Changing consumption habits: Drinking in China

As China’s growth continues on an upward trend, consumption habits have changed. Drinking has long been a part of China’s culture and the Chinese prefer downing glasses of domestic products. These days however, an increase in purchasing power and demand for foreign products offer a huge potential for alcoholic beverage exporters.

While rice wine, beer and the local spirit, baijiu, are among the more popular alcoholic beverages in China, wine and fermented drinks are fast gaining popularity as well. In addition, an increase in health awareness have steered alcoholic consumption towards healthier alternatives such as wine and Chinese herbal spirits.

The increase of awareness of overseas offerings has also led to the demand for niche products such as cider and alcoholic premixes, especially in the first tier cities.

For the rich and wealthy, the consumption of alcohol can be an occasion to flaunt their wealth. For example, premium bottles of whiskey are frequently bought as gifts or served during business functions. This has prompted Diageo PLC to open a Johnny Walker House, which serves exclusive limited edition bottles of Johnny Walker 1910, to cater to the upper class in China.

Cultivating a taste for wine

The wine industry in China has seen a boost in recent years as income levels rise. During the recent 2011 China National Sugar and Alcoholic Commodities Fair, a hall was exclusively set up to showcase wines and other imported alcoholic products. According to the organisers, wine producers from over 20 countries were present at the event, thereby highlighting the growth of wine consumption in China.

Wine, particularly foreign imports, is increasingly being adopted by the rich as a symbol of success. According to Don St. Pierre, president of importer ASC Fine Wines, the profile of the average wine drinker is someone who is in the mid-20s to 30s, and who is aspiring to a more sophisticated lifestyle. However, older business executives have also been seen swigging a glass of wine in hand. Yvonne Chiong, sommelier at Jean Georges, said that she has been pleasantly surprised by the level of wine knowledge that businessmen in their 50s, also known as the first wave of self-made businessmen, have.

Wine’s health benefits have also made it popular with the older generation. In addition, David Henderson, President of China’s leading wine import company, Montrose, said that the Chinese’s taste for tea could explain why red wine is popular since the tannins in tea are exactly the same as those found in red wine.

While challenges such as the lack of education about wine remain, Frank Gibson, advisor to businesses entering China, said that the opportunities are vast and suggested that wine makers band together to gain more leverage before entering the competitive market.

Industry insiders estimate that imported bottles commanded about 10 per cent of the Chinese wine market, compared to 90 per cent from domestic enterprises such as ChangYu, Dynasty and Great Wall. However, as the Chinese clock up more travel mileage and gain a taste for foreign exports, this trend is set to change.

Increasingly, domestic wineries have also partnered with their foreign counterparts to develop wine. For example, ChangYu entered into partnerships between its three wineries and international companies from France, Italy and New Zealand, for the research and development of high end wines.

High end liquor

High end liquor makers in China, such as Maotai and Wuliangye, have also caught the eyes of investors. The latter, which is China’s second largest maker of baijiu and has the largest share of the baijiu market in China, raised liquor prices in December last year. However, this did little to deter demand.

As the government attempts to cool down China’s red hot property market by clamping down on speculation, the wealthier Chinese are looking to invest in high end liquor as an alternative form of investment. Recently, pawnshops have started offering high-end liquor mortgage and auctions and auction houses are reporting record bid prices for bottles of high end liquor. At an autumn auction in Beijing last year, a bottle of 1958 Maotai liquor received a record bid of CNY1.2 million (*S$0.23 million).

Foreign players have also been driven from saturated developed nations to emerging nations, such as China, to expand their market share.

Pernod Ricard SA and Diageo PLC, makers of premium spirits, are competing for a larger market share in the robust Chinese economy. According to EuroMonitor, Pernod was the market leader with 37.5 per cent market share last year while Diageo was second place with 27 per cent. Currently, Pernod’s sales in China contribute 10 per cent of the multinational’s total annual revenues, and this figure is expected to grow, according to Pierre Pringuet, Pernod’s chief executive. 

With the recognition that baijiu is the most popular spirit drunk in China, Pernod has entered into a joint venture with Jiannanchun Group through its acquisition of Sweden’s Vin & Spirit, to tap into this segment.

The changing consumer preference for higher end alcoholic beverages has spurred international companies to make inroads into China, or to attempt to expand market share through joint ventures with local companies. As China’s economy continues to grow, companies interested in the market will have to note that consumption habits in China will change, and adapt accordingly.

*Exchange rate correct as at 6 June 2011