Budweiser, Miller…and Tsingtao?

As part of its global expansion plan, China's leading beermaker aims to break out of the niche market in the U.S.

by Chi-Chu Tschang

Visitors degust Tsingtao beer at a bar in the Tsingtao beer factory in Qingdao, Shandong Province of China. Getty Images

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Crown Imports, the largest beer importer in the U.S., sells more Tsingtao beer every year during Chinese New Year than any other period. This year, it's been pulling out all the stops. Chicago-based Crown (a subsidiary of Constellation Brands (STZ)) has persuaded Costco Wholesale (COST) to carry China's most famous beer in several stores in Northern California and the Pacific Northwest on a trial basis during celebrations of the Year of the Rat, which started on Feb. 7. If Tsingtao sells well, Costco may consider stocking the Chinese import beer year-round. Crown Imports has also signed up celebrity chef Martin Yan to kick off a marketing blitz in a bid to expand Tsingtao outside Chinatown and into downtown U.S.A.

Tsingtao is China's oldest and most famous beer, with a 13% market share at home. Based in the northeastern city of Qingdao (the company uses an older system of romanizing the name for its brand; hence the different spelling), the brewery entered the U.S. market in 1972, shortly after Nixon's visit to Beijing started thawing Cold War relations between the two countries. It set up a beachhead in Chinese restaurants where it already had high brand recognition. The White House has served Tsingtao at every Chinese state leader's visit since Deng Xiaoping's in 1979.

However, after 35 years in America, Tsingtao has managed to capture only 0.04% of the U.S. market and is available primarily in Chinese restaurants and grocery stores. Tsingtao ranks No. 39 among imported beers in the U.S. "The U.S. market is a saturated market. It's not like China. Competition is fiercer," says Wang Zhiguo, general manager of Tsingtao.

Breakout Strategy

Like many other Chinese companies, Tsingtao has aspirations of becoming a global giant in its industry. Even though Tsingtao ranks among the top 10 breweries in the world in terms of sales volume, Tsingtao management realizes the company can't credibly be a global corporation unless it succeeds in the U.S. However, like many other Chinese companies that have tried their luck in America, Tsingtao has found itself relegated to a niche market in the U.S.

Sun Baohong, a Carnegie Mellon University marketing professor who has done case studies on Tsingtao's global strategy, says the problem with Chinese companies is that they have gotten very good at manufacturing products for export at low cost. But Chinese companies have been content to let multinational corporations, such as Nike (NKE) or Motorola (MOT) or Dell (DELL), slap on their brands and market the goods. Now that Chinese companies are starting to expand overseas, with their government's encouragement, they are finding their lack of brand-building experience is a huge liability. "Tsingtao is an exporter. It's not a brand-builder," she says. "If you don't give a brand, U.S. consumers give you a brand called 'Made in China,' and the majority of 'Made in China' products are low quality."

Two years ago, Tsingtao and Crown, its sole distributor in the U.S., took a hard look at its U.S. strategy and decided to retool it around a "moving out of Chinatown to downtown" campaign. "We're in all the Chinese restaurants. If a Chinese restaurant has a liquor license, we're in 99% of that," says James Ryan, executive vice-president at Crown Imports. "But the challenge is how do you get [consumers] to pick that brand up in the off-premise?" In 2006, Tsingtao introduced a second, lighter-tasting beer, Tsingtao Pure Draft, to target the 21-to-34-year-old beer-drinking demographic, particularly female customers.

With the number of Chinese restaurants in the U.S. declining, Crown and Tsingtao face a greater need to find new markets.