Diageo, AB InBev join hands on Guinness

Guinness beer expert Domhnall Marnell pours visitors a pint of stout during an advance preview of the Gravity Bar penthouse layout in Dublin, Ireland, March 7, 2017. [Photo/Agencies]

Diageo, the world's largest producer of spirits and a key producer of beer, has appointed beer giant AB InBev to become the exclusive distributor in the Chinese mainland of Guinness, Diageo's black beer, eyeing fast expansion of sales in the market.

The distribution agreement will last for a five-year term, subject to performance criteria, and will cover both the on and off-trade channels in the mainland, according to a joint announcement on Monday.

The two parties expect sales volume will grow 100 percent from the current 1 million liters to 2 million liters within one year.

About 10 million glasses of the black liquid are sold every day globally.

For Diageo, the strategic collaboration with AB InBev will help Guinness take advantage of the strong presence of AB InBev's distribution channels in the beer market, while Diageo has an advantage in spirit production and distribution in China.

The two did not disclose the expected growth target for the five-year term.

"China is the single largest alcohol beverage market in the world and the beer category is rapidly premiumizing. We would likely to fully tap the growth potential of Guinness as a premium product," said Chun Ho Chu, Diageo's managing director of China operation.

According to data of the National Bureau of Statistics, China's beer output in June 2017 was 5.09 million kiloliters, increasing about 6 percent year-on-year. In the first half of 2017, about 22.69 million kiloliters of beer were produced, growing 0.8 percent year-on-year.

"After three years of slowdown of beer production and consumption, the market is recovering, fostered by mid-and-high-end beer consumption," said a research note from Guosen Securities.

It is an obvious trend for consumers to demand more from the beer market in China beyond mass-market products amid a wave of consumption upgrades, according to John Hsu, vice-president of super premium brands of AB InBev China.

"The increasingly popular high-end products and craft beer are meeting demands of multi-scenario consumptions. What you demand for beer may vary" at home and at beach holiday, Hsu said.

As more consumers are getting increasingly savvy, the China market will also embrace wider varieties of alcoholic drinks, be they ale, lager, stout and cider, Hsu said.