"IT'S THE DARK MATTER of the spirits world – it pervades everything but we don’t see it,” says spirits historian David Wondrich. He is talking about baijiu, the high-strength white spirit from China that in 2012 sold a mind-dissolving 1.16bn 9-litre cases (IWSR). 

To offer some category context, baijiu is more voluminous than vodka, whisky (with or without an e), rum, gin, tequila, brandy and cognac – even bound up together with a bow on top. It is indeed the ubiquitous dark matter of the spirits universe, but if one company can shine a light it is Diageo.   

In late July the group increased its share in Szechuan baijiu Shuijingfang (try saying Shway Jing Fung) from 21.05% to 39.71%, giving it the controlling stake in one of China’s emerging super-premium segments. Diageo may be the most global of groups but 90% of Shuijingfang sales are domestic. 

The upside of a brand with an inward focus, though, is its distribution network – something of a strategy-fetish for Diageo (Mey Icky, Ypióca, United Spirits etc). Rightly so too. In the modern world double-digit growth is an emerging market phrase. In these countries the group is able to open new doors and mouths for its band of western, premium spirits. And doors and mouths don’t come any more numerous than in China. But first things first. Baijiu is not looking like taking a back-seat – it is growing at 2.1% (2011-2012, IWSR) and has an appealing CAGR of 18.8% (2007-2012, IWSR).

The spirit comes in many sizes and guises, but Diageo is concerned with what its Shanghai-based Chinese White Spirits general manager, Dan Hamilton, terms the “700rnb and above” [£70 plus] segment, aka China’s super-premium.  “Our core variant, Wellbay is around the 950rnb mark,” says Hamilton. “The Classic retails at about a 40% premium and Forest Green, which plays at the top end of super-deluxe, trades at a 90% premium to Wellbay. 

“There are a number of national brands in the super-premium segment. One is Moutai, another is Wuliangye. The distinction is that we purely play in super-premium whereas they have quite a broad family right down to the much lower price points. We are seeking to focus on the higher margins and high value end of the category.” 

Moutai, which is based in Guizhou Province in the south of China, comes in the form of the economy Moutai Yingbin, mid-market Moutai Prince, premium Flying Fairy Moutai, super-premium Gift-box Moutai and luxury Vintage Moutai. 

“Moutai is renowned as the spirit of China – basically everybody in China knows about it. From civilians to the social elite, all of them love our products,” says Jeff Wang, of the company’s marketing department. 

Normally such trumpeting wouldn’t pass through the pages of this magazine, but in the case of Moutai – particularly its popular Flying Fairy variant – it’s a case of blow away. According to Brand Finance, which devised Drinks International’s Brands by Value list, Moutai is the world’s second most valuable brand, behind Johnnie Walker but ahead of Hennessy, Bacardi, Smirnoff and Chivas Regal, with the aforementioned Wuliangye in seventh. 

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. 

“We have seen an uplift in demand in baijiu over the past couple of years,” says Lucy Mitchell, marketing director of SeeWoo. “It is mainly Chinese customers, residents but also Chinese officials demanding it from hotels and bars. Now we have started to see a trend in the mainstream.” 

The big question is whether baijiu – a strong (40-60% abv) pungent, and particular spirit – is appealing to western palates. “It’s a strong and complicated, traditional product that’s very distant from anything in the west,” says Wondrich. “Its production differs fundamentally. Even the most pungent spirits, for instance tequila, are nowhere near baijiu. It ranges from dirty socks to fruit to flowers – you can get that fungal sherry taste and a rancio flavour. I did a tasting of baijiu once and most of them were of high quality – there were more As than Fs. I have managed to acquire a taste for it – there are good ones out there – but it’s not my favourite spirit.”

Packing such a punch, this is not a white spirit that mixes well – something recognised by Diageo’s Hamilton, who says its is more suited to a traditional, small-sized shot. Wondrich too has his doubts: “I do not think it works well in cocktails – it’s too pungent. Although I have tried putting two dashes in a Manhattan.” 

So could baijiu ever come out of the dark and into the international spotlight? “It’s a hard sell – it would take a lot of outreach from the Chinese,” says Wondrich. “Baijiu is a very particular spirit but stranger things have happened. It’s like blue cheese and who would think to eat that?”