Chinese Continue Thirst for International Brands

Atlas Wine Group - Monday, May 07, 2012
Chinese alcohol consumers are maintaining a thirst for high end luxury international brands as the region presents itself as a market of the future.

The Worshipful Company of Distillers’ city debate agreed that “China is the Heart of Asia” with evidence that Chinese consumers are continuing to purchase prestige spirits at the top end of the market.

This debate centred around the spirits business, with Martin Riley the chief marketing officer of the Pernod Ricard Group the most vocal in support of China as the heart of Asia.

He started by outlining how alcohol plays a major role in Chinese society. “It has no negativity surrounding it, is involved in the majority of food occasions and the Chinese drink 11.6 litres per head a year of beer, wines and spirits,” he said.

Riley also explained Cognac and whisky were the only spirits making an impact in the region as three brands account for 50% imported spirits – Hennessy Cognac, Martel Cognac, and Chivas Regal whisky. International spirits consumption in China only accounts for four million cases compared to an estimated 900 million for the domestic clear spirit Baijiu.

This, he explained, is one of the main issues with tackling the Chinese market from a spirits perceptive as you need a good understanding of the culture and where alcohol fits in to successfully market your brand.

“Alcohol plays a key role in the culture of China,” he said. “It is important at the food occasion as 85% of the total Chinese alcohol consumption happens then. Baijiu has established itself as the brand used with food and has the market share, Cognac has some foothold there as well as it is used in tradition Chinese toasting.

“In terms of route to market the Chinese like the idea of luxury and are keen to associate drinking good quality alcohol with success and Cognac can hold the high ground there. There is an emerging trend of young professionals buying their first home and then building a bar in it and wanting prestige international brands stock there to be proud of.”

Riley also added that the Chinese influence is beginning to be felt outside of Asia.

“There is no choice but to grab the opportunity in China because it has a huge influence in Asia and beyond,” he added.

“The influence of the Chinese beyond China is huge. If they go into an Asian hotel in France, they will expect to see the international spirit brands that they see at home. That is part of our job to get our product in the right places.”

Another speaker, Bill Farrar of The Edrington Group, had what he described as “reality checks” about the potential in the Chinese market.

After laying out the positives in the Chinese alcohol market for spirt producers, he said: “China may go its own way in terms of the international spirit brand market. In the longer term they might just want to do their own thing and look inward to domestic production.

“They have done that in the science and technology market, where they like the technology Samsung has to offer but instead of selling the brand they use the new technology in their own brands.”

Farrar also spoke about the pace of the opportunity in China, explaining that the Chinese market liked older whiskies but that presents a supply and demand conundrum for producers who are thinking ahead to 2030.

Another warning addressed at the London debate was from Chris Pitcher, partner and drinks analyst at Redburn Partners, warned: “Look East with open eyes as they are beginning to look West at us.”

“Alcohol producers in China will look internationally soon and they will not sit back and wait for international alcohol brands to take their domestic market. It will mean the country is slowly re-earning their bracket as the number one economy in the world.”

Pitcher’s main argument was that the scale of opportunity was apparent in China, but the pace of change is in doubt.

He continued: “The opportunity is there at the high end but the country is not rich to the core and it leaves an uncomfortable parody as it is uncertain and uncomfortable to value the country.

“The speed of the opportunity can easily be misrepresented. You may want one million cases today, but what about tomorrow?”

Source: The drinks business

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