Mersol & Luo Insights
China’s Spirits Market in 2020
This paper offers a broad view of China’s spirits market as of 2020, taking into account established and emerging trends as well as the impact of political headwinds and COVID-19.
It also offers a more granular view of each major imported spirit category (e.g. whiskey), how each is performing, advantages and disadvantages in the market, and overall short-to-medium term outlook.
In addition to indicative real in-market case studies, this paper provides a firm understanding of the distinct consumer types that have emerged among Chinese spirits consumers, their habits, general spending power, and how they are likely to shape demand.
China is one of the largest spirits consumers globally with a total value set to reach US$200 Billion within a few years.
While baijiu, the local spirit, continues to dominate the market, demand for imported spirits is growing quickly. Year-on-year growth in imported spirits has hit double-digits for the past decade and is set to continue doing so.
Chinese consumer’s tastes have changed markedly in recent years. While baijiu remains favored overall, a huge number of consumers are trying out foreign spirits. The rise of the country’s middle-class population, as well as the increasing incomes, have made imported spirits and premium brands increasingly affordable.
Consumption of imported spirits is highest in first tier cities like Beijing, Guangzhou, and Shenzhen. Accessibility and awareness are high in these local markets. Shanghai consumers, for example, drank over 15 million liters of whiskey in 2019.
Prestige Attached to Imported Spirits
Money and social status play a huge part in China’s spirits preferences. For many consumers, there is a strong connection between a brand being imported and being viewed as premium. Serving foreign spirits at parties is an opportunity to show off the host’s wealth. Extravagant gift giving, especially of alcoholic beverages, remains a popular Chinese tradition.
Regular health scandals and counterfeiting have made many Chinese consumers wary of locally produced spirits. In contrast, imported spirits are viewed as healthier and safer–particularly from countries like Australia, Germany, the US, and Japan, giving foreign brands a competitive advantage.
Spirits in China
Brandy remains the most popular imported spirits category in China; however, this is changing quickly.
Chinese consumers’ awareness and understanding of imported spirits is rapidly becoming more sophisticated. High-end whiskey bars and premium quality gins can already be found in China’s largest cities. Traditionally, China is a brandy market. Even vodka, a spirit often compared to local baijiu, is enjoying strong growth. The total value of imported spirits reached US$8.51 by the end of 2019 and is anticipated to remain stable despite the impact of COVID-19.
In China, cognac—and brandy generally—is a symbol of wealth and power in the business world. France and large brands still dominate the category, but room for new brands is opening up as local consumers become increasingly sophisticated. Young consumers, in particular, are looking to move beyond the staid brands of their parents’ generation.
Whiskey is for Gen X, Millennials, and Gen Z consumers what brandy is for their parents. As these generations head into their peak consumption years, whiskey sales have skyrocketed, topping US$2 Billion. From 2015 through the end of 2019 consumption more than doubled. Although scotch whiskey dominates, bourbon has muscled into the market with rye just beginning to make inroads. Whiskey sales is set to enjoy strong year-on-year growth through the decade to 2030.
Gin has replicated the success of whiskey by positioning itself as a sophisticated and premium product offering a unique drinking experience while developing a distinct identity within the Chinese market. Hong Kong has served as an effective bridge by developing indigenous brands with flavor profiles both traditional and local as well as education consumers in a culturally relevant way. This has opened up considerable space for the category which continues to support strong year-on-year growth in consumption. Still primarily in cities only, gin is far from reaching its full potential in the market.
Vodka faces a different challenge in breaking into the market compared to gin and whiskey. Many Chinese consumers consider it similar option to baijiu, the local Chinese spirit with thousands of years of history in the country. For years this made it difficult to convince local consumers to abandon baijiu for vodka. The most successful brands have taken a creative approach that allows them work around this problem. Many Nordic vodka brands, for example, have infused their vodkas with local fruits—none of which can be found in China and paired this with distinct brandings and compelling stories to attract Chinese consumers. This has enabled an increasing number of foreign vodka producers to carve out space in the market where baijiu cannot compete with them. This has supported excellent growth over the last 5-6 years and is set to do so for the foreseeable future.
Despite being a spirit with a rich history and wide range of aging and flavor profiles, rum has struggled in the Chinese market. In many ways, it ought to be a natural favorite among local consumers as both sugar cane and brown sugar (in various forms) is a favorite snack, beverage, or food additive. The main barriers are awareness, understanding, and positioning of rum as distinct from other imported spirits and carrying a unique story and drinking experience.
Tequila has done well since 2015. Exports nearly doubled by the end of 2019. Further reduction in duties and other trade barriers on imported Mexican goods have added steam to this trend. The challenges tequila brands face in China are multifaceted. Few Chinese consumers are aware of tequila and understanding of the product category is quite low. Additionally, the market is dominated by a small number of global brands (e.g. Jose Cuervo) and primarily offered at bars, with only limited distribution through off-trade channels.
If rum and tequila brands can overcome the challenges they face, their long-term future in the Chinese market is bright.
Types of Spirits Consumers in China
Six out of ten spirits consumers in China are male, but the number of female drinkers has been steadily increasing—particularly as an increasing number of young consumers opt for imported spirits over the traditional baijiu of past generations. More young people are also drinking for personal or casual consumption. Out of these brought trends emerge a handful of distinct types of spirits consumers in China.
The Infrequent Sippers
This group only consumes spirits during special occasions and friendly get-togethers. Infrequent Sippers do not spend much on buying their preferred spirits, usually limiting their purchases to entry-level or mid-tier products. They typically prefer to buy at supermarkets and hypermarkets where there is a wide selection of alcohol available. In general, the majority of Chinese consumers falling into this category have limited disposable income, are concentrated in lower tier cities, and are older.
The Spirits Lovers
This cluster has a high level of appreciation for spirits and tends towards young to middle-aged consumers with higher levels of disposable income. The Spirits Lovers do not mind paying a premium for quality. Whether during informal or formal occasions, at home or outside, they are the most content while sipping good-quality drinks and relaxing. They are also always eager to try new flavors, even new or unheard-of brands. As consumers of spirits, they are enthusiastic risk-takers open to new experiences.
The Laid-Back Amateurs
Experimental and open-minded, these drinkers exhibit a moderate interest in spirits. Although not quite well versed in the different kinds of spirits and flavor profiles available in the market, they put in the effort to buy what they like. They enjoy drinking at home or during informal affairs. They do not usually splurge on spirits that cost an arm and a leg, preferring those of quality but reasonably priced. Consumers in this category trend toward mass middle-class income levels, large to mid-tier cities, and young to middle-aged.
The Casual Value-Buyers
These are the infrequent consumers of spirits. Casual Value-Buyers are less engaged with spirits-drinking culture and have limited knowledge of spirits in the market. When they do make purchases, they prefer low-priced spirits—often to mixed–and are highly receptive to promotional offers. This group is composed of consumers who fall at either the younger or older ends of the age spectrum and with very limited disposable incomes.
The Conventional Aficionados
Typically made up of high-income consumers, this group has the money to spend on a bottle of Rémy Martin cognac or a rare 60-year-old Macallan whiskey. They are conservative, rarely venturing beyond tried and tested classics. They enjoy the prestige associated with sipping premium alcohol in the comfort of their homes or during important business meetings. Tastes aside, this type draws from the same demographic group found among Spirits Lovers.
The Case of Remy Martin
Rémy Martin is a French firm under the Rémy Cointreau Group of France. It is one of the biggest cognac producers in the world. The Rémy Cointreau Group has origins dating back to 1724. Aside from the Rémy Martin cognac, its international portfolio includes spirits under the Cointreau, Izarra, and Passoa brand names, as well as spirits under the Mount Gay, St Remy, Ponche Kuna, and Metaxa. The company is also the sole distributor of the Piper-Heidsieck, Charles Heidsieck and Piper Sonoma brands.
Rémy Martin entered China’s spirits market in 1980, at the beginning of the economic reform. Over 60 percent of its cognac sales is from the Asia-Pacific region, with China as its main market. Much of the company’s success in the region is due to its intensive marketing efforts to reach out to China’s “bread and butter” drinker demographics. Its strategy is two-pronged, capturing both the wealthier middle-aged male consumers, as well as the younger ‘Fu Er Dai’ or the children of the nouveau riche.
The company recognized the growing demand for premium spirits among the young drinkers in the mainland. Its 2013 promotions included having the popular Taiwanese pop star Jolin Tsai endorse its limited edition Rémy Martin VSOP. Other events launched were all aimed at the country’s upwardly mobile middle-class.
Rémy Martin also took advantage of the Chinese’s increasing affinity with social media, becoming the first spirits brand to advertise on the WeChat platform in 2015. Its campaign focused on art de vivre, one of the company’s key brand values, by recommending personalized contents and product suggestions to WeChat’s 500 million users. Currently, Rémy Martin is one of the best-selling cognac brands, not only in China, but in the world.
The Case of Monkey 47
Monkey 47 is an unusual gin from the German company, Black Forest Distillers. Its roots date back to the 1950s, when a retired British commander experimented with plants and herbs in the Northern Black Forest region to replicate the taste of alcohol from his native country. In 2006, Black Forest Distillers found the commander’s recipe and decided to revive it. After a successful launch in Europe, the company introduced Monkey 47 in the U.S. in 2014. Currently, the gin is available in over 50 countries.
Black Forest Distillers decided to introduce Monkey 47 to the Chinese spirits market in 2015. It is one of the most expensive gin brands, selling at 550 RMB (US$80) per bottle. Monkey 47 was the first of its kind to be displayed on the shelves of Shanghai supermarkets and later on, to be sold in 19 other Chinese cities. A year later, Pernod Ricard, one of the biggest foreign alcohol companies in China, announced its acquisition of the majority share of Monkey 47.
While Monkey 47 is a hit in other countries, more work is needed for it to enjoy the same popularity in China. Gin only accounts for less than 3% of the imported spirits market. Whiskey and brandy are the Chinese’s drinks of choice, as shown in their annual sales. Still, the people behind Monkey 47 continue to make a valiant effort to gain the attention of the Chinese consumers, majority of which has limited knowledge on different tastes and varieties of gins.
Monkey 47’s packaging and design smack of artisanal craftsmanship, a major draw for consumers with an eye for sophistication. It also features an unusual aroma, unlike the strong woodsy smell of traditional dry gins. The drink also has an intense flavor, bold and complicated. Juniper is not the predominant taste, something refreshing for the Chinese’s untrained palate. Currently, Monkey 47 is considered a favorite for bartenders in making cocktails like martini, sling, or gimlet.
The Chinese spirits market is large and continues to enjoy strong year-on-year growth.
Although the local spirit, baijiu, still dominates, imported spirits are eating away at its market share in both relative and absolute terms. Young consumers—Millennials and Gen Z—are leading the way in tiear-1 cities, followed by those in second and third tier cities along the coast and eastern interior.
Among foreign spirits brandy and whiskey are ‘powerhouses’, accounting for most of the demand for imported spirits. However, gin and vodka are both carving out growing shares of the market—each with unique positioning strategies and value propositions to local consumers. Rum and tequila remain the dark horses in the market, but with huge untapped potential.
There are distinct groupings of spirits drinkers, offering a range of opportunities for foreign spirits across a range of brand personalities and at all price and quality levels. Above all, drinking spirits is increasingly becoming an experiential lifestyle product.