Baijiu producers eye global expansion

Over the past few years, the major baijiu companies have all shown clear export ambitions in markets including the US, UK, Australia, India and Singapore. Recent high-profile initiatives have included Luzhou Laojiao marketing flagship brand Guojiao 1573 at the Australian Open tennis tournament in Melbourne, and Wuliangye being advertised in New York’s Times Square – but the impact of these measures on export revenues has so far been limited.

Overseas sales of baijiu remain minuscule compared to the vast levels of consumption seen in China itself and, according to IWSR forecasts, this is unlikely to change materially in the next few years – not least because there are a number of factors hampering baijiu’s export growth. “Chinese consumers are generally prepared to pay much higher prices for baijiu than people overseas,” says Tommy Keeling, IWSR research director, Asia Pacific. “Also, the imposition of import and alcohol taxes means that profit margins will be much slimmer than they are in the domestic market.”

This increased cost of exporting makes it difficult for baijiu to remain competitive at all pricing levels, from high-end brands such as Moutai to premium products such as Jiangxiaobai, a youth-oriented baijiu brand that has been actively promoting itself in Asian markets. Keeling says: “Lower-priced producers have a disadvantage in that, by the time they pay all their duties and transport costs, their baijiu is likely to sell for standard prices – making it uncompetitive with local, value-priced spirits. As such, producers are still investigating the pricing structure of foreign markets, and where they might fit in.”

Establishing strong routes-to-market is another crucial element of building a credible export presence. To date, baijiu companies have mostly attempted to do this using non-specialist third-party distributors, rather than setting up their own distribution operations. However, Moutai has a longstanding partnership with Camus Cognac in travel retail, and Pernod Ricard signed up to distribute Wuliangye in south-east Asia in November 2019.

But who are their target consumers? Chinese expats would seem to be the obvious choice because of their prior knowledge of the category, but baijiu companies often find that, once abroad, Chinese consumers leave baijiu behind and switch to local spirits categories instead. “Baijiu producers would ideally like to recruit young, trendy overseas consumers to drink baijiu and, ultimately, establish it as one of the universally available international categories, but this process remains in its infancy at the moment,” says Keeling.

This desire to establish baijiu as a fashionable international spirits category in its own right is the key to understanding the motivation behind the export ambitions of the big baijiu producers. While there is undoubtedly a political element to the activity – many companies are state-owned, and one producer has spoken of the importance of investing in countries that are part of China’s trade initiatives – this increased international investment has its roots firmly in the demands and shifting dynamics of the domestic market. Producers are especially keen to ensure that people at home – and younger consumers in particular – continue to drink baijiu, rather than switching to imported spirits categories. With baijiu overindexing on older consumers in China, companies fear that it might be afflicted by a generational shift, with younger drinkers eschewing baijiu in favour of “cooler” foreign spirits categories.

As such, international expansion, and much of the marketing that accompanies it, is aimed primarily at a domestic Chinese audience, and specifically the younger demographic that is generally more tuned-in to international trends, especially through social media. For the same reason, producers are tending to target markets popular with Chinese tourists and students, such as the US, UK, Australia and Singapore, aiming to ensure that the messaging is seen by these expat Chinese while they are travelling and studying. The result of these efforts, they hope, will be to reinvent baijiu in the eyes of domestic consumers as a trendy drink with international cachet, rather than being the traditional choice of Chinese businessmen.

“The messaging in export markets is currently still mainly directed towards Chinese consumers in the domestic market,” says Keeling. “The main challenge for producers in China is making sure that the younger generation continues to drink baijiu – as well as the established consumer base with a much older demographic. Because wealthy youngsters are much more likely to travel and, therefore, to come into contact with outside cultures, they are the main targets of this overseas expansion.”

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