Who’s Got The Next Round?: Opportunity In Chinese Whiskey

Branding is much to do with style and appearance, especially in regards to the liquor and spirits industry.  With changing demographics and cultural tastes sweeping across China as a young generation begins working itself into a relatively affluent middle class, the opportunity exists for an enterprising distiller to foster and fulfill a growing demand for American whiskey.

Background

With roots tracing back thousands of years, baijiu is both the dominant form of liquor in China and the most sold spirit by volume in the world.  It is a grain alcohol stronger than most Western spirits at 40% – 60% alcohol by volume.  With younger Chinese generations increasingly open to Western cultures and tastes, however, there is a powerful opportunity for an American whiskey producer to move into this market.

Threats and Competition

Any company operating within China must carefully consider multiple threats to its operations and profits.  Despite increased regulatory enforcement, counterfeit products still appear on store shelves throughout China, and they can both decrease perceived brand quality and diminish revenue.  Changing governmental regulations represent another threat as the Chinese government has the power to swiftly increase tariffs, taxes, and potential austerity measures.

Additionally for a whiskey importer, it is important to recognize the threats of potential competitors.  Pernod Ricard is a large international distiller; however, it does not currently produce an American whiskey.  Goalong Liquor is a diversified Chinese liquor manufacturer; however, its quality is unlikely to rival that of imported whiskey.  Suntory and Diageo seemingly represent the largest threats to take over the Chinese American whiskey market as they are both large international distillers who own prominent American brands – Maker’s Mark and Jim Beam; Bulleit and Seagram’s Seven Crown, respectively.

Opportunities

Despite these difficulties, China represents too large of a potential whiskey market to ignore.  Market research firm Technavio estimated that the Asia-Pacific region accounted for 53.89% of the global whiskey market in 2015, and it expects this market share to increase as it projects the per capita annual disposable income to increase by 35.2% by 2020.  For China specifically, the Irish Food Board projected total whiskey sales to reach $2.73 billion by 2017.

While Irish and Scotch whiskies have a head start into the Chinese market ahead of their American counterparts, they have historically been marketed towards China’s wealthy class.  China’s middle class has yet to develop a strong taste for whiskey, however, and this represents an opportunity for American whiskey to enter the market at a more affordable price point and introduce its sweeter flavor.  This middle class of consumers can be described as young, Western-oriented, and image-conscious.

With this in mind, an American whiskey producer must move quickly to enter the Chinese market if it wishes to capture this target demographic.  It will be imperative to effectively brand this product as both Western and stylish while keeping the cost affordable for middle-income earners.  This can be achieved through adept distribution to specific trendy nightspots and various forms of consumer education, such as initially dispatching whiskey connoisseurs to said venues equipped with free samples.

Jed Vorhoff
MBA Candidate 2016, Tulane University