Aspirational drinking drives foreign spirit sales in Asia

While local spirits still dominate the volume end of Asia Pacific, affluent consumers are increasingly trading up to luxury imports, as Andrew Catchpole reports

International spirits account for just 6% of alcohol consumed in Asia – for now.

The spirits boom in Asia Pacific continues apace with growth in many individual countries within this vast corner of the globe in stark contrast to the flat, mature markets of the West.

International spirits may account for just over 6% of the estimated £94 billion for Total Beverage Alcohol (TBA) in the region, but the category is growing fast. The latest figures are up 8.5% for Asia Pacific as a whole, and an impressive 11% for emerging markets in the region. This is way ahead of growth rates for locally produced and traditional spirits.

Clearly, then, these are territories where the big international players will continue to redouble their fight to consolidate and grow their competing brands. To take a top-line look at the trends, the driver of foreign spirit consumption in the Far East can be broadly summed up as aspirational and premium-led, with Scotch whisky remaining the dominant category by a country mile, with 45% of the market.

Cognac holds on to an 18% share, while rum and vodka continue to deliver growth, accounting for 12% and 8% respectively. Market leaders Diageo and Pernod Ricard dominate sales, with both companies confidently predicting that they will continue to increase their penetration of the market.

This huge region is predicted to be the largest TBA net sales pool in the world. Rising populations are matched by rising wealth, coupled with aspirational drinking in line with a newly cosmopolitan and increasingly well-travelled middle class elite. With Diageo’s ‘Emerging Asia’ growth doubling its broader Asia Pacific growth, the figures speak for themselves.

Growing middle classes

China adds 22 million consumers to its ranks each year, with disposable income growing by14% between 2005 and 2010 and predicted to continue its upward curve.

Similarly India sees 19m new consumers each year, with 15% growth in disposable income recorded over the same period. Across South East Asia seven million new prospective drinkers join the market with a 13% increase in spend, while Korea managed just 0.6m, yet spending power within the country has increased by 7% over the past half decade. Moreover, much of this new consumer spend is increasingly targeted at the profitable premium and ultra-premium end of the spirits market, as James Maxwell, regional director for Asia at Pernod Ricard’s Chivas Brothers division, confirms.

“Consumers in the Far East are often focused on super-premium, prestige, ultra-prestige and beyond, so as the global leader in luxury Scotch whisky, Chivas Brothers is perfectly placed to satisfy these markets’ needs,” says Maxwell, whose company counts brands such as Ballantine’s, Glenlivet and Chivas Regal in its portfolio.

“Whisky drinkers in the Far East are aspirational and respect the craftsmanship involved in the creation of the product and appreciate that it takes care, expertise and attention to detail to nurture rare whiskies to great age,” continues Maxwell. “The increased demand for luxury whiskies is more evident in the on-trade and with young affluent adults that are moving away from more traditional on-trade customs and are looking for something new.”

Asia Pacific international spirits pool. Source: TBA estimates based on IWSR volume data and China Economic Information Network, via Diageo

Market leader

Chivas Brothers claims leadership in the fastest growing, longer-aged whisky sector, with 44% of the ultra-premium category and an 85% share of the ‘21 year old and over’ market. Examples include Chivas 18, which has witnessed a sevenfold volume increase in Asian sales since 2004 and Glenlivet single malt posting double-digit growth in Taiwan. Glenlivet’s sales in Korea, Hong Kong, China and Singapore are also reportedly going great guns.

Much of this growth is attributed to the ontrade, where spirits are typically bought by the bottle and, in the case of whisky, drunk neat. This allows and encourages brand recognition as drinkers flag up their premium tastes in the bar.

Staying with Scotch whisky, Diageo’s brands, including market leaders Johnnie Walker, Windsor and Singleton, have also performed strongly in the Far East. The company reports significant market share gains in Thailand and Vietnam in particular, followed by Japan, Malaysia and China, with Taiwan and Korea bringing up the rear.

Similarly, Diageo’s figures reveal that premium and ultra-premium Scotch is enjoying the fastest growth. With the Asia Pacific super-deluxe Scotch category growing at a healthy 8% year on year, the company is outstripping competitors with 19% growth across the Asia Pacific territories, 38% growth in emerging Asian markets and revealing a headline figure of 59% annual sales growth for Johnnie Walker Blue Label across the broader Asia Pacific Region.

Broadened audience

But it is not just the two drinks giants that are benefiting. For Sylvia Bernard of the French spirits group La Martiniquaise, “Asia-Pacific has been our group’s fastest growing area over the last three years and, in line with our expectations for this area, we have decided to increase significantly our investments. For our main Scotch whisky brand – Label 5, our top countries are Australia, China, the Philippines, Japan and Malaysia, with big expectations for Vietnam in 2013, where we have strengthened our distribution.”

Perhaps significantly, Bernard speaks of the opportunities to broaden the demographics and drinking occasions for international spirits. The idea is to engage with consumers in ways that persuade them to indulge in imported brands on a more frequent, everyday basis.

“Our challenge is to build the Label 5 brand with its successful international mainstream positioning and this means enlarging the target market and making imported spirits an affordable luxury experience. We need to engage consumers and interact with them, to be part of their daily life.”

Notwithstanding the dominance of Scotch, other premium spirits – most notably vodka, rum and Tequila – are also delivering good growth. Vince Santos, vice president Asia Pacific at Patrón Spirits International, is clear in his assessment of what is driving these categories in the Far Eastern markets.

“Consumers in Asia have a high appreciation for top-quality, sophisticated spirits, and that manifests itself not only in their drinking preferences, but also when it comes to gifting,” says Santos. “So, to many Asian consumers, distinctive and beautiful packaging of spirits is just as important as the high quality of the liquid.”

White spirit brands like Beluga vodka are noticing potential in Asia

Scotch aside

Patrón’s portfolio of spirits, including Patrón Tequilas and liqueurs, Ultimat vodka and Pyrat rum, are produced and marketed solely for the ultra-premium and luxury end of the market, so fit well with Asian consumers’ mores. Santos reports that Hong Kong, Singapore, Taiwan and the Philippines are among the fastest growing markets, again with Asia Pacific the fastest growing region for the business as a whole.

An interesting insight into the dominance of premium brown spirits in Asia is Patrón’s experience with aged, super-premium Tequilas, which echoes the model for Scotch consumption and sales.

“In terms of how Asia compares with other regions, our aged spirits are doing particularly well there because Asia has historically been a strong market for brown spirits,” confirms Santos. “Patrón Reposado, Patrón Añejo, and Gran Patrón Burdeos Tequilas are all aged in oak barrels, and so their taste profiles are very appealing to Asian consumers who enjoy spirits such as whiskeys and Cognacs.”

Among white spirits, vodka is also making inroads. Vladislav Tensin of Russian-based Beluga Vodka puts this down to a gradual evolution in drinking habits with brown spirits now so well established in Asian consumers’ repertoires. “We are just opening some markets in the area because we are a relatively young company, and the most positive results we expect are in China, South Korea and Thailand,” says Tensin.

“Our belief is that super-premium vodka consumption is growing in the Asia Pacific region, with some customers switching from brown spirits to white spirits,” he continues. “The younger generations, and especially women, are also interested in luxury vodka.”

Future success for white spirits?

With companies like Diageo and Pernod Ricard confirming this upswing in interest in white spirits – with the sales figures to match – many are predicting a sustained growth spurt similar to that enjoyed by brown spirits. It was the boom in Scotch and Cognac that elevated those spirits to the status of ‘most sophisticated’ drinks choice in the eyes of many Asian consumers.

As if to confirm this, the premium gin category has also been gaining ground, with Pernod Ricard’s Beefeater 24 a representative example, delivering double digit annual growth in markets such as Taiwan, Japan and Korea.

With international spirits of all hues experiencing such strong growth right across the diverse markets of the region, there is clearly much to play for. However, Bill Potts of the De Vere Group, which majors in distributing limited-edition, rare whiskies and Cognacs throughout Asia Pacific from its bases in Taiwan and Hong Kong, cautions that these markets can still present formidable challenges – especially to those entering for a first time.

“Prices are sky high for spirits, two to three times higher than in the UK, with the markets heavily dominated by Diageo and Pernod Ricard, and this can make it difficult for others,” he says. “Also, there is a lot of parallel and grey trading, plus a lot of counterfeiting, so gaining the right distribution partners and being able to protect the integrity of your brands and knowing where they are being sold is important if you want to build a sustainable future for your brands.”

For Potts and De Vere this means focusing on Japan, Korea and Taiwan (the latter also seen as a bridge to mainland China), carving out routes to market for small-batch and limited-release, high-end products. Get this right, and the rewards down the line can be very worthwhile indeed for those attempting to quench Asia’s thirst for premium international spirits.