Riding the Dragon

The traditional Chinese spirit baijiu accounts for the lion’s share of China’s domestic spirits consumption volume at 95 percent. Foreign spirits like brandy, cognac and whisky only account for 2 percent of consumption volume in China due to lower acceptance by Chinese consumers. With the ongoing fight against corruption in China, both high-end spirits consumption and the traditional channels where spirits are sold are facing major headwinds.

chinese dragons

History of gifting, dining and entertaining with baijiu

Between 2008 and most of 2012, the domestic baijiu sector went through a distinct premiumisation process led by major brand names such as Kweichow Moutai, Wuliangye, Luzhou Laojiao and Swellfun. A key driver of the premiumisation during this period was in fact institutional demand. In the past, Baijiu was typically consumed in the form of gifting, dining and entertaining involving government officials and senior management of state-owned enterprises. This drove hefty rises in product prices and lifted the overall volume growth in the baijiu sector.

Adjusting after plunging profits

The government’s anti-corruption campaign put an end to what was clearly a trend towards premiumisation seen between 2008 and 2012. Domestic baijiu companies have now been forced to employ short-term tactics and adjustments in their strategies as they face plunging sales and profits.

Both domestic and international spirits companies will need to adjust their strategies to include demand from the more sustainable consumer side.

In this Rabobank Industry Note, find out how spirits companies can continue to explore growth and overcome challenges in the China spirits market.

Where to go from here