|Greg Koch, Stone Brewing braintrust (right) with his China team.
This is a fact not lost on the brass at Stone Brewing, which has been eyeing the planet’s most-populated country for some time and is in the opening stages of a roll-out that will bring the Escondido-based company’s largely hop-centric beers to that nation in an effort to cash in on a largely-untapped market.
“Craft beer is a global phenomenon. The [world] is made up of a portfolio of markets; some are small and growing, while others are large, meaningful and more mature,” says Stone CEO Dominic Engels. “China represents a frontier for craft beer. It’s small and growing, but the potential to be significant one day is high. We see a lot of the same fundamentals in Europe, too. It’s well known that the Nordics and the U.K. are established craft-beer markets, but the rest of greater Europe is still in its craft nascency.”
Stone would be more qualified than most to comment on the state of craft in Europe, having established a full-scale brewery and restaurant in Berlin, Germany, in 2016, plus beer distribution to multiple European countries. In entering China, Stone (the country’s eighth-largest craft-brewery by production volume as of the close of 2017) is taking a much more calculated, smaller-scale approach. Rather than produce beer in China, Stone has established a distribution plan that will ensure its beer is kept cold from its warehouses, over the lengthy voyage across the Pacific, all the way to its end destinations.
Stone is also considering opening additional locations, as well. Sources within the company note Hong Kong and Beijing (which recently hosted the fourth edition of the popular Beijing Invitational Craft Beer Festival) have been discussed along with constructing one or more venues in Shanghai, though nothing has been finalized. Additionally, Stone has established relationships with “cornerstone bars” across China they are satisfied will take proper care of its beers and those of its distributed brands.
“We see a lot of opportunity in China to establish the gold standard for craft beer. This is explicitly a quality-over-quantity approach. That’s the only way we know to guarantee end-to-end quality,” says Engels. When asked about the pacing for the debut of additional Stone venues in China, Engels says the company expects to see progress on that front in the next two-to-three years.
Entry into China was facilitated by VMG Partners, the consumer-product firm that made an initial investment of $90 million in Stone in 2016, gaining an ownership stake in the process (which has grown an undisclosed amount in the past two years but Stone management states is still a minority stake). Stone’s business entity and identity were established along with an import-export business for alcohol similar to Maui | Stone Distributing arm, which was established in 2014 to ship continuously-refrigerated beers of the Stone Distributing Co. portfolio from California to Hawaii.
“Largely due to social media, news about new beers is virtually everywhere at the same time and China is no exception. The inner circle of craft fans knows about every unicorn beer or brewery anywhere in the world, and they want to have those beers too,” says Engels. “China’s beer-drinking culture is changing with some of the same dynamics that are shaping the U.S. [China’s] scene is now made up of local Chinese craft brewers, foreign-born Chinese that are coming back to China to brew beer, and international craft brands. This expansion, while less in volume, is much greater in value. It’s all happening at once, which makes it very exciting.”
When asked about potential impact of hard-line international tariffs between China and the U.S., Engels says they are not yet a cause for concern. The company is bullish on China, which in numerous ways would seem a better fit for Stone than Europe, where tradition and other factors can make it more difficult to gain traction with consumers less ready to select American product over legacy brands of their homelands. Due to a number of factors, including centuries of established drinking culture, the European market lacks major demand for American craft beer, whereas China is historically open to discovering and purchasing fine consumables from other countries.
Still, it will likely take a significant span of time for Stone to become successfully ingrained in the Chinese marketplace, but Engels says they are in it for the long haul. “We are already seeing a commercial return from engaging in this work. We have a long-term view—much like Europe—and we have patience and staying power.”
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