Gender equality ‘key element’ in Asia Pacific spirits growth

After the fallout from China’s corruption clampdown, Asian spirits markets are finally following a trend towards growth, thanks to new consumers – most notably women and millennials – shaping the spirits sector.

Asia Pacific’s spirits market is difficult to read – let alone forecast for

Asia Pacific is a region that defies labels. From Japan to Australia, India to Vanuatu, the continent is home to more than half of the world’s population, with more than 2,000 languages spoken and myriad cultural nuances.

With such diversity it comes as no surprise that the region’s spirits market has proved tricky to read – let alone forecast for. The seismic shift that came from the Chinese government’s implementation of anti-corruption measures in 2012, and luxury spirits’ fallout from it, has been well-documented. But change is afoot.

If there was one noticeable theme running through the discussions behind this feature, it was a sense of optimism: the market has been shaken, yes, but it is stabilising, and now looks set to evolve with a different kind of growth.

Headline figures back up that narrative. Euromonitor puts total volumes – from all categories across the entire Asia Pacific region – up 4.4% to 12.6 billion litres in 2014 (the most recent full-year figures available). This is a staggering number, but take out the plethora of ‘other’ spirits – generally local market produce, accounting for 8.5bn litres – and it becomes clear that while optimism is building, the industry is still feeling a hangover from China’s clampdown.

China’s contagion

A mere four years ago, the Cognac and brandy category ratcheted up astonishing year-on-year growth of 24.7% in Asia – a spirited heyday indeed. Whisky, too, hovered near the double-digit mark – in fact every category was in growth. But so severe was the downturn that followed that the entire sector was forced into rewind; the anti-opulence movement in China effectively pushing the multinationals back west. No wonder the recent haul of financial results were accompanied by such fanfare.

Rémy Cointreau hailed “improving trends in China” as the catalyst behind its triumphant 2014/15 full-year 9% return to growth, while LVMH cited “better momentum” in China as a factor helping its Q1 results swell 4% on a reported basis. Paul Chin, Bacardi’s Greater China, North Asia and Oceania CEO, goes further still: “We believe the decline has reached the bottom,” he states, targeting “low single-digit growth” for the second half of 2016.

China’s vast market still leads the region in terms of total volumes, accounting for 5.5bn litres of consumption in 2014, according to Euromonitor. It’s also outpacing many other markets in terms of year-on-year development, posting 5.3% gains – positively vibrant compared with Japan (0.27%), Thailand (1.1%) and Taiwan (0.9%).

Cultural and domestic economic issues aside, should spirits producers expect the chequered growth part of the post-2012 ‘new normal’? While Cognac house A. de Fussigny escaped the brunt of market turmoil, Charles Mazeau, export and sales manager, still advocates a cautious approach.

“Things could have been much worse. Nonetheless the Chinese crisis did spread across the region and hit a few markets where we did have distribution.” He cites Taiwan and Malaysia as particular flashpoints. Mazeau says he has noticed improvements of late, although he believes the greatest gains have been skewed towards larger producers.

“Overall, South East Asia is a mixed bag, with a few countries doing well while some are slowing down,” details Bacardi regional president Asia, Middle East & Africa, Mahesh Madhavan. He pinpoints Indonesia, Vietnam and Myanmar as markets with noted growth potential.

While Tito’s Handmade Vodka claims growth in “all markets”, John McDonnell, the brand’s international managing director says that “Hong Kong and Taiwan have greatest penetration”, implying that the opportunity is not uniform. “We are hoping to launch in Japan and Malaysia in the third quarter of this year,” he adds.

The long-term perspective for Asia travel retail is said to be “extremely promising”

A consumption shift from higher to lower-priced expressions is one example of how the market has transformed, reckons Mazeau. But other demographic developments are shaping the newly reformed spirits sector, too. As the market becomes more accessible, new consumers are being drawn in – most notably millennials and women.

Generally recognised as younger consumers born from 1980 and up to legal drinking age, millennials are shaping various industries across the world with their increasing purchasing power and exacting shopping preferences. The Asian spirits sector is far from immune to the demographic’s rise.

Pernod Ricard Asia Travel Retail is “increasingly aware” of the importance of the group in the channel and is “committed” to delivering products to target this next generation of travellers, says Nadjame Fouad, marketing director.

One recent example is Martell’s collaboration with French DJ Etienne de Crecy and the resulting limited edition bottles. Diageo Global Travel Retail, too, is targeting the millennial demographic, this time with The Singleton. Peter Fairbrother, global marketing director, says the single malt brand’s “smooth, accessible liquid profile” helps “demystify” the category, with the “emerging segment of younger travellers across Asia Pacific” particularly in mind.

Women, too, are increasingly shaping the spirits trade across the region and suppliers would do well to meaningfully include them in their marketing plans. “A key element has been growing gender equality, which has seen more women in the workplace,” details Euromonitor senior analyst Jeremy Cunnington, looking at Asia’s vodka market in particular.

“This in turn has led to greater disposable income but also, particularly in Vietnam where socialising with work colleagues or clients is expected, greater female consumption. It also has been helped in Thailand, where there is less social stigma attached to women drinking.”

On-trade opportunity

The influence of both millennials and women can perhaps be most keenly felt across Asia’s on-trade, and the continent’s burgeoning cocktail scene. While cities like Singapore and Hong Kong have established themselves as bastions of haute mixology, others have been slower to tap into the culture – but this is set to change right across the region.

“The growing popularity of vodka and the cocktail culture in general in these markets [China, South Korea, Thailand and Vietnam] offers international distillers growth opportunities not just in vodka, but also other ‘mixable’ categories such as rum, Tequila and gin, resulting in further diversification of international distillers’ portfolios in new markets,” Cunnington continues.

Bacardi is one such distiller to spy the opportunity. “We expect growth from most of the Tier One cities – Shanghai, Beijing, Chengdu, Shenzhen and Guangzho – with the emergence of cocktail culture in these cities,” Chin continues. “This is benefited through the large number of Chinese tourists travelling abroad, and overseas Chinese students who are exposed to westernised culture.”

The Asian market is undoubtedly in a state of rapid transformation – where next for such a diverse, mammoth region trying to re-find its feet after such a period of upheaval?

Boldly examining emerging markets is Cunnington’s advice. He cites Uzbekistan and India as interesting geographies. While year- on-year volume growth – 10% and 3.6% respectively – is dominated by cheap, local brands, development points to future fruit as consumer tastes become more sophisticated.

Meanwhile, “the long-term perspective for Asia travel retail is extremely promising”, Pernod Ricard’s Fouad says. “Chinese outbound travel is forecasted to remain strong in 2016, with Japan and India leading the way as top destinations with favourable exchange rates.”

Or, as A. de Fussigny’s Mazeau concludes: “I look at the next couple of years with a lot of enthusiasm.” And as the market continues to recover from the knock-on effects of China’s anti-opulence drive, it’s a sensible stance – as long as no further shocks follow…