Imported spirits expand local market for beverages

The booth of Diageo is seen at the fourth China International Import Expo in Shanghai in November. [Photo/CHINA DAILY]

Growing income, changing tastes, higher-level opening-up in China boost global retailers' confidence and investments

A niche has developed for imported spirits like whiskey and cognac among young Chinese consumers, fueled by a growing high-income population and their increasingly discerning tastes. Global retailers are investing more in China to meet the demand.

Pernod Ricard, a French wine and spirits group and the world's second-largest producer, said despite the COVID-19 pandemic, its business got back on track in a short period of time, citing the fast recovery of the China market.

In its 2021 fiscal year, the company achieved sales revenues of 8.82 billion euros ($10.08 billion). In China, it netted sales growth of 44 percent during the period, though it didn't disclose specific sales figures.

Pernod Ricard said its sales growth in China indicates that it has gained trust and favor from many Chinese consumers. The company said it would continue to invest in China, as it believes in the strong prospects of the country's wine and spirits market.

"We believe that in the future, the trend of Chinese consumers embracing more diversified wine and spirits categories will only be strong, especially among middle-income and younger generations," said Jerome Cottin-Bizonne, managing director of Pernod Ricard China. "For Pernod Ricard, the market still has a lot of potential to be further explored.

"Our cognac brand Martell is widely welcomed, while our Scotch brands The Glenlivet, Royal Salute and Chivas Regal, as well as premium brands Absolut Swedish vodka, Ballantine's Scotch whisky and Beefeater London gin have continued to gain recognition," he added.

In 2021, cognac sales in China, the category's second-largest market after the United States, jumped 56 percent year-on-year. Some 34 million bottles were shipped, according to France's Champagne industry, as several spirits companies released strong results.

This year, whiskey sales in China are expected to hit about 19.13 billion yuan ($3.01 billion), and whiskey sales volume is predicted to reach 23.65 billion liters, according to market research company Euromonitor International.

French spirits group Remy Cointreau said imported spirits account for a relatively small proportion of the alcohol market in China, and its market share is much smaller than that of Chinese white liquor baijiu. Still, the company is highly confident that the proportion will continue to grow as many consumers have taken up new drinking habits.

In late November, Remy Cointreau raised its full-year profit forecast after a better-than-expected first-half performance, boosted by strong demand for its premium cognac in China, the US and Europe, the company said.

In China, consumers are increasingly looking for new experiences, new flavors and new products in high-quality wines and spirits. Late last year, Pernod Ricard opened a new flagship store named L'Atelier Martell in Guangzhou, Guangdong province, to cater to Chinese consumers' increasing interest in Martell cognac. The store is designed to showcase the history and culture of Martell, the company said.

With the government's implementation of higher-level opening-up, Pernod Ricard thinks more related policies regarding improving the business environment will be carried out, making the China market even more appealing to the outside world.

A visitor tastes Remy Martin products at an international expo in Shanghai. [Photo/CHINA DAILY]

To demonstrate its confidence in China, the company built a malt whiskey distillery in Emeishan, Sichuan province, and it began operating in November. The company said it is the first distillery built by an international wine and spirits group in China and the first global distillery in the world to appoint a Chinese master distiller.

The company said it wants to fuse authentic whiskey-making craftsmanship and local knowledge to create an iconic malt whiskey made in China.

"It is a long-term investment, referring to not only the 1 billion yuan in investments in the coming decade, but also the fact that we are building new know-how and unique Chinese whiskey culture over the years. We expect to bring iconic Chinese malt whiskey from Emeishan to the world stage one day," Cottin-Bizonne said.

"Pernod Ricard China is a concrete and living example of the opening-up of the China market to foreign companies and investors," he said. "We started in China around 30 years ago with a modest operation. Today, we have passed the symbolic threshold of 1 billion euros of net sales. The past fiscal year was record-setting for us, while we believe we still have the potential to grow further.

"Looking ahead, Pernod Ricard will sustain our strong commitment in China, and further introduce our unique leading product portfolio with more consumer-centric, interactive engagements."

According to spirits analytics firm IWSR, China stands as the world's largest alcohol beverage market by both volume and value. However, the penetration rate of international spirits is still quite low at around 3 percent, which presents an opportunity for further growth for global retailers.

Diageo Plc, a British spirits distiller that offers products such as Scotch whisky, gin and beer, will invest $75 million to build its first malt whiskey distillery in China. The groundbreaking ceremony of the distillery, located in Eryuan county, Yunnan province, was held in November. The construction of the distillery is expected to begin this year.

Diageo said it considers Eryuan one of the best locations to produce whiskey in China, as the natural surroundings will allow it to craft a world-class and China-origin single malt whiskey meant to delight premium whiskey lovers in China.

At more than 2,100 meters above sea level, the site of the distillery was carefully selected for its temperate climate, rich natural biodiversity and access to natural spring water, the company said.

Diageo said the latest investment in Yunnan serves as an important part of its long-term commitment to invest and grow in China.

"There is a growing appreciation for whiskey among Chinese consumers. We have seen this in action through the emergence of whiskey bars and boutiques across China, a growing popularity of whiskey auctions and the successes of our own whiskey summit and similar events," said Sam Fischer, president for Asia-Pacific and global travel at Diageo.

"We will continue to focus on premium whiskey as part of our core business, and we will also add a world-class China-origin whiskey to this portfolio. We have observed that Chinese consumers are evolving to appreciate whiskey for its heritage and craft, rather than drinking it for status," Fischer said.

Last year, the London-based company invested in a new regional logistics hub in Shenzhen, Guangdong province. It is also building a new research and development center in Shanghai, which is set to open this year. The R&D center will help it create a dedicated innovation ecosystem in China.