Only a few years ago finding craft beer in Taipei was a bit of a challenge. Only a handful of bars had them in stock, and even fewer offered craft beer brewed in Taiwan.
Nowadays, you could hardly throw a rock in Taipei without knocking over someone’s Cucumber Islander Sour, Pumpkin Spice Ale, or Munich Dunkel. The business of craft beer – beer brewed in small batches by independent brewers – is booming in Taiwan, with new breweries, brewpubs, and bars continuing to open. At last count, more than 25 independent breweries were operating on the island.
“There’s a lot of beer entering Taiwan right now, incredible amounts being imported and being made here,” says Mark Poppelwell, founder of BeerGeek Micropub Taipei, who has been involved in the local craft beer market for the past five years as both a bar owner and distributor.
Kai Strohbecke, a senior executive at a leading international technology firm did an in-depth analysis of the craft beer market in Taiwan for his dual-degree Executive MBA with Beijing’s Tsinghua University and international business school INSEAD. In this thesis, Strohbecke observed that the “local beer market is at a tipping point, and craft beer will soon be a significant and highly attractive segment of the local beer market.”
Comparing the current market in Taiwan to the situation in the United States in the 1980s, Strohbecke noted that in Taiwan, a small but growing legion of homebrewers, microbreweries, and passionate beer connoisseurs is currently reshaping public perceptions of what beer should be, and is gradually but inexorably advancing the cause of fresh, crafted beer over the mass-produced variety.
Yet uncertainty remains as to whether sufficient demand for craft beer exists in this market. “The business side of the craft beer scene is very eager and is taking a lot of giant leaps,” says Poppelwell of BeerGeek. “We just have to make sure that there are enough customers.”
Beer sales in Taiwan in 2015 amounted to US$2.5 billion, compared to US$12.9 billion in South Korea and US$35.1 billion in Japan, according to market analytics firm Euromonitor. These differences are partially explained by Taiwan’s smaller population, but it may be more significant that drinking-age Taiwanese adults drank around 25 liters per capita in 2015, compared to over 50 liters for Koreans and nearly 60 liters for Japanese. Even Chinese outdrink the Taiwanese, exceeding 40 liters per capita in 2015.
Beer prices in Taiwan are average for the region, around NT$150-200 (about US$5) per pint/500ml, roughly equivalent to prices in South Korea and Japan, although far lower than Hong Kong’s average of US$7 or Singapore’s US$14. Modest prices and moderate beer drinking result in annual per capita expenditures of only around US$100 in Taiwan, compared to over US$300 in South Korea and nearly US$400 in Japan. The high prices in Hong Kong and Singapore, where annual per capita consumption mirrors Taiwan, bring annual expenditures to US$250 and nearly US$400, respectively.
In the United States, by contrast, consumers drank over 100 liters of beer per capita in 2015, spending around US$4 per pint, for an annual expenditure of over US$450.
Despite the small market size, craft brewers find cause for optimism in the declining dominance of Taiwan Beer, produced by the government-owned Taiwan Tobacco and Liquor Corp., combined with forecasts for slight increases in consumption and a growing tolerance for higher prices. (Euromonitor forecasts a rise in average prices to US$6/500ml by 2020.) Taiwan Beer’s market share has dropped dramatically in just the past few years, falling from nearly 80% in 2009, according to Taiwan’s Ministry of Finance, to what Euromonitor puts at just 63% by volume in 2015.
Big-brewery imports comprise most of the remainder of the market, with Heineken alone commanding some 18%. But high-end imports, including craft beers, as well as locally made craft beers, are rapidly gaining prominence. The craft beer segment is still so small that it doesn’t yet register on Euromonitor’s metrics, which records the category of “Other” as taking a 1.7% Taiwan market share. A 2014 report by the U.S. Foreign Agricultural Service estimates that Taiwan’s craft-beer segment has been growing by about 20% annually in recent years.
Another reason for optimism is that Taiwanese tend to enthusiastically follow international trends and embrace global brands, particularly those from the United States. Craft beer sales continue to surge in the United States, rising 16% alone in 2015, and now account for a 21% share, worth US$22.3 billion, of the total market, according to the U.S. Brewers’ Association.
This optimism, however, glosses over the very real challenges that any particular brewer or pub owner might face trying to succeed in the market. As Strohbecke cautions: “Most current local craft-beer makers have pursued marketing and brand positioning strategies that are not necessarily optimized for sustained success in the market.”
Craft beer is not exactly new in Taiwan, dating back to liberalization of the laws in 2002 to open the market to imported beers and independent breweries. Several breweries that started in those early years, including the popular Jolly and Le Blé D’or brewery-restaurant chains and North Taiwan Brewery (NTB), continue to operate.
The initial burst of interest in the market failed to build momentum, but the early entrants paved the way for the current wave by establishing several independent breweries that operate as “contract brewers.” The leap from home brewer to commercial enterprise is expensive, and the existence of contract brewers enabled most of today’s crop of craft brewers to get started without substantial investment in manufacturing capacity. It also helped them get their product into the market quickly, allowing them to concentrate on perfecting their recipes and then on sales and marketing. Among the leading contract brewers are DB Brewery and USB Brewery, both located in Taoyuan.
Brian Curran, owner of Highway 11 bar in Dulan, Taitung, as well as the craft beer brand of the same name, says that “the barriers to entry are pretty high,” noting the stringent regulations governing ventilation, capacity, and waste disposal. “The official equipment that will get you a license to start a brewery – that stuff’s not cheap,” he notes, and the capacity requirements were higher than the demand he anticipated.
Jagger Su, owner of craft beer bar/restaurant bEEru, says that employing a contract brewer allows him to offer more complicated beers likely to be beyond the capability of a novice brewer. Beers come in essentially two types: ales and lagers. Since the invention of beer 5,000 years ago in ancient Sumer (and some suggest even earlier), most beers have been ales, brewed from wild-origin Eurasian yeasts that ferment grains and sugars into the mildly alcoholic drink.
Lagers, which now comprise more than 80% of the global market, weren’t developed until the 16th century in Germany. Despite their poor reputation in the craft-beer scene, lagers are actually more complicated to make, as they are cold-fermented from yeast strains that seem to have originated in the Patagonia region of South America (although that is disputed). Employing the services of a contract brewer, Su says, allows him to offer two lagers, one of them a Pils or Pilsner (so-called due to the malts that derive from the city of Pilsen in the Czech Republic), along with a more typical craft beer, a pale ale.
Yet employing a contract brewery also has its drawbacks. As Strohbecke notes, the variable costs per batch are higher, and the lack of control over the brewing process can lead to issues with quality control. Most crucially, though, owning a craft-beer brand but not a brewery may cast doubt on whether the product is a “real” craft beer. Many of the breweries that started operations by using a contract brewery have since taken the leap to engaging in their own production.
Redpoint, for example, now operates its own brewery in an industrial zone in Taoyuan (breweries are considered industry in Taiwan, and in most cities and counties can only be located in industrial zones). According to Redpoint co-founder Spencer Jemelka, operating its own brewery has allowed the company to reduce costs and increase revenues, leading to lower retail prices. “People are surprised at how affordable our beer has become because of the new brewery,” he says. The price of a pint of Redpoint’s LongDong Lager has now dropped to NT$150 in many bars in Taipei, comparable to Taiwan Beer prices, while its TaiPA ales now retail for NT$180-$220.
Jemelka says that eventually building their own brewery was always the plan from the time he and Doug Pierce established the brand in 2014, based on the anticipation that craft beer was on verge of a boom. High investment costs and the risk of excess capacity, however, will likely deter many brewers from operating their own facility.
Getting the beers to market is another challenge. A number of breweries have opened their own pubs to provide a retail channel. Zhangmen Brewing Co., for example, operates its own brewery in New Taipei City and three pubs – on YongKang Street in Taipei and one each in Taichung and Kaohsiung. #23 Brewing Co. also recently opened up its own pub, called 23 Public, and the Beer and Cheese pub offers beers brewed by affiliated breweries 886 and Evil Twin. BEEru likewise showcases its beers through its pub/restaurant.
Other brewers, such as Redpoint, are opting to sell their beers directly to the retail sector, which is allowed in Taiwan, unlike the United States, providing more flexibility in terms of marketing and sales. Recent startup Sambar Brewing likewise employs the model of direct sales to “on-trade” retailers such as restaurants and bars.
55th Street Brewing Co. focuses on Taiwan’s plethora of coffee shops. “There are so many small and independent coffee shops in Taipei,” says founder Jack Yu. “They have to distinguish themselves, and selling craft beer is one way.” He adds that many of the youthful “hipsters” that frequent coffee shops are also a key consumer demographic for craft beers. Comparatively loose regulations that permit coffee shops to sell beer without a liquor license also help.
Strohbecke notes the risks and rewards associated with both channels. Selling through third-party on-trade restaurants, coffee shops, and bars makes it harder to stand out among the dizzying array of craft beer labels, both imported and locally brewed. Building brand value and loyalty in such circumstances is difficult, says BeerGeek’s Poppelwell, who notes Taiwanese consumers’ interest in novelty. “They want to try all the new brands coming out,” he says. To stand out, brewers are getting increasingly creative with their labels, and few will be surprised to learn that cutesy, cartoony labels can help move product off shelves in Taiwan.
Owning a pub to market the beer not only allows the brewer to keep more of the profits but supports brand building – something Strohbecke considers crucial in an increasingly diverse market. Citing the success of Starbucks in popularizing a foreign brand and drink in Taiwan, he observes that the comfortable environment in the shops, combined with the hip, aspirational brand, are at least as important as the actual coffee. On the other hand, the demands of managing a bar are quite different than those of running a brewery, requiring specific skills and carrying different risks, all of which might distract the brewer from the core mission of brewing excellent beers.
In Taiwan, 75% of all beer is sold through “off-trade” channels such as supermarkets and convenience stores, but so far few of the local craft brewers have been able to meet the stringent requirements of the off-trade market. While charging substantial sums, convenience stores demand low prices and high turnover to justify the shelf space, and brands will quickly be replaced if they don’t perform. Steve’s Kraft Brew is one of the few local craft brewers to carve out a niche in the off-trade market, with beers sold through Costco as well as Family Mart. This feat is exceptional, however, and less than a quarter of the craft beer in Taiwan is sold through off-trade shops, and nearly all of that is imported.
Considering the relatively small size of Taiwan’s beer market, many of the brewers are targeting exports as the source of growth. Roland Bloch, founder of Bloch Brewing Co., in fact is not aiming at the Taiwan market at all, despite brewing his beers in Bali, New Taipei City. “There’s no need for (selling) it in Taiwan,” he says. “They are already importing so much craft beer.”
Instead, Bloch is selling to Japan, Singapore, and Hong Kong, with an eventual plan to export around the globe. Trained as a brewmaster in Munich, Germany, Bloch was brewing beers in Japan when the Fukushima nuclear disaster happened, and he wrongly assumed that Japan would no longer be a major source for consumer goods. He then looked for another location for “a facility that met my standards and I was lucky to come here.”
Bloch operated through a contract brewer before establishing his own brewery. But after winning the World’s Best Beer award and ASEAN’s best fruit beer and best bitter, all in 2014, he found he needed a bigger operation. Word of mouth led to a partnership with another craft brewer, Magic Aladdin, founded by former rice wine maker and industrial engineer Beer Cheng. Magic Aladdin had actually started as a manufacturer of brewery equipment and established its own craft-brew line as a way to showcase the equipment.
Recognizing that large-scale equipment sales don’t come along every day, the firm has since renewed efforts to produce craft beer at its Bali facility, which doubles as a machining shop for manufacturing brewery equipment. The partnership consists of Bloch brewing Magic Aladdin’s beers in exchange for access to the manufacturing capacity for his own line. According to Bloch, this arrangement, as well as hiring a new brewmaster from Ireland, will allow him to spend more time on international sales and brand development.
Redpoint, North Taiwan Brewery, Sambar, and others are also either currently exporting or are mulling plans to do so.
One brewery that seems to be taking on the challenge of being a major contender in both the Taiwan and international markets is Taihu Brewing. Taihu – the name means “Taiwan Tiger” in Chinese – employs over 50 staff and operates two breweries, including a multimillion US dollar facility in New Taipei City. It also has three “Tasting Rooms” in Taipei where it offers 20 different craft beers on tap, both imported and self-brewed. Peter Huang, Taihu president, says that along with the local market, the company is focused on delivering a quality, luxury product to the global marketplace, and has already developed strong relationships with distributors in the United States and China.
The craft-beer market looks sets for strong growth, with a variety of business models and beer styles to keep beer lovers excited. In the end, though, as Poppelwell observes, it’s not really about a label, but about the consumer’s own taste. “There are some very good beers out there and they don’t all necessarily have to carry the word ‘craft.’” he says. “Drink what you like.”
The News Lens has been authorized to repost this article. The piece was first published by Taiwan Business TOPICS. (Taiwan Business TOPICS is published monthly by the American Chamber of Commerce in Taipei.)
TNL Editor: Edward White