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Jun
2015

Luxury Wine September 2014

wine

Chinese BaiJu

According to a 2014 report related to the listed drinks manufactures producing BaiJu (a colourless high alcohol content Chinese spirit), compared to mid-end quality consumption, the demand for the best quality products is on the rise. In the long run, due to consumer demand for the top brands, the high-end product has good competitiveness and increased its market share. However, from the data, the indication is that profitability within the sub-sector is still in decline, although the decline has slowed significantly. The position for mid-end baiju is different and on the decline, potentially due to consumer willingness to pay more for better quality and the top brands deciding to lower their prices to increase consumption.

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In the second quarter of 2014, turnover growth of the high-end BaiJu manufacturers reached 19.2%, however comparatively the average mid-end sector deceased by 27.4%. The reasons for the current high-end sector recovery is that in the last year, it suffered far more than the mid range market, and therefore started with a lower cardinal number. As a result the high-end sector can more easily achieve a good statistical recovery. The price reductions implemented by high-end manufacturers also took a bite out of the market for mid range products as consumers traded up.

This decline of the performance affected ninety percent of the listed Chinese spirit manufacturers in Q1 of 2014. The result has been that they are all looking for cost savings, and example of which is packaging that can cost over one hundred RMB and can account for more than 30% of the total production costs. By comparison, in the case of most successful international wine manufacturers, the average packaging cost is less than 12% of the total. It should also be noted that regardless of the economic environment in China and because of their national status, the top two brands, Moutai and Wuliangye have always maintained a positive growth trend.

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Red wine

According to General Administration of Customs, from January to June 2014, China imported 166,600 kL wine a decrease of 13.96% compared to 2013. Of this figure bottled wine imports decreased 5.63% year on year, and bulk wine imports fell 36.66%. Of the international producers, France is the largest exporter of wine to China which imported 56,000 kL during the same period, a 15.19% decrease year on year, yet it still accounted for 42.11% of all the bottled wine imports in H1 2014. The largest bulk wine exporter to China is Chile, delivering 22,200 kL or a 31.72% decrease year on year yet still accounting for 67.73% of all the bulk wine imports in H1.

Although so far during 2014 wine sales have fallen sharply, especially those at the high-end which dropped about 50%, the rise of the mid or low-end wine sales, champagne, and sparkling wine show that Chinese consumers have started to become more logical and mature in their purchasing and consumption habits.

The wine demands in China have begun to change, and consumption is and will continue to become the mainstream. The focus of China’s wine consumption is gradually shifting from big companies or government formal catering and entertaining VIPs to ordinary daily drinking and catering by consumers as they begin to enjoy the habit of drinking wine.

Mr Zhang, Vice General Manager of Chinese producer Dynasty Winery said “After Spring Festival last year, we felt that the market start had been impacted by regulations. So we adjusted our production to produce more mid-end wines. Before the new regulations, wines priced between 300and 500 RMB were the most popular for business and government entertaining, but now most of our consumers will purchase wine for daily consumption.”

Whisky

Whisky drinking is regarded as a demonstration of wealth and status for the new rich in China, especially consumption of Scotch whisky. No matter whether for entertaining business clients or visiting friends, having a bottle of vintage whisky on the table shows that you are a good host or business partners. Additionally a high-end whisky is seen as a more valuable gift than the traditional Chinese BaiJu.

Scotch whisky producer MacAllan claimed that sales of its products have never been influenced by China’s anti-corruption activities and sales growth in China market still remains in “double digits”. The sustained growth of the company is attributed to its moderate expansion policy; the brand focus on high-end private clubs and bars and exclusive wine shops in big cities, in addition to applying a limited sales strategy. The parent company of MacAllan, Edrington Group currently holds a 24% share of the single malt whisky market in China, ranking the second overall. William Grant & Sons Co., the Grant’s whisky brand owner shares 34% of the market.

The establishment of a number of private whisky clubs shows how important Chinese consumers are to these whisky brands. For example, Scotch whisky brand Johnnie Walker has opened two exclusive clubs in China, one in Shanghai’s Sinan Mansions and the other in No.23 Qianmen Street in Beijing (both being high-end areas of the city centre) to provide a high quality experience for more consumers to enjoy the Johnnie Walker product. The purpose of such a club is to educate Chinese consumers who are new to Whisky, to develop the drinking habits of the new rich and increase their loyalty to the brand.


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