Baijiu: Dark Matter

Premiumisation may not be a proper word in English but it certainly translates into Chinese – many brands have upgraded packaging and marketing to seduce the swathes of new, moneyed consumers looking to trade up. For Wang, the trend was ‘inevitable’.  

“In China wealth is increasing quickly and people are paying more attention to quality of life,” he says.

But things are rarely simple. Reports coming out of China suggest baijiu brands have had a poor 2013. Unlike Chinese New Year and Mid-Autumn Festival, Chinese summertime is very much low season for baijiu consumption. As the mercury rises, so do sales of beer and wine and that, coupled with the recent ban on luxury gift-giving among officialdom, has reduced some premium brands to heavy discounting.

“There does appear to be an impact on demand,” admits Hamilton. “Shuijingfang’s first quarter numbers from January to March 2013 show a decline. Our take is that the underlying consumer enthusiasm still remains strong for the category. Things might continue to be difficult in the near term but we always had a relatively low exposure to the government gifting and entertainment demand.  We’ve seen a lot of price movement from competitors which have been more directly impacted.” 

Hamilton wouldn’t be drawn on Shuijingfang’s own pricing strategy.

But these are more creaks than fractures in China’s love affair with baijiu. “Baijiu is a key part of the gifting, entertaining and social interaction culture in China,” says Hamilton. “A lot of business and social interaction is done over food and baijiu is a natural accompaniment. It has been playing that role for nearly 2,000 years, so it’s deeply imbedded in the culture.”

Baijiu abroad

For some local spirits, international expansion represents a sort of novel, reflective glory, but for baijiu it is a real opportunity. The estimated 50 million Chinese diaspora around the world is a big, though disparate, market of ready-convinced consumers. 

Some brands have always been available through niche importers but only recently have they embraced ‘the other China’. “In the past we did not pay attention to developing global markets, but now it needs a lot of human resources,” says Wang. “We cannot accelerate our international expansion in a short period but we do want to build our brand globally.” 

For Moutai the priority is Chinese diaspora in Australia and US – markets which, according to Wang, are developing positively.

Over at Shuijingfang, travel retail is the first port of call. As Chinese travel abounds (85 million last year, according to Diageo and growing at 15%) 80% of the brand’s international sales are through the duty free channel. There’s something paradoxical about the Chinese having to leave China to get their hands on Chinese brands, but travel retail offers high-value limited editions that meet the need of travellers looking to return home with gifts.

In the duty-paid sector Shuijingfang is available in 10 markets, including South Korea, Hong Kong, Singapore, Macau, the US and Canada and, recently, the UK through Harrods, Selfridges and the high-end on-trade. 

When it comes to local knowledge of the UK market, Diageo defers to local Chinese goods importer SeeWoo, which also offers the volume brand Red Star Er Guo Tou (16.8 million cases in 2012) and Luzhou Lajiao, and will increase its portfolio to 10 brands this year.