Baijiu brands have been working with ‘eyes shut’

While sales of high-end baijiu continue to plummet amid China’s on-going austerity measures, this decline has “challenged the complacency” of producers.

China’s slowing baijiu market has actually been positive for international distributors, says Manny Burnichon

According to Manny Burnichon, founder and CEO of Private Cask Imports, which handles baijiu brands including Moutai and Shui Jing Fang in the US, before the downturn baijiu producers were “supporting their brands with their eyes completely closed”.

“For a long time, Chinese producers have been selling vast amounts in an easy territory,” he said. “ Before they were overly confident, but they don’t know how to tackle the US market.

“A lot of brands were trying to replicate what they were doing in China by using a mass market approach, when in fact they are in infancy in the rest of the world so their approach has to be different and more targeted.

“That was our main challenge at PCI – to convince them to understand our needs.”

The decline of the baijiu began in 2012 when the Chinese government announced a crackdown on extravagant spending and gifting among politicians and the military in order to counter claims of corruption.

As a traditional gifting item, sales of high-end baijiu, some of which are part-owned by the Chinese government itself, began to rapidly decline, meaning producers resorted to deep discounting.

According to figures by the IWSR, in 2013 volumes of baijiu continued to grow to 1.17bn nine-litre cases from 1.16 in 2012, however the value of the spirit fell from over US$92bn in 2012 to US$83bn in 2013, indicating a trend of heavy price reductions.

Write down of Shui Jing Fang

Meanwhile, when UK drinks giant Diageo announced its full year financial results for 2013/14 in July, the group revealed it had been forced to write down the value of it Shui Jing Fang brand by £264m.

However, Burnichon said that while baijiu brands are suffering in the short-term this is positive for the longevity of the category as producers are seeking to expand their international presence.

“Overall, producers are optimistic, the baijiu market in not in a stage of crisis yet because they have done so well in the past few years,” he said. “However, they are concerned and are trying to plan for the future.

Burnichon said that while the US is the largest western market for baijiu, the spirit has historically been consumed by its Chinese diaspora, but brands are “looking to expand outside of China Town”.

He added that PCI estimates that through the education of bartenders and enthusiasm of “early adapters”, baijiu will become part of the western world’s permanent drinking repertoires in five to 10 years.

“But It will be a humble level in terms of volumes outside of China. I believe in a bright future, but not a mass market future. Noone will suddenly switch to baijiu from vodka or whisky. It will remain an exciting novelty.”