Asian spirits brands seek global expansion
The world’s most popular spirits – such as baijiu and shōchū – are massive in their home territories in Asia but are barely known to drinkers in the west. The Spirits Business finds out how Asian brands are planning to make inroads overseas.
*This feature was originally published in the May 2019 issue of The Spirits Business
Moutai, Wuliangye, Yanghe – few drinkers in the west will be familiar with these names, but they are the three most valuable spirit brands in the world. They are billions of dollars ahead of Johnnie Walker, which occupies the fourth spot in the Brand Finance Spirits 50 list.
“The big three Chinese baijiu brands have taken the podium because of the extraordinary celebratory culture that the Chinese customers hold for their products,” David Haigh, CEO of valuation consultancy Brand Finance, said when the report was published last year. “These are brands that have remarkable value based upon centuries of tradition.” According to Brand Finance, Moutai’s value sat at US$21.2 billion in 2018, while Wuliangye was worth US$14.6bn and Yanghe’s value was US$7.8bn.
Despite its enormous sales figures, the vast majority of baijiu’s volume is consumed in its domestic Chinese market. But now, brands are increasingly turning their gaze westward as they seek international expansion, targeting new markets, consumers and drinking occasions. Haigh said: “It will be interesting to see whether they will translate this success across China to global markets as they make their first steps in Europe, the US, Canada and further afield.”
For many years, baijiu has been primarily associated with lavish banquets and gifting occasions in modern China. Its primary demographic is the older Chinese male drinker, for whom it has become ritual to consume baijiu during high-level business meetings. The potent white spirit, which is often priced at US$200 or more, has become a status symbol in its home market – and until recently, it was as likely to be found in government chambers and boardrooms.
It’s unsurprising, then, that the sector took a pummelling from the austerity measures implemented in 2012 by president Xi Jinping to crackdown on government corruption. The sector has bounced back and now boasts higher sales than ever, but Jinping’s campaign was a rude awakening for distillers who throughout their long histories had almost exclusively relied on a single market. According to expert Derek Sandhaus, author of Baijiu: The Essential Guide to Chinese Spirits, producers have realised they need to hedge their bets.
Hot stuff: fermenting baijiu mash in underground pits“The government was the biggest purchaser of high-end baijiu until 2012, so they didn’t feel a need to sell their products outside of Asia,” he notes. “When your profits have been growing by 100%-200% every year for 20 to 30 years, you don’t need other markets. But when the austerity measures hit, it was a shock to them and made them realise that what works now might not work forever. It was a moment that was very fortunate because it forced distillers for the first time to look to the future and see what their industry was going to look like if they kept feeding the same markets they had always fed.”
In tandem with the austerity measures, younger drinkers in China started to embrace international wine and spirits brands, says Sandhaus, giving distillers additional incentive to reach new consumers.
INTERNATIONAL DRINKERS
One such distiller is Luzhou Laojiao, which in 2018 teamed up with Sandhaus to create Ming River, a baijiu brand specifically geared towards international drinkers. After gathering feedback from the on-trade, the team decided to create a strong-aroma baijiu targeted at high-end Chinese restaurants and experimental cocktail bars in US and European cities. Ming River features a longer neck than traditional baijiu bottle designs, allowing it to be easily grabbed from the speedrail, and a contemporary look akin to that of craft gin.
The brand is distilled at the Luzhou Laojiao Distillery, based in the Sichuan province – the largest alcohol-producing region in China. It is made from 100% sorghum, which is fermented using qū – a type of microorganism harvested on site at the distillery.
The mash is continuously fermented in underground mud pits that are only partially emptied after a cycle, meaning each area is “seasoned” over many years so they develop their own character. Luzhou Laojiao owns around 1,600 pits that are more than 100 years old, with the oldest dating from 1573. This type of fermentation gives the resulting baijiu blend complex aromas and flavours of pineapple, anise and “cheesy funkiness”, according to Sandhaus.
In light of the terroir trend that’s spreading through the spirits world, influencing everything from gin and vodka to rum and Tequila, baijiu producers are hoping their unique production stories will entice curious consumers. Sandhaus and the Ming River team believe that while baijiu is a challenging spirit, its traditional style should not be heavily manipulated to make it more approachable for novices.
Sandhaus explains: “We started with the proposition that baijiu was good enough as it was, and if you had a good baijiu, anyone who enjoys drinking spirits could appreciate it.” Baijiu may be in the early stages of finding an audience outside of Asia, but Sandhaus believes it has the potential to enter mainstream cocktail culture – particularly as consumers become more experimental and develop a taste for the unusual.
“There’s no fundamental reason I can think of why you can have Campari, amaros, mezcals and piscos in bars and not the world’s most popular spirit,” he says. “All of these things on their own, sipped neat, are challenging to your casual drinker, but they have all found a place in the bar world.
“I have seen a lot of progress in the past five years but it’s been gradual. I think you’ll see [baijiu] continue to grow and possibly catch fire with a particular product.”
Field work: barley being grown for use in shōchū‘NOT READY FOR BAIJIU’
Charles Lanthier was one of the first people to consider baijiu’s international potential, launching HKB (Hong Kong Baijiu) in 2012. The brand targeted bars in New York and London, but Lanthier admits international consumers weren’t ready to embrace baijiu then, and HKB found greater success with millennial Asian drinkers in Hong Kong and Singapore. While baijiu has “everything people are looking for in a craft spirit”, its establishment in western drinks culture will “take decades, not a few years”, Lanthier predicts. This opinion is shared by Jim Boyce, founder of World Baijiu Day. “It seems like we’ve had a decade of ‘baijiu is the next big thing’ stories,” he says. “But while there’s lots of smoke, there’s not much fire. We see more baijiu presence, sure. But it’s still modest.”
According to Lanthier, the category has struggled to expand outside of Asia because of a lack of competitors. “I would love to see brands like Moutai and Red Star all coming together to promote baijiu outside of China,” he says. “A gathering of small brands doesn’t help the category because the big players aren’t there. We need a trade association for baijiu, but it must be led by the big competitors and not the small players.”
Sandhaus also believes that for baijiu to increase its global footprint, the category needs the active involvement of its main distilleries, and not just its foreign importers and distributors.
Without the big brands, new markets will be devoid of a “huge informational resource”. Sandhaus explains: “One of the challenges is that education needs to go in both directions: you have to educate western markets on what baijiu is and how it’s used, but you also have to educate Chinese distilleries about western markets and how they work.”
PROMOTING MOUTAI
In a significant move for the category, last year Kweichow Moutai Company signed an agreement with the Wine and Spirit Trade Association (WSTA) to build a strategic partnership between the UK and China as the distiller expanded into Europe. Moutai announced its plans to set up five international offices and begin an international marketing network “to promote Moutai liquor to different cultural backgrounds”. It wants overseas markets to account for more than 10% of its total sales by 2020 – which would amount to massive sums of money.
Diageo stake: Shui Jing FangBaijiu has also caught the attention of the world’s largest international distiller: Diageo. Since 2011, the group has owned a stake in the parent company of Shui Jing Fang, introducing the baijiu to Europe in 2012. The brand weathered the storm of China’s anti-corruption drive and posted organic net sales growth of 22% in the six months to 31 December 2018. Following its healthy performance, Diageo looked to tighten its grip on Shui Jing Fang by increasing its shareholding to 70%. The group has continued to express its desire to see the brand become an international spirits star.
But it’s not only baijiu representing East Asian spirits in international markets: soju and shōchū distillers want to make their mark too. Soju giant Jinro is the world’s largest spirit brand by volume, shifting 75.6m cases in 2017, the vast majority of which was consumed in South Korea. According to Hwang Jung-ho, executive managing director of Hite-Jinro America, overseas markets are becoming “very important” as Jinro nears its 100th anniversary. The brand’s export markets are “growing rapidly”, following the success of “various branding activities and aggressive promotions”.
KOREAN WAVE
More broadly, Jinro has been boosted by the so-called ‘Korean Wave’, in particular the growing popularity of K-pop music in foreign markets. It has launched pop-up stores in France and gained exposure through its famous Halloween party in the US. Its core product is a mainstream soju with a relatively low price and only 17% abv, suiting the burgeoning low-alcohol drinking trend.
The brand has also diversified its portfolio, introducing a number of flavoured editions, including green grape and plum. “Flavoured soju is growing steadily because it has a very similar alcohol degree and sweet taste to wine,” adds Hwang Jung-ho.
Not to be left behind, Japanese spirit shōchū is also diversifying its offering abroad. In March, distiller Sanwa Shurui launched a higher-abv version of its Iichiko brand in the US market. Made with insights from leading bartenders, barley-based Iichiko Saiten has been “optimised” for cocktails, with a potent umami character and alcoholic strength of 43% – significantly higher than shōchū’s usual abv of 25%. Shōchū is fermented using koji, a type of fungus that has become increasingly popular in experimental bars. Sanwa Shurui is planning to capitalise in this trend with further line extensions for the US.
Iichiko Saiten: “optimised” for cocktails“Our company mission is to make shōchū a global spirit,” says Masahiko Shimoda, president of Sanwa Shurui. “The bar world is very passionate about creating new trends, and we think people will start recognising shōchū over the next year or two. We will keep challenging in the overseas market to make shōchū a globally beloved spirit on par with vodka, gin, rum and Tequila.”
Iichiko Saiten is imported into the US by Davos Brands, whose vice chairman, Guillaume Cuvelier, says: “We believe Iichiko Saiten is poised to change the status quo. Shōchū is the number-one consumer spirit in Japan, and Iichiko is a big reason behind that success, being the leading shōchū brand. We expect to see significant growth for Iichiko Saiten in the US; that is why we created the brand with the American mixology culture in mind and with input from leading American bartenders.”
MAKING A DENT
It certainly won’t be easy for distillers of traditional East Asian spirits to make a meaningful dent in the global alcohol market. The production processes and flavours of baijiu, soju and shōchū are markedly different from anything the majority of drinkers in the west have experienced before. Particularly in the case of baijiu, which has lengthy fermentation and ageing periods, communication will be key to justifying premium prices. The structure of the spirits business is also different in markets such as the US and UK, meaning distillers and importers will need to have an open dialogue and learn from each other.
Partnerships such as that between Davos Brands and Sanwa Shurui are critical to the global progress of this area of the industry. Last month, Diageo created a joint venture with Yanghe to launch a “new to world” whisky: Zhong Shi Ji. Details are being kept under wraps for now, but it’s a sign of the exciting innovations that are possible when experts come together to share their resources, traditions and understanding.
