Consumer caution slows China’s market recovery

IWSR Drinks Market Analysis data has revealed that widespread down-trading and high inventories has caused China’s market recovery to falter.

Following a softer than expected performance in 2023, China’s beverage alcohol market is expected to see a year of normalisation in 2024, despite consumer caution seeing them turn to spending money on travel and experiences over alcohol.

High inventory levels for XO Cognac and high-age whisky has prompted continued de-stocking in the early months of 2024 as consumers remain cautious.

“The recovery in China during 2023 wasn’t as smooth or strong as many had expected, with inconsistencies between categories and price tiers,” said Shirley Zhu, IWSR research director for Greater China. “A slowdown was felt across drinks categories, with consumers wary of spending.”

Zhu noted that a crisis in the property sector has had a significant affect on the Chinese economy, which has subsequently affected both business and consumer confidence.

“The property crisis meant there was much less high-end entertaining and gifting in spirits during 2023, which heavily impacted demand for XO Cognac and expensive whisky,” explained Zhu. “There were higher inventory levels by the end of the year, despite the efforts of brand owners and wholesalers to move stock.

“Despite an improvement in early 2023 as pandemic restrictions were lifted, consumer sentiment subsequently tailed off and remained low.”

IWSR market data shows that total beverage alcohol (TBA) volumes in China grew only marginally between 2022 and 2023, as losses for spirits (-9%) and wine (-14%) were offset by increases for beer (+3%) and ready-to-drink (+1%).

For the first time since 2000, malt Scotch saw volume declines across all price tiers.

According to IWSR Bevtrac data, growth in recalled spend per unit has stalled for many categories, with evidence of down-trading emerging for the first time among the Chinese middle class earning between RMB 5,000-15,000 (US$700-$2,000) per month.

It is believed this could be connected with perceptions that prices across premium spirits categories are being pushed up, yet it is said that the maximum a consumer is prepared to spend on a unit in the first half of 2024 (H1) is higher across several categories than it was a year ago.

The softer market performance is reinforced by IWSR latest Bevtrac consumer tracking data, based on surveys of urban affluent Chinese drinkers of legal drinking age, which shows that in H1 2024, readings for consumer sentiment remain strongly positive, but significantly less so compared to H1 2023.

However, it is worth noting that China typically skews strongly positive for cultural reasons.

On-trade recovery

Following extended national lockdown periods, China’s on-premise recovered partially in 2023, but with increased fragmentation.

Newer clubs and live music venues tend to be much smaller now, with many large nightclubs now having closed for good.

However there has been a significant increase in the number of consumers reporting on-trade visits at their last drinking occasion, with 62% of drinkers stating their last occasion was in the on-trade.

Social gatherings have also grown in popularity, however more distinct behaviour differences can be seen between income groups, with higher income consumers (those earning over RMB 25,000/US$3,500 per month) more likely to be drinking alcohol in a bigger social group compared with those on lower incomes.

However, IWSR researchers have found that ‘ostentatious consumption’ in the on-trade has decreased, with reports of fewer bottles of spirits or Champagne with sparklers ordered on the night-time scene in favour of beer buckets or drinks by the glass.

Despite this, white spirits reported robust growth in the on-trade during 2023, with gin, vodka and rum making the most substantial gains – while Tequila continued to expand strongly from a small base.

All four segments recorded substantial double-digit volume gains in the on-trade during the year: gin was up by +25%, vodka by +24%, agave spirits by +40% and white rum by +44%.

However, these increases will probably have been magnified by the short-term resurgence in on-premise sales, with Zhu noting: “The rapid growth in some spirits segments when on-trade venues reopened could result in volume declines in 2024.”