A radiant future and a somber present for the liquor industry in China
The Chinese expect their domestic liquor industry to have extraordinary growth capability in the coming years. However at this moment it has to navigate an acute downturn caused by the government's campaign against “extravagant luxury”, another name for corruption. After Cognac and whisky, the domestic white eau de vie has become a collateral damage of the campaign.
- The white spirit production is expected to attain 17 billion liters in 2016, a 345% increase by comparison with ca 5 billion liters in 2007. That means an expected YOY growth rate of 14.8%. Revenue would grow by 834%, to hover $163 billion in 2016 ($18 billion in 2007) an YOY growth rate of 26.6%.
- The most important underlying cause of the increase would be the rapidly rising disposable incomes of over 60% of the population.
- That better personal economy of perhaps 1 Bn people will interact with the development of a myriad of multi-sales-channels used by domestic alcohol makers, particularly e-commerce and group purchases favored by young customers.
Will Cognac and other imported spirits in general be able to conquer a share of that enormous market?
It’s hard to say at this moment.
We start to have more information about the current problems with the austerity campaign. At the end of 2012, the government announced an array of anti-corruption rules pointing very specifically at government officials. The title was aseptic: "The Limitation of the Three kinds of Government Consumption". The new rules particularly forbids liquor or luxurious banquets on the occasion of receptions for high-ranking officials. This has led to a brusque decline in the purchase of alcoholic beverages by government departments and business corporations.
According to the China Cuisine Association, restaurant sales in some big cities, such as Beijing and cities in Jiangsu and Zhejiang provinces, have even had negative growth mainly caused by the government's anti-corruption calls, something unheard of since the return of China to a relatively free market economy.
I think it is very interesting –and intriguing- to observe the new openness of the Chinese elite in discussing the Government’s campaign. I read in the Chinese press (in English!) the blunt comment of the deputy secretary-general of the Beijing Cuisine Association: "The difficult time will last for a long time because it's a key part of the new government's vow to curb corruption." How long? Well that’s the question that many would like to get an answer for. The future of the world spirits industry is at stake…
As far as I can see, the secretary-general of the Beijing Cuisine Association is right. The anti-graft campaign is a corner stone of Chinese politics these days and expensive liquor, easily associated to extravagant improper behavior, is to pay a heavy price. If we think of expensive imported liquor like Cognac it's probably safe to bet on a long rather than a short period of lacklustre demand.