Global spirits brands need ‘deep pockets’ to take on Baijiu in China

China’s growing middle class are buying more western whiskey and vodka labels, but brands will need “deep pockets” if they want to take on local distillers, according to new analysis.

Baiju for sale in China

China  was the world’s largest alcoholic drinks market by both volume and value in 2016; around twice as many alcoholic drinks are sold by volume in the country compared with the nearest rival, the US, according to the latest figures from research firm Global Data.

Chinese New Year drove Pernod Ricard’s revenue by 9.3% on an organic basis in the quarter to March 2018, according to the figures, while the drinks giant also reported strong Cognac sales in the country, alongside producers Remy Martin and Hennessy.

Amy Walker, consumer research leader at GlobalData, said that mid-range international brands could even take on local spirit baijiu, which has seen a resurgence in China in the past two years and is currently one of the most dominant products in the country’s drinks sector.

China imported around 52.81 million litres of spirits from overseas in the first nine months of 2017, up by 27.69% compared with the same period last year. Its imported spirits market is now worth roughly $807 million (£608 million).

Last October Pernod Ricard reported a stronger than expected performance for the first financial quarter of 2017, with organic sales rising by 5.7%, driven by accelerating demand in both China and the US.

The analyst said that, although there is “significant market penetration opportunity” for western brands like Pernod Ricard, they will need “deep pockets and substantial commitment” to do so.

“A focus on fast growth can exaggerate the reality – which is that the majority of the Chinese spirits market is still dominated by baijiu.”

“Retail sales of speciality spirits (including baijiu) in China are well into the hundreds of billions of US dollars. A significant market penetration opportunity would be for mid-range international brands to challenge the local spirit baijiu and this will not be an easy displacement.”

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