Premiumisation: A trend to act on in Chinese spirits market
Jade Cullinane, Global Business Development – China, Bord Bia – The Irish Food Board
Premium spirit brands are reaping the rewards of the growth of the Chinese spirits sector. The sector grew from €199 billion in 2013 to €247 billion in 2018. The sector is expected to reach €306 billion by 2023, registering a CAGR of 4.8% during the five-year period (Global Data, 2019). With local and international competition intensifying, focusing on premiumisation will be a key trend for spirit brands going forward (Fitch Solutions, 2021).
After the Chinese government enforced a crackdown on extravagant gift-giving in 2012 premium alcohol brands suffered. Distillers such as Pernod Ricard and Kweichow Moutai, the Chinese producer of local spirit baijiu, faced difficult years especially in 2015 and 2016. However, as proven by Kweichow Moutai’s 2020 financial performance of over €12 billion in revenue compared to €5bn in 2016 and thanks to a shifting focus to the growing middle class market, premium spirts are rebounding in China ("Revenue for Kweichow Moutai", 2021)This is only predicted to continue (Fitch Solutions, 2021).
Growing middle class
Whilst the affluent growing middle class in China attract a lot of attention, it is for good reason. This cohort, demanding more premium products, represent substantial potential for the premium spirits category. Also notable is the rise of women within this category. Nearly 70% of Chinese women came into their wealth independently and 87% consider themselves key decision-makers in their households, compared to only 44% of American women. Affluent women now control over half of China’s luxury spending (Canvas8, 2019). With females in the 18-24 age bracket following more Western spirit brands on social media than their male counterparts the same age, the growing middle class are even more attractive for imported premium spirit brands (Mintel, 2020).
A shift towards West
China’s local spirit Baijiu still dominates the spirit category, with well above a 90% share. However, younger consumer’s perceptions of the product are changing. According to Daxue Consulting research, 60% of this cohort believe that Baijiu is not for young people, and 43% are less likely to drink Baijiu, noting its old-fashioned image as a key reason. The younger population are looking to Western brands as they seek to express their identity and personality through the beverages they buy. They are therefore prepared to spend more on premium spirits (Daxue Consulting, 2018).
Changing consumer preferences
Along with decreased satisfaction with local spirits, consumer preferences are changing. As the middle class boast higher incomes, they are developing increasingly sophisticated tastes. Spirits such as vodka and gin are forecasted to grow next year as the Chinese are becoming increasingly exposed to these through travel and leisure (Fitch Solutions, 2021). Moreover, the unique flavours and attributes of single malt whiskey’s appeal to the Chinese consumer. Young consumers also report a desire for high-end products to help “them feel distinct from the people with whom they share their cities.” (Canvas8, 2019). Maintaining high social status is important and consumers aspire to a trendy lifestyle. Consumers’ general perception of Western spirits is also fashionable (Mintel, 2020). These changing preferences are paving the way for even further demand for imported spirits.. Official Chinese data shows that the volume of imported spirits increased significantly from January to May 2021, exceeding €650 million which represents an increase of 117% year-on-year, surpassing that of imported wine. Within this, whiskey imports totalled to a significant €126 million with a volume 10 million litres. (The Drinks Business, 2021).
Implications for Irish clients
As a nation that produces high quality premium spirits, there are many positive takeaways. Positioning Irish spirits as premium and of high quality is key. Communicating brand prestige will be important and businesses that invest in consumer education are likely to reap additional revenue in the long run (Mersel&Luo, 2020). Brands in the market should avoid deep discounting so as not to harm their premium status and should focus on attracting the growing middle class. As Irish spirits continue to grow in the Chinese market, the future is bright.
If any brands are interested in further China market understanding, feel free to reach out to me at firstname.lastname@example.org.
Canvas8. (2019). HOW WHISKY IS ATTRACTING NEW FANS IN INDIA AND CHINA. Retrieved from https://www.canvas8.com/content/2019/08/15/whisky-india-china.html
Canvas8. (2019). HOW WOMEN ARE DRIVING CHINA’S LUXURY MARKET. Retrieved from https://www.canvas8.com/content/2019/05/28/womens-suit-china.html
Daxue Consulting. (2018). Understand the drinking culture in China. Retrieved from https://daxueconsulting.com/understand-drinking-culture-china/
Fitch Solutions. (2021). China Food & Drink Report | Q3 2021. Retrieved from https://app.fitchconnect.com/search/research/article/BMI_72F00B7D-3ED6-4427-8E54-5E4504E2E966
Global Data. (2019). China Spirits - Market Assessment and Forecasts to 2023. Retrieved from https://consumer.globaldata.com/Analysis/details/consumer-and-market-insights-spirits-in-china
Mersel&Luo. (2020). Chinese Drinking Culture, Explained. Retrieved from https://www.mersolluo.com/chinese-drinking-culture-explained/
Mintel. (2020). Western Spirits - China - December 2020.
Revenue for Kweichow Moutai. Companiesmarketcap.com. (2021). Retrieved 6 September 2021, from https://companiesmarketcap.com/kweichow-moutai/revenue/.
The Drinks Business. (2021). China imports more spirits than wine in 2021. Retrieved from https://www.thedrinksbusiness.com/2021/07/china-imports-more-spirits-than-wine-in-2021/