In this series of infographics, we look at the key things brands need to know about the Chinese whisky market, including sales figures and customer profile.

The sales value of whisky in China:

The trade value of whisky imports to China:

The Chinese whisky drinker:

How China’s global ranking as a whisky importer has changed:

Where are China’s distilleries?

Value of whisky imports by country:

Scottish whisky exports to China:

Event: The China Whisky Outlook 2024

This June, Barley will be co-hosting ‘The China Whisky Outlook 2024’ in partnership with the China-Britain Business Council and the Scotch Whisky Association. 

The event will be held in Edinburgh on 20 June 2024 in partnership with Potter Clarkson and will cover topics including how to protect your Scotch whisky brand in China, how to export your whisky to China, and the Chinese whisky market landscape.

Speakers include Iain Weir (Ian Macleod), Paul Skipworth (Eden Mill St Andrews/SMWS), Sarah Talland (Potter Clarkson), Lindesay Low (SWA), Tom Pattinson (Barley), James Brodie (CBBC) and more to be announced.

The free event is open to businesses in the whisky industry who have entered or plan to enter the Chinese market. To express interest or to register click here.

Potter Clarkson’s dedicated FMCG team specialise in maximising the value of food and drink brands and products. If you’d like to discuss how they can help you identify, protect, exploit and enforce your ideas and innovations, please contact them at fmcg@potterclarkson.com.

The post Infographic: The Chinese whisky market appeared first on Focus - China Britain Business Council.

The heavy bass of the music bounces off the walls of the club, arms wave in the air, and waiters deftly dart around the cavernous nightclub, buckets of ice packed with bottles carried over their heads. They bring trays of glasses to VIP tables where jugs of chilled green tea are used as mixers for the bottles of Chivas Regal whisky that are dotted on nearly every table. In one of the many VIP rooms, I sit on a sofa and watch as a bottle of Chivas so big it has to be lifted by a pulley system fills jugs mixed with green tea over ice.

It’s 2006, Beijing, and I’m in Mix, one of a number of huge nightclubs where the newly emerging middle class are coming to let their hair down, dance to techno and show off their wealth. They are doing this by buying enormous quantities of a new Western drink – whisky.

When I first landed in China, I thought Chivas Regal was a chain of nightclubs, such was the vast amount of branding inside and outside nearly every nightclub in the country in those heady days.

In the first decade of the 21^st century, all kinds of brands were trying to crack the lucrative China market and spirits brands were no exception. But Pernod Ricard had decided to push Chivas Regal, which they purchased in 2001, into the market and for a few years at the end of that decade, ‘Chivas and Green Tea’ was the go-to drink for clubbers around the country. It revived the Chivas brand, increased Pernod Ricard’s revenues significantly and helped introduce whisky to a market entirely dominated by the white spirit baijiu.

That year, 2006, China leapt into the top 10 whisky-drinking countries for the first time ever, in no small part thanks to Pernod Ricard’s sustained promotion drive that involved not just sponsoring clubs but fashion shows, international DJs, and even opening their own bar. In 2006, £90 million was spent on whisky in China, according to the Scotch Whisky Association (SWA). Today, that number has increased tenfold, with the value of whisky sales in China reaching nearly a billion pounds.

Growth and expansion: The Chinese whisky market gains influence

China’s national spirit, baijiu – a pungent white liquor made from sorghum that is toasted at banquets, weddings and business meetings – makes up 96% of the country’s spirits market. Whisky absorbs just 1%, with brandy being the dominant imported spirit and vodkas, gins and rums comprising the rest.

Still, a single percent of China’s staggering £120 billion annual spirits sales amounts to a big chunk of revenue. China became the world’s fourth largest whisky market by value in 2023 – up from sixth in 2022. And according to Euromonitor International, China’s whisky sales are expected to double from £920 million in 2023 to £1.8 billion by the end of 2025, which will make China’s whisky market greater than Germany’s. Euromonitor predicts whisky – including Scotch whisky – will be the fastest-growing spirit in China in the coming years, booming by 88% between 2023-2026, and the whisky market in China is expected to grow at around five times the rate seen globally.

In 2022, the Asia-Pacific region overtook the EU in Scotch whisky sales to become the industry’s largest market, and exports of Scotch whisky rose a whopping 37% in 2022 according to the SWA – in no small part due to double-digit growth from China.

For brands, China is becoming increasingly important. China is now Pernod Ricard’s second-largest market, and businesses, both international and domestic, are fully aware that there’s a lot of room for further growth.

Moreover, imports are only part of this picture. There are currently around 48 whisky distilleries either in production or under construction in China as local and international players look to diversify their offerings with Chinese origin whisky.

The rise of the single malt aficionado: A snapshot of the Chinese whisky drinker

Kelvin Tam, the Scotch Malt Whisky Society Brand Ambassador and Development Manager for Hong Kong and Macau, said recently that the number of whisky enthusiasts in China is currently estimated to be between 500,000 and a million. By comparison, 20 years ago, there were a mere 300 whisky drinkers in the whole country.

As well as the rapidly rising number of Chinese whisky drinkers, it’s the demographic of that drinker that is catching the eye of global marketeers. Whilst in the West, whisky has traditionally been preferred by an older audience, in China, it is the young who are drinking more of it. It is estimated that 47% of Chinese whisky drinkers belong to Gen Z (born between 1997 and 2012), and according to a report released by Morgan Stanley, in China, whisky represents more than 50% of the volume of alcohol consumed by the young urban population born after 1990, ahead of brandy and baijiu.

Often well-educated and wealthy, these urban youngsters are buying into a lifestyle that represents culture, class and history. Chinese consumers are more adventurous and willing to experiment with new products, brands and experiences.

The big international whisky brands have realised that the scattergun approach of heavily branding nightclubs and selling cheap whisky to novice punters might have worked a couple of decades ago but is no longer the primary route. In 2023, the volume of imports rose by 6.4%, but their value soared by 23% as buyers looked towards premium products.

The whisky market in Asia “started very much with blends and big brands, trying to do big plays,” says Pedro Mendonça, Global Reserve Managing Director at British drinks company Diageo. “Over the last decade, single malt has taken off, and people are discovering and finding their own way in and appreciating the different flavours and the different characteristics.”

Chivas Regal was still making up nearly 29% of China’s whisky consumption by volume in 2019, but young Chinese consumers, who have their own tastes and preferences, have driven the rise in popularity of higher value, lower volume products. Single Malt Scotch such as Glenfiddich and The Macallan have tripled and doubled their market share respectively in China since then, according to Euromonitor.

In a bid to educate and engage with China’s first generation of whisky aficionados, Diageo has organised 13 whisky summits across China since 2017 and claims to have reached over 12,000 potential Chinese whisky lovers through a “whisky culture education” institution called Diageo Whisky Academy.

Homegrown: The era of the Chinese distillery

Now that an established audience is emerging, the race is on to create a whisky in China for a Chinese audience. French company Pernod Ricard was the first international spirits company to release a Chinese whisky, made at its own distillery in China’s western Sichuan province. The company said it will invest £110 million over a decade in the project, and when its first release ‘The Chuan’ hit the shelves in December 2023, it led to a lot of global headlines.

Pernod Ricard’s The Chuan is the first China-origin whisky created by an international drinks brand

“This first-ever product of The Chuan celebrates the vision of Pernod Ricard to create a prestige malt whisky made in China,” said Jerome Cottin-Bizonne, CEO of Pernod Ricard China, in a press release about the distillery. “We are proud to put China on the world map of whisky by presenting this exceptional malt whisky of The Chuan.”

Diageo has invested over £55 million in its own Eryuan Distillery in Yunnan Province. Chinese brewery Qingdao Beer and Chinese winery Grace Vineyards both have distilleries in the works, whilst baijiu manufacturers Gaolong and Daiking have diversified into whisky production. Gaolong has been producing a range of Chinese-made whiskies for some time; its ‘Gaolong Blended Chinese Whiskey’ and ‘5 Year Old Bourbon Cask Single Malt’ are for sale on the UK-based retail site The Whisky Exchange.

Diageo’s Eryuan Distillery in Yunnan

Cognac company Camus has partnered with baijiu producer Gujinggong to create the £24 million Guqi distillery in Bozhou; and another well-established baijiu producer Yanghe has also moved into whisky making.

Perhaps most astonishing of all has been a major project funded by the MengTai Group that saw the wholesale relocation of stills and equipment shipped in from Scotland by Forsyths to the Ordos region of Inner Mongolia to create a £20 million distillery. The Rothes-based company prefabricated a modular distillery including a two-ton mash tun, copper stills, condensers and stainless-steel tanks. This was shipped over to Inner Mongolia and reassembled, with the aim of producing “world-class whisky” after the two years of maturation in casks that the Chinese national standards require. Like many other Chinese distillery owners, the MengTai Group has engaged experienced managers and head distillers from Scotland to lead the project in a bid to ensure quality and authenticity are retained.

Angus Dundee Distillers – makers of Tomintoul and Glencadam, among others – has also opened its own distillery near Hangzhou. “We’ve been in China since 2005 and decided China was a market for the future,” says Brian Megson, the Director of Angus Dundee Distillers. Megson says that Chun’an Distillery will be finished in two to three years, before then requiring a further four to five years to produce whisky.

The race is on to create a whisky in China for a Chinese audience

Megson explains that the company had plenty of options when looking for the optimal site. “We wanted to find somewhere that’s not just good for whisky production but also good for the visitor centre. This area is great for tourism, and the numbers are mind-boggling. Hangzhou is a big city, and Shanghai is not far away. We found somewhere that was suitable and found a plot and have had a good amount of support from the local authorities.”

Further south, a large consortium of mainly Western investors has opened the Nine Rivers distillery near Xiamen in eastern China. Led by former drinks importer Jay Robertson, the project was developed after the cost of importing drinks “went through the roof”.

Nine Rivers undergoing construction with grand ambitions

Robertson explains that Nine Rivers is sustained through crowdfunding. Sixty-two percent of the investment comes from the board, composed mostly of expats and international investors, and 38% from micro investors, with the entry amount dropping as low as USD $1,000.

Robertson believes Nine Rivers will become China’s single biggest single malt whisky. “We have had interest from corporate money and engagement from big baijiu companies and one big scotch whisky producer, but we’re not interested in that,” he says. “Our strategy is to have lots of people with skin in the game. China is an influencer-led country. Everything has always been a word-of-mouth culture where recommendations from friends and family trump advertising spending.”

Robertson says that Nine Rivers aims to make 1.31 million LPA (Litres of Pure Alcohol) at launch, which would be more than the 1 million LPA Pernod Ricard produces from its two-still set-up, but less than the four stills that give Diageo the capacity for 2 million LPA. However, Nine Rivers has the ability to expand up to 7.5 million LPA as and when the demand requires, he argues, which would make it the largest distillery in the country.

A new terroir for a new whisky territory 

China’s continental size means that the vastly varying natural environment can influence the flavour of any whisky produced. From the dry plains of Inner Mongolia, which is home to the MengTai distillery, to the subtropical jungles of Yunnan, where Diageo has its base – the landscape couldn’t be further removed from the rugged mountains of the Scottish Highlands.

“Yunnan Province is renowned for its temperate climate, rich natural biodiversity and pristine water sources,” a Diageo spokesperson tells me. “Our distillery in Eryuan County will be carbon neutral, and we envision a 100% sustainable approach to malt whisky making that embraces the natural resources and beauty of the region.”

Pernod Ricard’s operation is based in the hot and humid Sichuan province and shares the same water sources on Sichuan’s Mount Emei as Nongfu Spring, China’s leading bottled water brand. “The year-round precipitation coupled with summer heat creates the exceptional environment for whisky making that increases the intensity of flavours with more evaporation,” says a Pernod Ricard spokesperson.

But whisky is not just the sum of its parts. The parts matter a great deal, too. Much debate has been had in Chinese whisky circles about whether local barley and grains should be used to produce whisky or whether they have to be imported.

“I believe core whisky consumers expect a Chinese whisky to be ‘Chinese’, which means made entirely in China, from mashing to fermentation to distillation to maturation, all carried out in China,” says Kelvin Tam of the Scotch Malt Whisky Society. “Blending with imported whisky, even if resulting in better whisky, will be considered cheating, hence rejected by at least core consumers.”

Whisky is not just the sum of its parts. The parts matter a great deal, too.

According to both Whisky Advocate and Global Drinks Intel, Pernod Ricard’s The Chuan whisky includes imported distillate. Pernod Ricard states that: “Chinese ingredients have been fused into high-standard whisky making, such as the use of both European and Chinese barley and the unique mastery of three types of oak from three continents that defines its complexity.”

Diageo says that it will combine its “prestige whisky expertise and craftsmanship with local natural resources to create the finest quality Chinese origin single malt whisky with unique character and provenance. Where possible, we will look to optimise local sourcing for the production process.” However, they say that they cannot comment at this time on what that means in terms of type and location of grain, mixed or pure Chinese distillate, type of barrels, as the distillery has not yet formally launched. “Our single malt whisky produced in China will have its own unique brand and characteristics,” Diageo says.

Brian Megson of Angus Dundee also tells me that there are “options of both importing barley or using local grains” in their Chinese distillery. However, according to Robertson of Nine Rivers, all barley is imported to China (from the US, Australia and Europe) as the Glycosidic nitrile content of Chinese Barley is too high, which can lead to carcinogenic compounds being created in the malting process. “Even the beer in China is made with imported barley,” he claims.

Ultimately, how much does it matter? Each territory has its own rules, as Robertson points out. “Australian whisky mostly uses the same wash from the same brewery; the US has many types of whisky – corn whisky, rye whisky, bourbon whisky, Tennessee whisky – with different rules about maturation. Ireland, you have much more flexibility of wood; in India you can call almost anything whisky, Japan has little regulation,” he says. “In China the regulations are similar to Scotch, but it needs two years in a barrel instead of three.”

Robertson says that he wants to differentiate Nine Rivers from Scotch as much as possible. “We are in China, it’s the world’s biggest economy – they are now at the top of the food chain in nearly every single industry. It’s the ones that break out who become world-beaters. Why try and get into the slipstream of Scotch? Yes, it’s whisky but there are a lot of things that we can do differently – bringing in terroir, utilising local yeasts and creating our own cooperage (barrel maker).”

Without the strict rules that are imposed on Scotch, whisky made outside of Scotland has the flexibility to use different maltings, waters and casks to create something wholly new.

Wu Hao, the master distiller at the Laizhou distillery, is experimenting with whisky aged in Chinese yellow wine casks. “We season the casks with yellow wine for about 24 months,” he says. “Whisky matured in a yellow wine cask is similar in style to a sherry whisky but gives a hint of fermented rice – something that Chinese consumers would be familiar with. When we cook food, we always include rice wine so the flavour is very familiar to the Chinese market. It’s a great innovation in that it follows traditional techniques but uses Chinese culture,” he explains.

Laizhou is the largest distillery currently operational in China

Laizhou also has its own cooperage, and, says Chen, they have been putting whisky into any and every barrel they can get their hands on. “China is a big market with a large population, and we don’t know what flavour [whisky] Chinese consumers will love, so we want to have all different flavours of casks – bourbon, every type of sherry casks, rum, tequila casks. Our objective is to get as many casks as exist in the whisky world to help find what flavours the Chinese consumers will love,” he says.

The group has also spent years analysing what types of local woods might be used in their production. “Mizunara wood from Japan is a branch of Mongolia oak which originates from China. Mongolian oak is the same as Mizunara but it’s hard and difficult to bend, so it has some problems when used to make whisky with leakage, meaning the angel’s share is often as much as 30%,” he says.

Laizhou currently uses nearly all English barley, but they are experimenting with local grains, too. It’s likely local distilleries will experiment with a wide range of grains and processes to find their unique Chinese flavour profile. Chen explains that when the Chinese market determines what that preference is they have the capacity to pivot in that direction very quickly.

With a global shortage of wood for barrels to age the distillate, rumour has it that the Chinese baijiu producers that are moving into whisky production are pushing for oak staves, chips and even powder to be used to flash age whisky. However, global institutions, including the Scotch Whisky Association, have been keeping a close eye on this emerging market, aiming to ensure the existential concept of what a whisky is does not get too diluted.

Investment by big players into producing a local origin whisky demonstrates the vast untapped potential of whisky in China

“Over several years, the SWA has been working with a variety of stakeholders, including the China National Institute of Food and Fermentation Industries, the Chinese Alcoholic Drinks Association and the Foreign Spirits Producers Association in China to provide input on the revision of the Chinese Whisky Standard,” says Lindesay Low, Deputy Director of Legal Affairs at the SWA.

“The whisky category in China has been built by Scotch Whisky. Now that domestic producers are taking an interest in making whisky, the SWA wants to make sure that, so far as possible, they follow the same high standards that apply to Scotch, Irish, US Bourbon and other internationally traded whiskies. This is to maintain the category’s premium reputation and to ensure that Chinese consumers, who have become accustomed to this type of whisky, are not short-changed, for example, by being sold whisky that has not been aged in wooden barrels,” says Low.

“Places like India and the US have established whisky industries, and producers there make their whisky in line with established laws and practices”, Low says. “In China, however, where whisky has not been distilled in significant quantities previously, the Chinese authorities were keen to learn from other countries when creating their new standard. Our position was that because Chinese consumers were accustomed to Scotch Whisky, they should follow that definition as closely as possible, taking account of local conditions.”

Rules, regulations and cultural challenges 

The aim of domestic companies and global behemoths alike is to create a Chinese-origin whisky that will supply the growing domestic market, avoid import regulations, bypass shipping costs, and circumnavigate any geopolitical tensions. If done well, they might have the potential to be exported globally like the Taiwanese Kavalan and Japanese Nikka whiskies.

China might be a vast market, but its unique make-up presents challenges, too. Whilst spirit imports rose by 22.8% in 2023, bottled wine imports to China fell 17.6% by value and 29.1% by volume during the same period. This was partly due to political conflicts between China and Australia and other wine-producing regions. On top of this, an oversupply of domestically produced wine and a growing (government-led) nationalistic drive to promote, support and buy domestically may further complicate the picture. And markets can swing far more rapidly in China than in more established regions. Operating in China for new brands can be daunting, with significant obstacles across language, culture, regulatory and intellectual property.

The SWA has been instrumental in keeping whisky import tariffs at just 5% (compared with 10% prior to December 2017), but it’s important for brands looking to enter the Chinese market to be fully aware of the risks – as well as the clear benefits.

Sarah Talland of law firm Potter Clarkson has supported a number of whisky companies entering the Chinese market and is well aware of the potential pitfalls that can arise. “In China, there is a first-to-file trademark system that effectively means someone else can ‘steal’ your brand with little consequence if they file your trademark before you do”, she says. “Therefore, it’s essential to create your own Chinese name before your customers or third parties do it for you.”

An error many companies make is contacting possible partners in China without obtaining their own IP protection first. “This could result in you being blocked from the market or being forced to work with distributors you would prefer not to, if someone else registers first,” she explains.

Talland tells me that there are many brands that have done this well. Both Glenfiddich and Bruichladdich sensibly ensured they had their trademarks protected and logo copyright in place and took local guidance on suitable Chinese names before they entered the market on a large scale. Now they are both successful whisky brands in China.

With rapidly growing demand and an increased awareness of whisky, sales of both volume and high-value whisky are predicted to continue to rise and rise. The investment by some of the big players (and the emergence of newer makers) into producing China origin whisky goes to show the vast untapped potential of whisky in the country. Is China’s market a challenging one? Without doubt. But are the risks worth the seemingly endless rewards? For many, it seems so.

Event: The China Whisky Outlook 2024

This June, Barley will be co-hosting ‘The China Whisky Outlook 2024’ in partnership with the China-Britain Business Council and the Scotch Whisky Association. 

The event will be held in Edinburgh on 20 June 2024 in partnership with Potter Clarkson and will cover topics including how to protect your Scotch Whisky brand in China, how to export your whisky to China, and the Chinese whisky market landscape.

Speakers include Iain Weir (Ian Macleod), Paul Skipworth (Eden Mill St Andrews/SMWS), Sarah Talland (Potter Clarkson), Lindesay Low (SWA), Tom Pattinson (Barley), James Brodie (CBBC) and more to be announced.

The free event is open to businesses in the whisky industry who have entered or plan to enter the Chinese market. To express interest or to register click here.

Potter Clarkson’s dedicated FMCG team specialise in maximising the value of food and drink brands and products. If you’d like to discuss how they can help you identify, protect, exploit and enforce your ideas and innovations, please contact them at fmcg@potterclarkson.com.

The post The long read: The rise and rise of whisky in China appeared first on Focus - China Britain Business Council.

Tell us more about how Diageo entered the China market.

We established our China business in 2002 and over the years, we have developed an outstanding portfolio of international and local premium beverage alcohol brands in China, ranging from Scotch whisky, gin, vodka, liqueur, rum, and beer to Chinese baijiu. Today, China is one of Diageo’s top three global strategic markets.

What major successes and growth has Diageo experienced in that time?

Over the last few years, Greater China has increased from 2% to 5% of Diageo’s global net sales.  In the first half of the 2023 fiscal year, Greater China net sales grew 2%, driven by Scotch with strong performance in the super-premium-plus segment.

We are rapidly expanding our strategic footprint in China and have made a series of investments to better serve the growing market. For example, in May 2021, we established a regional Logistics Hub in Shenzhen to service China and the Asia-Pacific region, and the Diageo Eryuan Malt Whisky Distillery in Yunnan Province is under construction and due to open next year. The distillery will be carbon neutral in operations and will produce the highest quality Chinese single-origin whisky.

Speaking of carbon neutrality, our 10-year sustainability action plan, “Society 2030: Spirit of Progress”, which focuses on promoting positive drinking, championing inclusion and diversity, and pioneering grain-to-glass sustainability, underpins our sustainable business strategy.

What challenges have you faced?

In terms of challenges, the restrictions of the Covid pandemic impacted our business, both in terms of employee welfare and sales and distribution of our products. Nevertheless, we responded with speed, agility and a strong sense of community. We always put our people first. During the extended lockdown in Shanghai, we delivered multiple food care packages to employees and their extended families and friends and provided counselling and support services. This commitment has helped strengthen our brand and competitive advantage to further attract talent critical to our future growth.

The Chinese economy has proven remarkably resilient, and we expect that the easing of Covid control and entry policies will bolster the economy, boost domestic consumption and enhance foreign exchange and cooperation. Nevertheless, China’s market is complex and rapidly evolving, with multiple consumer segments and sophisticated demands. It has taken patience, agility and hard graft to build categories, educate consumers, enhance brand awareness and expand our route to market. We have learnt a great deal in our over 20 years in China, and we will continue to grow our business and continuously fine-tune our strategy to meet market requirements.

Atul Chhaparwal, Managing Director, Diageo Greater China,

How critical is the China market to Diageo’s global strategy?

China is the world’s largest beverage alcohol market, with 25% of global total beverage alcohol (TBA) value and one of the fastest-growing TBA markets in the world. The share of international spirits still remains low (RSV accounts for 2.5% of TBA market), but this reflects the huge growth potential.

Whisky – our core strength – is the second-largest international spirits category in China but also among the fastest-growing beverage alcohol categories. We posted double-digit growth in Scotch in our 2022 financial year despite the impact of Covid restrictions. Our whisky retail sales value is ranked no.1 in China market, according to statistics from IWSR 2022 [a market analysis company].

We are confident about double-digit accretive growth in China for our international spirits business.  We can expect that China will continue to open up and pursue high-quality development and that consumers will continue to seek higher levels of quality consumption, further boosting an already vibrant consumer market and continuing the trend of premiumisation.

Tell us a little bit about how Diageo connects with consumers in China. How does the Chinese market differ from other major markets you operate in?

China is one of the world’s most exciting markets for spirits producers. The potential has always been clear, but it has been fantastic to see how consumers in China are increasingly embracing international-style spirits – particularly Scotch whisky, which is proving especially popular with younger consumers.

As one of the world’s leading international beverage alcohol companies, we have witnessed the booming development of international spirits in China and the trend of premiumisation. We are excited by the potential of the market and will be continuously developing innovative products that both cater to China consumers’ diversified demands and pay tribute to local Chinese culture.

At the same time, baijiu plays an important role in China’s unique alcohol culture. Diageo is currently the only international beverage alcohol company to participate in the dynamic baijiu sector, and we are very proud of our involvement with the iconic Shuijingfang brand.

Chinese consumers are also among the most sophisticated digital consumers in the world. We are actively embracing new consumption trends and continue to invest in digital and e-commerce channels and work with local partners to integrate online and offline strategies that jointly contribute to the development of the industry in China.

Overhead view of the design of Diageo Eryuan Malt Whisky Distillery

What are your thoughts and reflections on the Chinese consumer landscape today, and how has this changed over the pandemic?

The TBA market continues to grow across all categories in China. While international spirits is the fastest-growing category, it still only represents around 2.5% of the total market, presenting a clear opportunity for Diageo.

At the height of the pandemic, the extended closure of our on-trade channels, such as restaurants and bars, due to lockdowns significantly impacted our business. On the other hand, we saw an increase in in-home consumption that led to growth in our e-commerce channels. In fact, Greater China achieved a 2% growth in net sales value in the first half of the 2023 fiscal year.

In 2020, as part of our global initiative to support and sustain the hospitality industry, we launched the “Raising the Bar” initiative in support of more than 1,000 bars and restaurants in six cities across China.

We remain optimistic about the China market and the growth potential for our business and expect the market to rebound strongly as consumer confidence gradually returns.

What do you think will be the hottest consumer trends in China over the next five years?

As China has set itself highly ambitious targets on sustainable development goals, I have noticed a growing awareness of sustainability and social responsibility among consumers, especially in terms of responsible drinking and environmental protection. There are emerging wellness trends towards lower alcohol and lower calorie drinks offerings, and consumers are becoming more discerning and choosing brands with strong environmental sustainability credentials.

We have an opportunity to work with Chinese industry and government to address many of these challenges and position ourselves as thought leaders in this area. Our Society 2030: Spirit of Progress initiative is setting the standard for ESG and is opening doors at multiple levels for us to engage with key stakeholders in China.

Diageo’s Positive Drinking Month initiative

Today, we are building on a successful track record of ESG progress. For example, we have localised our flagship responsible drinking programme, DRINKiQ, to educate Chinese consumers on the effects of alcohol and inform them of the choices they make when drinking.

Our integrated ESG strategy is anchored around our business and its positive impact on our people, our communities and broader society. Importantly all our initiatives are aligned with China’s own sustainable development goals.

What are Diageo’s future ambitions and plans in China?

We will continue to increase our strategic footprint through a series of “in China for China” initiatives.  For example, our Diageo Eryuan Malt Whisky Distillery is scheduled to open next year and will bring China into the centre of the global whisky conversation.

Meanwhile, we will continue to expand our local innovation and production capabilities and develop innovative products that satisfy Chinese consumers’ diversified demands.

We are committed to ensuring that our sustainability and ESG strategy aligns with China’s own high-quality development goals, be they industrial, social or environmental, and we look forward to continuing to work with local partners, industry peers and organisations such as the China Alcoholic Drinks Association (CADA) to support China in its goals to improve quality of life, facilitate sustainable development and optimise the business environment.

Our “Society 2030: Spirit of Progress” sustainability action plan will continue to guide us to create a more inclusive and sustainable world.

If you could give one piece of advice to UK consumer brands entering China, what would it be?

Stay at the forefront of Chinese consumer insights and trends to ensure your brands and products remain relevant in this rapidly evolving market.

China Consumer 2023

This article was produced as part of a series for China Consumer 2023.

Learn more about CBBC’s flagship consumer event of 2023 here.

The post How to navigate the world’s largest alcohol market appeared first on Focus - China Britain Business Council.

In this fourth instalment, Corporate Relations Director of Diageo Greater China Lin Fou-Menuhin tells FOCUS how the company has been promoting positive drinking, championing inclusion and diversity, and pioneering grain-to-glass sustainability.

Tell us how and when Diageo entered the China market …

We established our China business in 2002 and over the years we have developed an outstanding portfolio of international and local premium beverage alcohol brands in China, ranging from Scotch whisky and gin to vodka, liqueur, rum, beer and Chinese baijiu. However, our iconic Scotch brand Johnnie Walker actually first appeared in China as far back as 1910.

Today, China is one of Diageo’s top three global strategic markets. We will continue to stay at the forefront of Chinese consumer insights and trends, innovating and developing quality products that cater to Chinese consumers’ tastes.

What major successes have you scored during this time, and how has the company grown?

Over the last few years, Greater China has increased from 2% to 5% of our global net sales. In the first half of the 2023 fiscal year, Greater China net sales grew 2%, driven by Scotch with strong performance in the super-premium-plus segment.

We are rapidly expanding our strategic footprint in China and have made a series of investments to better serve the growing market:

• In May 2021 we established a regional logistics hub in Shenzhen to service China and the Asia-Pacific region.
• In September 2021, we announced plans for a new R&D Centre in Shanghai to strengthen our ability to innovate and develop premium products for the China market.
• In November 2021, we broke ground on the Diageo Eryuan Malt Whisky Distillery in Yunnan Province and construction is well underway. The distillery will be carbon neutral in operations and will produce the highest quality China-origin whisky.

Our 10-year sustainability action plan, “Society 2030: Spirit of Progress”, which focuses on promoting positive drinking, championing inclusion and diversity, and pioneering grain-to-glass sustainability, underpins our sustainable business strategy.

Last year, we also launched a positive drinking month promotion campaign that successfully attracted 585,423 users to visit Diageo’s DRINKiQ website (Diageo’s flagship responsible drinking programme). In addition, over 47,630 people completed the Wrong Side of the Road test, raising consumers’ awareness of the dangers of drunk driving.

We are also developing China-based regional centres of excellence (CoE) in key functions to ensure that we have the talent and organisational muscle to drive business growth in China and Asia Pacific.

What are your thoughts and reflections on the Chinese market today?

The overall alcoholic beverage market continues to grow across all categories in China. While international spirits is the fastest-growing category, it still only represents around 3% of the total market, presenting a clear opportunity for Diageo.

At the same time, baijiu plays an important role in China’s unique alcohol culture. Diageo is currently the only international beverage alcohol company to participate in the dynamic baijiu sector, and we are very proud of our involvement with the iconic Shuijingfang brand. As a result, our diverse product portfolio can cater to different consumer demands, occasions and tastes – from Scotch whisky to baijiu and from premium beer to white spirits such as gin and tequila.

Our Chinese consumers are becoming more adventurous and willing to experiment with new products and brands. They are increasingly choosing brands that offer superior quality, authenticity and taste as they pursue a better quality of life. They are also increasingly sophisticated and interested in the culture and heritage of our products.

We have witnessed the rapid growth of e-commerce and digitalisation in China, which is enabling us to deepen our market penetration and make our products more accessible for Chinese spirits connoisseurs.

How has CBBC supported you during this time?

CBBC plays an important role in promoting trade and partnership between the UK and China, helping shape bilateral relations and promoting the interests of businesses, which has facilitated our strategic investment and growth in China. For example, in 2021, Diageo CEO Ivan Menezes, as a representative of senior British business leaders, attended a virtual meeting with Premier LI Keqiang organised by CBBC and the China Council for the Promotion of International Trade (CCPIT), and showcased Diageo’s determination to participate in the development of a healthy bilateral relationship.

CBBC is an important partner for Diageo China. It provides us with cutting-edge local market intelligence, supporting our ability to rapidly identify new and emerging trends and innovate at pace.

What are your ambitions and plans for the future in China?

We remain very optimistic about the China market and confident about double-digit accretive growth in China for international spirits and baijiu.

We will continue to increase our strategic footprint through a series of “in China for China” initiatives. For example, the development of our Eryuan Whisky Distillery is now well underway, which will bring China into the centre of the global whisky conversation.

Meanwhile, we will continue to expand our local innovation and production capabilities and develop innovative products that satisfy Chinese consumers’ diversified demands.

We are also committed to ensuring that our sustainability and ESG strategy aligns with China’s own high-quality development goals, be they industrial, social or environmental, and we look forward to continuing to work with local partners, industry peers and organisations such as the China Alcoholic Drinks Association (CADA) to support China in its goals to improve quality of life, facilitate sustainable development and optimise the business environment.

What do you think China will look like in another 50 years?

We are still only at the beginning of a very exciting journey in China, and over the next 50 years, we expect that the country will contribute tremendously to the growth of the alcoholic beverage industry worldwide.

We expect that China will continue to open up and pursue high-quality development, and that consumers will continue to seek higher levels of quality consumption, further boosting an already vibrant consumer market and continuing the trend of premiumisation.

China has set ambitious targets through its “dual carbon goals”, and in the run-up to 2060 in particular, we can expect China to make significant achievements in the green transformation of its industries, in addition to continuing to be a leader in innovation, science and technology.

As we celebrate 50 years of diplomatic relations between the UK and China, we look forward to continued cooperation, particularly in the areas of trade, exchanges and the environment.

The post In conversation with Diageo: Changing tastes in China’s alcohol market appeared first on Focus - China Britain Business Council.

Gin is a relatively new spirit on the shelves of Chinese bars, but it has distinguished itself as the chameleon of drinks. It’s not too sweet, not too strong and can be blended to have floral, fruity, woody and even musky notes.

Yet gin is mostly preferred by the expat community in China, the same community that is setting up brand associations and gin bars in major cities. But local Chinese drinkers are still split between loving the spirit and never having tried it before.

“I think gin, as a spirit of choice and exploration, is fairly new,” says Michael Epelboim, a Shanghai-based gin enthusiast and “gin-fluencer” who has run a series of tasting events. “The simple gin and tonic has always been there… [but] people don’t usually order it unless they want a cheap drink. Gin is not perceived as a luxury drink and even the most famous brands were considered to be mid to low-end products.”

However, with the end of Covid restrictions in late 2022 and bars and restaurants in China seeing a sharp upturn in sales, there is a strong market opportunity for brands with unique branding and a strong online presence.

Who’s drinking and who’s pouring?

Alcohol culture is changing in China, particularly amongst millennials and Gen Z. In the past, the consumption of alcohol was mainly related to official events and businesses, the drinks of choice always being baijiu (a strong, grain-based clear liquor), and later, whiskey. As urban areas in China began to rapidly develop, drinking culture also began to change. Young Chinese people have moved away from the traditional “sipping culture” of whiskey and baijiu to cocktails and casual social drinking.

“The vibe of gin is very different from other spirits. You can drink it during the day, during brunch and at night for all occasions,” says Eric Almazov Laroslav, the owner of a Shanghai gin bar called Botanical Basket. “Gin can smell and taste light depending on the brand, unlike Whiskey, which always smells and tastes like whisky. There are more opportunities with gin and gin tasting since it can taste sweet or dark, and it can smell floral or peppery depending on the blend.”

Where you drink is where you learn

Creating a space to explore gin has been a challenge for gin brands and enthusiasts for years, due to the difficulties posed by getting alcohol licenses in order, finding a local investor to vouch for you and then building up your brand. Gin is a niche that’s still developing itself, but in Shanghai at least, gin-focused bars are building brands that are young, urban and relaxed.

“[To open our first gin bar], we pulled together multiple designers to create both a lifestyle brand and a franchise,” says Thomas Lynch, co-owner of the Gin & Juice brand in Shanghai. “The casual drinking community is large and growing with many different marketing channels [e.g., WeChat and word of mouth].”

Drinkers enjoying gin cocktails at Shanghai bar Botanical Basket

Lynch has been in Shanghai since 2018 and founded the expat connect group FoS, which promotes, on average, between 200-300 events and gatherings a year. Community events are some of the few times brands can introduce themselves to people who might be interested in trying something new. Lynch was able to quickly market Gin & Juice by tapping into the community social marketing platforms and offering unique experiences offline. This type of direct marketing draws in people of all ages and creates a much more relaxed social environment because everyone is interested in the same topic: discovering gin.

Local gin brands, in particular, have found success through outreach and event creation. Brands like Julu and Peddlers regularly participate in hospitality events and bar pop ups where they can feature their brand alongside local bartenders who craft cocktails especially for the events. The combination of entertainment and education is important in a market that is not necessarily familiar with your product.

Local flavours

Local gin brands have also found popularity by adapting their flavours to local and traditional tastes. Brands like Julu Jin, Porcelain Gin and Peddlers Gin have developed their own signature flavours using primarily Chinese botanicals and manufacturing in local distilleries. As a result, they are also able to maintain quality control, ship products quickly around China and create cocktails that suit local palates by working with local bartenders.

“Chinese botanicals are a very big part of [what we do]”, explains Hubert Tse, founder of Porcelain Gin. The brand has experimented with using Sichuan peppercorns to create a “spicy” gin profile or Buddha’s Hand oranges for a more citrusy blend. “We truly want to make a gin that represents China — so all of our botanicals are sourced locally […] from family friends and also the spice markets in Liaoning.”

Being able to directly trace where spices and ingredients come from is a big plus in China’s new drinking culture. In recent years, there has been a push for more transparency from food and packaging companies in China, something that affects both local and international brands.

Branding is everything

In cities like Shanghai, drinking has become a social and cultural event that consumers buy into not just for the drinks themselves but for the experience. Bars that craft their own spirits and reinvent standard cocktails are popular among millennials who are looking for a unique experience when they go out drinking. This has motivated local craft gin makers to promote their products in novel ways. For example, for 2021, Peddlers Gin collaborated with London design studio OMSE to create packaging fashioned after a mahjong table set with a secret compartment containing their signature gin in a new bottle.

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A post shared by OMSE (@omse.co)

Beyond eye-catching branding, one of the best ways to enter the market is to work directly with bartenders and hospitality brands to introduce your brand to the public. Bartenders are taste makers for local drinkers, introducing new brands and new cocktails as well as developing menus and events around the brand.

“Brands need a good bartender, as people here rely on bartenders to give them an introduction and rely on their tastes and expertise,” Almazov Laroslav told us. Many casual drinkers are curious and interested in trying new spirits and drinks but are unsure where to start. “Anyone can order off a menu. But people here want that personal connection, they want a conversation! That’s what gets them interested in trying something new.”

Currently, bartenders are seeing a draw towards sweeter flavours and even an interest in the new “pink gin” craze that creates more aesthetically pleasing drinks.

How can British brands enter the market?

After speaking to bar owners, sommeliers and influencers, three basic ideas emerged for gin brands looking to enter the China market:

1. Find a local supplier who is keen to bring in brands.
2. Develop a unique character to your brand (Is it historic in some way? Are the ingredients special? Is the flavour ideal for mixing?)
3. Make connections with bartenders, hotels and local designers who can introduce your brand to the local community in novel and personal ways.

Lynch is clear on the importance of a good brand strategy for entering the Chinese market. How you enter the market, who you’re connected to and what platforms you’re working on will determine whether you’re making the connections you need or not.

“You need a combination of a strong sales outlet, someone who knows F&B and the local crowd, and mass market appeal,” Lynch explains. “It all comes down to your brand entry strategy: Have the drink on the shelf, work with sales and suppliers, and create the opportunity for people to try this drink. You can do this through specialist events, tasting events, bartender events. Just make sure you’re the brand on offer!”

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC can further help you identify the best e-commerce platform for your brand and target market in China.

The post Is there a market for gin in China? appeared first on Focus - China Britain Business Council.

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