Beijing’s top tipple heads down market after Communist crackdown

November 22, 2013 1:13 am

Beijing’s top tipple heads down market after Communist crackdown

By Patti Waldmeir in Shanghai

The Chinese Communist party’s favourite drink, ultra-luxury baijiu, is heading downmarket to supermarket shelves and restaurants as a result of Beijing’s ban on top-end white spirits. The prohibition is part of the government’s anti-corruption campaign, which is hitting sales of luxury goods from watches to mooncakes. With expensive drinks from baijiu to Bordeaux now off limits for officials, purveyors of tipples from wine to white spirits are trying to cultivate new drinkers and distribution channels in one of the world’s oldest drinking cultures.Baijiu is usually made by distilling sorghum, but rice, what and barley can also be used.

“The traditional way of selling baijiu to the party, government, the military, or state-owned enterprises – those channels are gone, so we are readjusting our sales network to deliver the product in front of Chinese consumers . . . focusing on retail channels like Walmart,Carrefour and RT-Mart [the Taiwanese-French retailer]”, says Jim Rice, managing director of Diageo-controlled Sichuan Swellfun. The company owns Shuijingfang, one of China’s most exclusive baijiubrands.

Shuijingfang’s global sales fell 60 per cent in the first three quarters of this year from a year earlier, due to China’s luxury crackdown and slower economic growth, Mr Rice says.

Kweichow Moutai, the party’s top tipple, said recently that it would “no longer target high-end buyers only” and instead cater to a broader customer base.

Shuijingfang will do the same, going both up- and down market to boost sales. In future, Mr Rice says, half of Shuijingfang’s products will sell for less than Rmb500 ($82) a bottle – a category where the company previously sold nothing.

Tie Li, a marketing consultant who specialises in baijiu, which is usually made from sorghum, but can also be based on rice, wheat or barley, says a structural market shift is already under way. He estimates that sales of baijiu priced at more than Rmb500 have halved since the austerity push began, while sales of Rmb200-300 bottles are up about 15 per cent.

In addition to cheaper products, Mr Rice plans to introduce super-expensive and even bespoke ones, including a new ultra-high-end product that will sell for as much as Rmb68,000 a bottle. Selling baijiu at those prices means creatively marketing “the story” of Shuijingfang: Mr Rice claims its distillery, in continuous production since 1408, is the oldest in the world.

“There is still plenty of consumption out there and baijiu is still the biggest category of alcohol in the world – bigger than cognac or whisky,” he says. The shift from government-led to private consumption is “normal”, he says, noting that the drinks industry outside China does not rely on sales to government.

Euromonitor estimates the overall size of the Chinese baijiu market will grow to Rmb581bn by 2015 from an estimated Rmb437bn this year, having already more than doubled since 2008.

It’s not about going to a restaurant and buying the most expensive bottle to show off, it’s about drinking because they enjoy it

– Shaun Rein, China Market Research

France’s Pernod Ricard, owner of Martell cognac, has also begun promoting some less expensive brands in China, traditionally an ultra-premium market for cognac. The company said Beijing’s austerity programme contributed toa 9 per cent fall in global sales in the three months to the end of September compared with the previous year. Pernod said that while it was still confident in the potential of the ultra-high-end market, it was keen to capture a new category of consumers.

Wine sellers say the anti-excess campaign has hit them too.

Previously “the market was like an hourglass, with a lot of volume at the low end and a lot of value at the high end and not a lot in the mid-market”, says John Watkins, chief executive of ASC Fine Wines, one of China’s best-known wine importers.

Now most government consumption is gone, and “people at both ends of the hourglass are experimenting”, he says. “Entrepreneurs and connoisseurs are realising they don’t need to spend Rmb5,000 to get a great bottle of wine . . . and where demand used to be nearly 100 per cent Bordeaux, now high-end Californian, Australian, Italian and Burgundy wines are gaining popularity.”

“People are trading down or they are trading up,” says Shaun Rein of China Market Research group in Shanghai. “It is becoming more about knowledge and less about raw money”.

And Chinese consumers are changing not just what they drink, but how. “They are drinking [wine] by themselves, with friends, at home; it’s not about going to a restaurant and buying the most expensive bottle to show off, it’s about drinking because they enjoy it,” he says.

Serving a more sophisticated and diversified market will not be easy, says Torsten Stocker of AT Kearney in Shanghai. “Status-driven gifting, banqueting that is alcohol-fuelled – tapping into that market is relatively easy,” he says. “But getting people to drink whisky at home, that is much more of a behavioural change.”