Spirit brands compete for loyalty

Consumers moving to cognac, Scotch whisky

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SHANGHAI--There are few countries in the world where spirits play a larger role in cementing relationships than China.

“Drinking is very much a part of the country’s business culture, toasting is a sign of friendship and respect,” observed Hong Kong native James Chu, McDonald’s Corp.'s senior VP for franchising & government relations in China.

The national drink of choice is bai jiu, which dates back at least three thousand years. The high-proof grain alcohol is still churned out by thousands of local manufacturers under brand names like Maotai, Wuliangye and Er Guo Tou, some with price tags well below $5 per bottle. More than 150 million cases of the distilled spirit, known for its paint-stripping strength and taste, are sold in China’s 100 largest cities each year. Nationwide, the total is easily twice that.

Bai jiu sells especially well in northern regions, “because of the cold weather. It matches the manly image of people there,” said Hans Wu, media planning director for WPP Group’s MindShare media division in Shanghai. Men still consume 80% of overall alcohol sales in China, although recent sales trends suggest women there are developing a taste for wine.

Imports grow as palettes change
Within China’s most sophisticated cities, Shanghai’s spirits market is driven by nightclubs, where alcohol marketers pay owners to stock bars and install lightboxes only using their portfolio of brands. In Guangzhou, in southern China near Hong Kong, the trend leans toward drinking over meals in restaurants. Nationalistic Beijingers, meanwhile, remain committed to bai jiu.

Overall per capita consumption of Western spirits is comparatively low. Foreign brands are perceived by many Chinese as premium, lifestyle products. But the market is expanding rapidly as local palettes grow more sophisticated, incomes rise and new products are introduced.

For decades, the top selling category has been cognac. As in neighboring Taiwan, no self-respecting businessman in China would dream of treating a client or government official to a night out without buying a bottle of brandy like Hennessy or Remy Martin for the table.

Scotch overtakes cognac
Taiwanese who returned to the mainland to set up businesses introduced a new trend that has swept through major urban areas--Scotch. China’s overall whiskey market grew 5.9% on average between 1998 and 2003, according to Datamonitor, compared to a 1% drop in spirits overall, largely due to a double-digit fall in liqueur sales and a slow-but-steady decline in brandy consumption. As China meets its commitments as a member of the World Trade Organization, tariffs on imported spirits will drop, further boosting sales of premium whiskey brands.

“Scotch has become quite trendy in China, and with that rise, Chivas has done quite well,” said Arthur Tam, director of the Aegis Group’s research arm Synovate in Beijing. Pernod Ricard has put extensive distribution and on-the-ground marketing investment behind the premium blended Scotch brand in more than two dozen major cities.

Peter Prentice, Hong Kong-based VP, Asia/Pacific for Chivas Brothers (see Player Profile), has marketed Scotch brands in Asia since 1986. “Asia was a very small market for Western spirits at that time and we didn’t think about China in those days at all,” he said, chuckling with disbelief. Today, China represents "huge potential.”

"Beat Chivas"
“Chivas is the leading and most-advertised Scotch brand,” said an agency executive who has worked in China with arch-rival Diageo, the conglomerate behind Johnnie Walker. “It basically stands for whisky category, especially in second-tier cities. Hence, the budget plan for the next fiscal year is based on the objective of ‘Beat Chivas.’”

Although Chivas has a commanding lead in the Scotch market, controlling roughly half the market, Johnnie Walker could catch up due to the fickle nature of Chinese consumers: “There's almost no such thing as a loyal drinker in the major categories, cognac, whisky and vodka, or among brands. Decisions about products and brands on any given night really depends, drinkers are easily influenced by advertising and other marketing activities,” said MindShare’s Mr. Wu.

Above-the-line advertising, sales promotions, seasonal gift packages and themed bar parties are common, but invitation-only special events like Martell dinners, Chivas tastings and lounge events supporting the high-end Johnnie Walker labels have become increasingly popular.

“China is a longterm growth opportunity, but as with any developing market, it brings with it a whole bunch of challenges--the diveristy of the place through to the competitive nature of the market, the complexitiy of logistics, the pace of change from a consumer, trade and regulatory point of view, difficulties finding an dkeeping talent. It’s a challenging place to work, but it’s also an exciting opportunity,” said Kenneth Macpherson, Diageo’s Singpaore-based managing director, Greater China, who has spent most of the past two years marketing in China.

The market does have one constant. Chinese prefer consuming spirits in refreshing mixed drinks, and are not shy about creating their own blends, like whisky and bottled green tea. “Mixing spirits in untraditional ways is trendy, it improves the taste, because Chinese people are still not that familiar with the taste of imported spirits,” said Mr. Wu, “and it creates a lot of fun.”


Fast Facts

China Spirits market value forecast, 2003-2008 (US$m)

Brandy
2003: 51.4 (-1.1%)
2004: 50.7 (-1.3%)
2005: 49.9 (-1.5%)
2006: 51.8 (3.7%)
2007: 54.2 (4.7%)
2008: 58.2 (7.4%)

Gin & Genever

2003: 14.7 (5.4%)
2004: 15.4 (5.2%)
2005: 16.2 (5.2%)
2006: 17.0 (5.0%)
2007: 17.9 (4.9%)
2008: 18.7 (4.3%)

Liqueurs
2003: 1.8 (-10.2%)
2004: 1.6 (-10.4%)
2005: 1.3 (-10.2%)
2006: 1.1 (-18.1%)
2007: 1.0 (-14.2%)
2008: 0.9 (-13.9%)

Rum
2003: 1.6 (3.7%)
2004: 1.7 (3.4%)
2005: 1.8 (4.8%)
2006: 1.9 (5.3%)
2007: 1.9 (4.9%)
2008: 2.0 (5.3%)

Specialty spirits (Distilled beverages not defined within the other categories, including local specialties.)
2003: 5,013.6 (1.8%)
2004: 5,099.3 (1.7%)
2005: 5,179.2 (1.6%)
2006: 5,257.6 (1.5%)
2007: 5,337.4 (1.5%)
2008: 5,418.9 (1.5%)

Vodka
2003: 5.9 (1.2%)
2004: 5.9 (0.2%)
2005: 5.9 (0.1%)
2006: 5.9 (0.1%)
2007: 5.9 (0.2%)
2008: 5.9 (0.2%)

Whiskey
2003: 35.5 (1.9%)
2004: 36.2 (2.0%)
2005: 37.2 (2.8%)
2006: 38.2 (2.6%)
2007: 39.2 (2.7%)
2008: 40.4 (2.9%)

Overall
2003: 5,124.4 (1.8%)
2004: 5,210.8 (1.7%)
2005: 5,291.6 (1.6%)
2006: 5,373.5 (1.5%)
2007: 5,457.6 (1.6%)
2008: 5,545.0 (1.6%)

Source: Datamonitor


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