Will China’s gifting clampdown damage international spirit sales?

11th September, 2013 by Chris Mercer

Distillers’ jangling nerves have temporarily dampened the sound of clinking glasses in China, but no one is taking their eyes off the long-term prize.


The future looks bright for international spirits in China

Did you really think it would be that simple? Like all the best films, China’s plot is twisting like an Olympic contortionist in 2013, faced with a slowing economy and the well publicised government clampdown on ‘gift giving’ and hedonistic banqueting by officials.

High-end local baijiu players Moutai and Wuliangye have seen their stock price tumble. Pernod Ricard has raised some concern about slowing Scotch sales, and even the Cognac surge has softened.

But don’t be fooled by those relishing the prospect of an alternative ending to China’s story. Sales of imported spirits are still growing. Longer-term, Chinese consumers appear willing to expand their repertoires, and distillers remain committed to extending their reach in the country.

Emerging categories are beginning to chip away at the duopoly of blended Scotch and Cognac. “We know there’s a slowdown, but we are seeing double-digit growth in the single malt category,” says James Maxwell, regional director for Asia at Pernod Ricard’s Chivas Brothers.

Single malt minority

The group, which is enjoying success across Asia with The Glenlivet, estimates China’s market for single malt Scotch is a relatively tiny 75,000 cases, but expanding by 15% year on year. It’s notable that a relatively new arrival on the scene, Beam Inc, singles out Laphroaig single malt as a key growth brand there.

“Chinese consumers like to stand out from the crowd,” says Maxwell. It’s easy to get kudos “if you can drink something not seen or heard of before”.

He says that duty-free, in particular, is helping to showcase new drinks. “Chinese people are travelling more, and not just in the region. Those that are travelling are being exposed to a wider variety of brands and the younger generation are often Western-educated”.

Combine this inquisitiveness with a burgeoning middle class that, according to McKinsey analysts, will mean private consumption of goods contributes 51% of China’s GDP growth by 2030, up from 27% in 2010, and the scene is set for distillers to flourish.

That said, it’s still early days. International spirits only account for 2% of the overall market by volume. Diageo’s MD for Greater China, Joseph Tcheng, points out that vodka, for instance, is only 5% of international spirits volumes in China, and sales are only rising in low single digits. “We are seeding our vodka portfolio of Smirnoff, Ketel One and Cîroc in the modern on-trade,” says Tcheng.

If vodka has some yards to make up, spare a thought for gin. “We’ve done well with Beefeater 24, which really dials up botanicals from the region, such as Chinese green tea,” says Maxwell. “[But] ultimately, we’ll have a more difficult time in China with gin.”

One Response to “Will China’s gifting clampdown damage international spirit sales?”

  1. Jaroslav Sedlacek says:

    I was wondering if all the percentages that you have involved are including Hong Kong.
    Thank you

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