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Baijiu big spenders
Published:  28 June, 2017

Former China resident and DI reporter Shay Waterworth has experienced the world’s largest spirit, baijiu, first hand. He gives us his take on this unwieldy yet mysterious category

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THE ANCIENT SPIRIT of baijiu is deeply ingrained in traditional Chinese culture. Travelling through the country, it can be seen consumed as a shot by pensioners playing cards in the streets, following their rigorous Tai Chi routines. This is its tradition, but as China modernises, baijiu is being thrust more and more into the light – this for the first time in its 5,000-year history.

To give some context on baijiu – pronounced ‘bye Joe’ – it is more voluminous than vodka, whisky, rum, gin and tequila put together. It is the 1bn 9-litre case category. Predominantly drunk domestically, it has struggled to attract the attention of western markets. That’s largely due to its high 40%-60% strength and pungent aroma.

FINDING NEW GROWTH

With so much of baijiu’s sales occurring in China, the country’s vast population and demographic swings of recent years could have a significant bearing on the category’s future. In 2015, China scrapped its one-child policy after more than 30 years, which could have an impact on its workforce, leaving an overwhelmingly ageing population. Many sources have predicted that this, allied to an increase in personal wealth and disposable income, will see China transition from an export-based country to a consumption-based economy. So can baijiu continue to grow its own ‘in-house’ audience?

According to The Financial Times, Diageo, the goliath of the drinks business, which owns Johnnie Walker, Guinness, Smirnoff and 74 other drink brands, was overtaken by Chinese baijiu distiller Kweichow Moutai as the most valuable spirits company on the planet. And Moutai announced it aims to increase revenues by 15% in 2017 – equaling 50,000 tonnes of the spirit by the year end.

The Guizhou-based baijiu brand Moutai is owned by the Chinese government and was valued at nearly $73bn on the Shanghai Stock Exchange. This value puts the baijiu producer in the same bracket as other state-owned companies such as the Bank of China.

Moutai has been the leading brand in China for the past four years despite experiencing a small crisis in 2012, when president Xi Jinping imposed his strict anti-corruption campaign. However, things have improved. The company has since announced a 25% year-on-year rise in net profit for the first three months of 2017, while the total sales of baijiu rose 10% in 2016 to ¥612.5bn, according to data released by the China Alcoholic Drinks Association.

THE MIDDLE CLASSES

The South China Morning Post recently revealed Moutai has raised its wholesale prices, which gives the company control of its profit margins, driven by rising income levels and middle-class consumers spending more.

Business Insider recently reported a study conducted by consulting firm McKinsey & Company which showed 76% of China’s urban population will be considered middle class by 2022. The term ‘middle class’ was defined by urban households that earn US$9,000 – US$34,000 a year, a relatively high wage given the cost of living in China.