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.

Located in Eryuan County in southern Yunnan Province, the Diageo Eryuan Malt Whisky Distillery will produce Diageo’s first China-origin, single malt whisky. Details of the £55.2 million investment were officially unveiled at a special ceremony in Eryuan on 2 November which was attended by provincial and local government officials, industry representatives and the local community.

“China is the world’s largest beverage alcohol market and the demand for whisky is growing rapidly among middle-class consumers who are keen to further discover and enjoy fine whiskies,” said Sam Fischer, President of Diageo Asia Pacific and Global Travel. [The Eryuan distillery is] another significant step forward, and one which builds upon our local insights and combines those with Diageo’s global whisky expertise in order to delight the next generation of Chinese whisky consumers.”

At more than 2,100 meters above sea level, the site of the 66,000 square meter distillery was carefully selected for its temperate climate, rich natural biodiversity, and access to natural spring water that is a source of the second-largest highland lake in Yunnan, Lake Er (also know as Erhai Lake).

Fischer added, “The natural surroundings and the Eryuan landscape will allow us to craft a world-class, China origin, single malt whisky that will capture the imagination of premium whisky lovers in China.”

Diageo’s ‘Society 2030: Spirit of Progress’ sustainability action plan will shape the design and development of the distillery. Renewable and clean technologies will be used in the distillery to ensure it is carbon neutral, recycles all the water it uses and is a zero-waste site.

The site will feature an immersive and interactive visitor centre that will attract whisky enthusiasts and boost the local cultural tourism industry. The sustainable and innovative design of both the distillery and the visitor centre will incorporate local cultural elements and embrace the region’s natural landscape. Construction is expected to begin in early 2022.

Explore membership at CBBC here or email Membership@cbbc.org with your enquiry

The post Diageo to build distillery to produce group’s first Chinese single malt whisky appeared first on Focus - China Britain Business Council.