‘Diversified business’ pushes China rebound

21st September, 2015 by Richard Woodard

The anti-extravagance drive in China is a well-documented tale. But big producers are now forming a more nuanced approach to the Asian market, and it seems to be taking hold.

Asia-Pacific

Producers have been forced to radically rethink their tactics in China over recent years

Asia-Pacific – or more particularly China – has been the source of some pain for the leading spirits players over the past two or three years. Now there are signs that the worst of the agony may be over – but it looks equally certain that the trading environment will never be the same again.

The “new normal” in China is one devoid of the rampant gifting culture that persisted in the past – at least where government officials are concerned. Most observers believe this more puritanical attitude will last for at least a decade, if not longer. Now companies that spent much of the five years prior to late 2012 vying to outdo each other with increasingly extreme luxury offerings have had to redirect their efforts towards something rather more mundane.

Interest in younger vintages

“The high inventory level of Cognac in this market appears to be going down,” says François Le Grelle, CEO of Hine. “The current demand for younger expressions may give an indication of future trends.

“Chinese consumers are starting to move away from the XO and above categories to more affordable and less ‘ostentatious’ alternatives. We believe that we will see a progression of the younger products within our range.”

Pernod Ricard’s reliance on Martell in China has proven an Achilles heel in the recent past, but a relative resurgence around Chinese New Year (CNY) in 2015 has eased at least some of the tension.

The company estimates that Martell CNY sales were up by about 13% in the crucial Tier 1 and Tier 2 cities, helping lift brand sales by 5% in the financial year-to-date.

But volume and value growth tell a contrasting story. Martell Noblige, which sits between VSOP and XO, has enjoyed double-digit growth in the year-to-date, and now accounts for roughly one-third of Martell’s business in China. Martell Distinction, an inhabitant of the new (to China) sub-VSOP segment, is also growing strongly, although neither can make up in value terms for the losses incurred by XO, Cordon Bleu and other high-end expressions.

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