Hong Kong's craft beer sector grows, but real prize may be few miles away

HONG KONG (Reuters) - The number of craft beer brewers in Hong Kong has risen to more than 35 from none five years ago and many are betting on China’s expanding market to fuel sales, especially as the mainland develops an economic zone just a few miles away.

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Under the Greater Bay Area initiative, China is planning to integrate nine southern Chinese cities with Hong Kong and Macau to create a region with a population of about 70 million and an economy that would be the world’s fifth-biggest by 2030.

That is a tempting prospect for these specialist beer makers. The sales volume of some craft brands in China is currently growing at well over 100 percent a year, according to Ben Cavendar at China Market Research Group in Shanghai.

“So the growth is pretty significant,” he said, adding that major brands are starting to buy up craft breweries to help their expansion in China, the world’s biggest beer market by value.

Typically, craft beer is made by small and independent breweries that use traditional or innovative ingredients and is sold at a premium to the broader market. The sector has taken off globally in recent years.

Hong Kong’s overall beer market, expected to see sales of $569 million in 2018, is forecast to grow more than 4 percent annually between 2018-2021, statistics portal Statista says.

Gweilo Beer (Hong Kong) Ltd, one of the largest craft brewers in Hong Kong, is one company setting its sights on the Greater Bay Area. The three-year old company has expanded in Singapore and plans to sell its brand in Thailand but the Greater Bay Area is a massive market on its door step.

“There is a high beer per capita consumption across the Greater Bay Area and we see the shift to craft beer expanding across Asia,” said Joseph Gould, one of the three founders of Gweilo - once a derogatory Cantonese term for westerners but now considered less offensive and widely used by westerners and Cantonese.

The volume of total beer sales in China is expected to shrink this year due to shifting consumer tastes. But the premium beer segment, which includes craft beer, has grown by double digits annually since at least 2012, according to market research group Euromonitor.

Major brands, such as Carlsberg CARLW.ULCARLb.CO and Anheuser-Busch Inbev NV ABI.BR, the maker of Budweiser and Corona among other beers, are also looking to develop their own range of craft beers for sale in China, creating some significant competition for the Hong Kong independents.

Paul Davies, Carlsberg’s vice president of Craft and Speciality Beer, said the group was bullish about China and was looking to expand its craft beer business with new brands such as its recently developed HK Yau.

AB-Inbev, which has added four craft breweries globally over the past year, including Boxing Cat in China, said it had developed a business unit specifically to target craft beer.

Toby Cooper, owner of The Globe pub in Hong Kong’s thriving Central district, said the city had potential to be a unique beer destination.

Local tropical fruits lychee and longan, as well as Hong Kong honey, are some flavours being used by local brewers in craft beers.

“Many local breweries are using local flavours and local ingredients that create ... Hong Kong craft beer as an identity rather than imitating the American, the British style,” Cooper said.

Reporting by Donny Kwok; Writing by Farah Master; Editing by Anne Marie Roantree and Neil Fullick