Last but not least, comparing this mode of entry to partnerships and joint ventures, exporting requires less finical investment. For example, Molson does not need to build factories or set up mass manufacturing operations right away which will save a significant amount of money right from the get go. In addition, if anything goes wrong initially, this entry mode allows us to withdraw the business from China much easier than if we had already established manufacturing operations in the country. Objectives. Due to the risks that beer companies are facing in expanding into the Chinese market, Molson Canadian wants to move slowly into the Chinese market. In other words, the company wants to test the environment first and then take the necessary steps to further the expansion process. First of all, Molson Canadian will establish the mode of entry which is the exporting strategy, and then the company will choose a well known Chinese beer company such as Tsingtao as our distributor, because this will reduce the uncertainties. While working with Tsingtao, Molson Canadian wants to ensure distribution networks are reaching desired locations for sale of product and look for other possible distributors and partners as well in order to get it prepared for our future development purposes such as joint ventures or partnerships. The next objective that we suggest is gathering forecasting information for potential future margin and feedback from consumers. This step will help us to make sure if the Chinese market is really worth to investing in and develop strong indicators to our customers’ preferences, in order to better serve our customers. During this stage, Molson Canadian will also be able to get more familiarized about the Chinese regulations related to the beer companies, especially for foreign companies. After the completion of this stage, the company will be able to develop plans for future operations based on the information that it has collected from before. If the information does not support the expansion, then Molson Canadian should stop developing, and possibly withdraw the business from China. If everything goes well, the company will pick the right distributors and partners that have been evaluated before to start the joint ventures or partnerships with local Chinese companies. The reason that we decided to do joint ventures or partnership eventually is that based on information from the Euromonitor International, which states by doing a joint venture it will allow foreign companies to gain local market knowledge â€Å"These joint ventures should provide foreign companies with a necessary foothold in the market which can, in the future, be exploited by their own products† (Euromonitor International, 2004). The last objective is to work towards generating steadily increasing profits in the future, which will be in more details in our action plan. Limitations There are also limitations that could affect Molson Canadians entry into the Chinese market. As we mentioned before, the uncertainty of the Chinese market is a huge concern. First of all, the government regulations and standards are different from what we have seen in the North American market. Based on the article written by Owen, issues included the â€Å" Chinese top-down approach to standards and conformance, Openness and transparency, Low confidence in private-sector standards setting and conformity assessment, and Inconsistent implementation creates uncertainty†(Owen, 2010) are all the concerns that Molson needs to pay attention. The second uncertainty is that the intense competition will be created by both local and foreign beers companies in the crowded industry. As represented by Euromonitor International, there are several foreign breweries doing business in this market now. Many of which have found that the market is more difficult to operate than they expected before entering the Chinese market. Problems included comparatively high production costs and a fragmented market, combined with oversupply, has caused a market slowdown which led many companies to cut their prices. Many of the companies have already chosen to exit the market and cut their losses (Euromonitor International, 2004). Criteria In terms of the time frame, we estimated that will take one year to complete the objectives from 1 to 3, which is also considered to be our primary expansion. As mentioned above this includes the establishment of the entry mode- exporting, develop appropriate distribution networks, and collecting forecasting information and feedback from consumers. The secondary expansion includes the envelopment future operating plans such as joint ventures or partnerships; after everything has been created our final goal will be work towards generating steadily increasing profits in the future. We estimated that will take 1 or 2 years to finish framing the joint venture or partnership structure. Segmentation For our segmentation we decided to focus on 5 main demographic criteria’s. We obtained basic secondary data based on the past buying patterns of Chinese and other Asian consumers. From that data, we sorted and decided upon with segments of the market we would test for. We based the selection of the criteria on hypothesis testing and concluded that only traits that that appeared consistently within two standard deviations (95%) of each segment’s sample would be counted; these demographics being on age, region, ethnicity, financial capacity and lifestyle within the 18 – 45 age range. For this analysis we have ranked them in order of popularity and difference in cost relative to other premium beers; from this analysis we have distilled this ranking system. * Molson Canadian Subzero is loved for its flash and fancy appeal * Molson Canadian Lager is popular for its strong distinct flavour * Molson Canadian Light beer is popular for its smoother taste and lack of a strong after taste * Lastly Molson Canadian ‘67 is the least preferred. This is due to the misconception that diet beers are more diluted than regular beers and that consumers are getting less for their money. From our demographic analysis of Chinese consumers of a certain demographic tend to prefer certain tastes to be present in their alcohol and while these preferences are not as potent in affecting purchase decisions as they would be in north America, never the less they are significant to warrant analysis and attention. Characteristic| Characteristic Related| Price| Westernized | Stronger Alcohol| More expensive| Traditional| Smoother Alcohol| Less Expensive| Sichuan | Stronger Alcohol| Less expensive| Han| Smoother Alcohol| Less expensive|. Tibetan| Stronger Alcohol| Less expensive| Southern| Smoother Alcohol| Less expensive| Northern| Stronger Alcohol| More expensive| Old | Stronger Alcohol| average| Young| Smoother Alcohol| Less expensive| (Data Extrapolated from China’s beer consumption and Barley imports) From our analysis we can conclude that as you move up north and become more westernized the taste for alcohol becomes steadily stronger and that people value alcohol more. We have found that there are many cultural factors that the affect the purchasing characteristics of each segment. Age: Age is a significant factor when incorporating this model, with younger generations preferring relatively cheaper products than the older generation. As China’s socialistic society progress, legislation has greatly altered the spending habits of consumers. Such like the 1 child policy has left a significantly smaller working force to support the country. With most average working couples supporting 3 generations simultaneously (Adams, 2008), this can impact greatly on the decisions regarding the purchase of the luxury items such as premium foreign beer. Region: In regards to region, there are smaller difference in the tastes and spending habits of northerners vs. southerners. While the South has a higher pay-grade than those of the north, historically the south has always been a more crowded and competitive place (Trent, 2009). Thus those living there adapt to have a more conservative outlook in regards to consumption and purchases. Contrary, while the average northerner earns significantly less money they are more likely to spend extra for what they want (Trent, 2009). Also cities along the coast tend to adopt more western ideals than those located on the interior of China. Ethnicity: While china’s population is 87% Han (Doan, 2008) there is a small population of minorities that also live in china. Though living in the same country this minority have significantly different tastes from your average Chinese. These Minorities include Tibetans, Wiggers and Manchus. Lifestyle: Since China has opened its doors to international products and cultures, there have been many Chinese that have adopted a more western-lifestyle. With Western styles often come more western tastes (Qingbin et at, 1998), in contrast to the smoother taste western-styled Chinese prefer a stronger tasting alcohol. Marketing Mix This section presents strategic alternatives that Molson Canadian should take into consideration, recommendation of the suitable alternative and implementation of marketing plan through the use of the controllable elements of marketing mix. Strategic Alternatives There are two strategic alternatives that Molson Canadian can use to expand its beer brand to Chinese consumer market. Molson Canadian can expand its beer brand to Chinese consumer market by exporting its product line on trade or off trade. Alternative 1: The first alternative for Molson Canadian is to export its product line on trade, meaning that their target locations for sale are establishments which serve alcohol. For our product, we want to target specifically high end restaurants, pubs and bars. High end restaurants, pubs and bars would offer high quality products; therefore the best quality beer would also be expected from customers. One of the main strengths of Molson Canadian is that they utilize high quality ingredients as well as a team of brew masters that make sure the beer follows the high quality standards, qualities that Chinese consumers would be drawn to. Additional strengths of Molson Canadian is that it offers product differentiation such as best quality barley and no use of preservatives for its production. Also, the products country image is perceived as good quality product since it is North American which means that the products symbolize Western civilization, status and modernity (Zhou & Hui, 2003). A weakness that should be taken into account is that Molson Canadian is not well known in the Chinese market, so it may be difficult to find consumers initially. However, opportunities in Chinese alcohol industry should be considered regarding this matter. For instance, an opportunity encountered is that there is an increasing demand for better tasting and premium products, meaning that premium beer sales will be more likely to increase in upcoming years (Euromonitor International, 2010). Also, another significant opportunity is that as consumers’ disposable incomes increase, consumers will be able to spend on leisure time such as going out to pubs and bars. In fact, there is a strong development of the consumer foodservice market, as well as, an increase of premium beer in forecasted years which accounts for 70% of total value growth from 2008 to 2013 in local currency (Euromonitor International, 2009). In addition to the above points, Chinese consumers are not price sensitive regarding on-trade places, indicating that premium and standard beer will become popular among the consumers (Euromonitor International, 2009). Lastly, a major threat towards this alternative is that the rise of prices for materials such as oil and energy can affect transportation cost. The National Development and Reform Commission (NRDC) had reported a price increase of RMB 1,000 per tonne for oil which is approximately equivalent to US$ 170 in 2008 (Euromonitor International, 2009). This means that there will be a need for adjustments in terms of price of beer to circumvent export costs to China. Alternative 2: The second alternative for Molson Canadian to export in China is to sell its product off trade. For this alternative, Molson Canadian beer should be sold in small grocery stores and/or hypermarkets. In order to better analyze this alternative for better profitability of the company, a mini SWOT analysis should be established. A major strength for this company is that the beer could be sold as standard lager beer to Chinese market with product differentiation. For example, the beer could be differentiated towards its high quality ingredients used in the production such as barley and hops and its high quality control standards. A weakness encountered in this option is that Molson Canadian is not a well known beer brand among Chinese market. An opportunity for selling Molson Canadian beer off trade is that this is main channel of sales accounting for 68% of volume sales in 2008 (Euromonitor International, 2009). Also, small independent grocery stores in rural areas account for 66% of total volume sales in 2008 (Euromonitor International, 2009). However, threats should also be taken into account for this alternative. A major threat there is high competitive market between domestic and foreign beer brands. In fact, the three top companies China Resources Enterprise Co Ltd, Tsingtao Brewery Co Ltd and Beijing Yanjing Brewing Corp accounted for 41% of total volume sales in 2007 (Euromonitor International, 2009). There are also two leading international companies participating in Chinese beer market which are InBev and Anheuser-Busch. Another threat encountered is that consumers are price sensitive towards beer in off trade channels as they have a range of beer selection as well as prices that differ from different brands issues (Euromonitor International, 2009). Recommendation. The best alternative for Molson Canadian is to target on-trade businesses, especially high end restaurants, pubs and bars. The main criterion for choosing this alternative was based on willingness to pay for high priced product. Also, Molson Canadian should consider the high competition with domestic and foreign beer brands in off-trade markets. In order to reach Chinese consumers, we have weighed the pros and cons of this alternative and believe that Molson Canadian would have the best chance for success by initially focusing on selling to high end restaurants, pubs, bars and so on. The first reason for this chosen alternative is that customers will pay for high quality at any price. The customers will pay for a product that provides better taste, healthier and premium packaged products (Euromonitor International, 2010) since their disposable income allows buying better quality products. In fact, according to China Alcoholic Association, beer volume production has increased 6 % in the first half of 2009 (Euromonitor International, 2010). Also, when beer is sold in high end restaurants, its price will be set much higher price than at grocery stores, so Molson Canadian can generate profit using this method. According to Euromonitor International (2010), standard and premium beer account for only 10% of total sales volume, but generate around 50% of total profits in China’s beer sector. One of downsides towards marketing on-trade is that it may be difficult to break into the market since Molson Canadian is not recognized publicly in China. Also, Molson Canadian may face fierce competition in Chinese on-trade markets. For example, Budweiser, Heineken, Tiger, and Carlsberg are the main multinationals that have majority of the premium beer sales on trade. This alternative is preferable to the other option since it provides the means to generate long term profit and on-trade customers will favour buying high quality product as their preferences change. Another reason for choosing this alternative other than off-trade is that grocery stores will offer a variety of beer brands that are cheaper and domestic Chinese brands, therefore consumers will have more general knowledge of the products available to them. Once the strategic alternative is implemented, there will be opportunities and challenges that should be relevant to Molson Canadian. A potential opportunity for Molson Canadian is to introduce Molson Canadian 67 which is a type of beer that contains only 67 calories. This is a significant advantage for this company since Chinese people are becoming more concerned about their health and wellness. In terms of challenges that Molson Canadian may face is that there will be competition within foreign beer brands such as Heineken that could affect Molson Canadian’s profitability. Implementation In order to execute the marketing strategy of exporting Molson Canadian beer to Chinese market in high end restaurants, pubs and bars, the company should consider the 4P’s of the marketing mix. First, the product provided is Molson Canadian lager beer by Molson Coors Brewing Company which is a high quality Canadian brand which Molson Coors will be able to sell its beer as premium brand because of it offers clean, crisp and fresh taste as well as the no use of preservatives. The price for Molson Canadian beer lager is planned to be high since most of target market in China is represented by medium to high income consumers. Consumers in high end restaurants, pubs and bars will able to buy a bottle of Molson Canadian lager beer for more than 20RMB or $3US(Eumonitor International, 2009) since high end restaurants will place their price three times its market price. For the promotional aspect of our product, Molson Canadian attempt to use practices similar to those found in the North American markets. The use of commercials and posters display the refreshing qualities of a Canadian lager beer will be a major focus of the promotional ads. However, unlike the Canadian and American markets where beer commercials incorporate sexual messages to sell their products, ads in China will mirror those of beverage companies already operating in the country. To do this, the sexual appeal found in North American type commercials will be replaced with the quintessential Chinese humor found very often in Chinese advertisements. In addition, another promotional campaign will be launched in China based on the current public relations department knowledge of Molson Coors regarding drinking and driving programs. This program will be shared with the government of China to increase awareness since drink driving is one of major factor causing traffic accidents. In fact,† according to the Ministry of Public Security, the number of road traffic accidents reached 107,193 during the first half of 2009, with the number of fatalities and injuries reaching 29,866 and 128,336 respectively† (Euromonitor International, 2010). This promotional tool will be helpful to reduce barriers that the government may place for Molson Canadian. Finally, another way to promote the beer brand is to provide an event marketing strategy since ‘international sporting, economic and cultural events are strong drivers for beer consumption† (All China Marketing research, 2008). For instance, Molson Canadian can potentially sponsor the 16th Asian Games in China which is taking place from November 12th to 27th, 2010 (Guangzhou Asian Games Organising Committee ,2010). Therefore, this sponsorship will bring brand awareness. Molson Canadian may have a backup plan if the sponsorship does not work out through donating a certain amount of money to the Asian Games event so then there will be also the brand name out there for consumers. A last marketing mix factor is place which could be achieved by utilizing the same distributors of Coors Light to d.