Chinese consumers drive over 30% of the global international status spirits market value

The Covid-19 pandemic has reinforced the importance of the Chinese consumer to owners of international* high-end spirits brands – with purchasing shifting to the domestic market as international travel was curtailed.

Now brand owners will have to monitor the situation closely, focusing on mainland China in the short term –  in addition to the new duty free enclave of Hainan – but preparing themselves for heightened international demand once Chinese consumers start travelling again.

“China was one of the few countries where international status spirits (>US$100/bottle) had a relatively good year in 2020,” says Thorsten Hartmann, Custom Analytics Director, IWSR Drinks Market Analysis.

There are two main reasons for this behaviour:

Prior to Covid, many status spirits purchases by Chinese consumers were made outside of China. This is partly because of the prestige and status conferred by purchasing these products overseas – but also because the international market and the Global Travel Retail (GTR) channel are seen as more trusted sources of non-counterfeit goods. There is also a perception that even if products bought in China are real, purchasing them oversees holds a certain cachet.

However, international travel bans during the pandemic forced that behaviour to change, and purchases instead migrated to the Chinese (duty paid) domestic market, in addition to Hainan, which has enjoyed a meteoric rise to prominence since its inception in August 2020. As a result, IWSR is able to measure the influence Chinese nationals have on the status spirits market for the first time, as purchases were forced to take place domestically.

Chinese consumers spent over US$2.4bn on international status spirits (>US$100/bottle) in 2020 across the domestic duty paid channel and Hainan. Status Cognac/Armagnac make up the vast majority of these purchases, with Chinese nationals spending over US$2bn on these spirits.

Within the total status spirits market in China, high-end baijiu dominates the domestic market for status spirits. However, there are clear opportunities for Cognac and, to a lesser extent, Scotch whisky – particularly malt/grain Scotch, which eroded the market share of blends in 2020, according to IWSR figures.

The big question facing brand owners now is when Chinese high net worth / ultra high net worth (HNWI / UHNWI) consumers will begin travelling again, and what will happen to domestic duty-paid purchases and Hainan when they do.

“This depends largely on the Chinese government’s decisions around the resumption of international travel, which will dictate where the Chinese consumer needs to be served,” says Hartmann. “Currently, it is tempting for brand owners – especially in Cognac and Scotch whisky – to focus entirely on the domestic China market and Hainan, but it’s important to keep an eye on the longer term.”

“When international travel does resume, marketing strategies in domestic and international GTR targeting the Chinese consumer – in terms of language and cultural cues – will be increasingly vital,” adds Hartmann.

“The same is true for international destinations that were frequented by high-income Chinese pre-pandemic – South East Asia, high-end shopping outlets in European capital cities, international auctions and indeed the Cognac and Scotch distilleries themselves.”

The success of Hainan in the second half of 2020 mitigated the losses experienced by GTR in China thanks to the significant take-up by Chinese travellers and investment by brand owners – and the IWSR expects Hainan to remain buoyant until international travel resumes. Malt Scotch in particular was quick to pivot into Hainan, actually enhancing total China GTR spend in 2020 despite the severe downturn in the major international Chinese airports.

“Once borders open again, Hainan will remain important, but it will likely increasingly serve a more mainstream Chinese audience,” says Hartmann “Brand owners will need to pivot to meet the needs of a different status audience. Baijiu will likely have more importance, as well as a focus away from the highest tier of the status spirits market.”

*All spirits references exclude National Spirits (notably baijiu, shochu and soju)

You may also be interested in reading:

IWSR predicts material opportunities for increased premiumisation
Fewer new wine drinkers enter the wine market in the US and China
Led by the US, beverage alcohol ecommerce value expected to grow +66% across key markets 2020-2025