The spirits that will benefit the most as China reopens its night trade

Life in China is slowly but steadily coming back to a relative normal. Although there are significant differences across regions in how both the trade and its consumers are adapting, many nightclubs and hotel bars have reopened in several parts of the country. Restrictions currently remain tighter in Beijing, but the gradual ease back to “normality” brings with it the promise of an uplift for key spirits categories.

The on-premise concepts that can guarantee some degree of separation (notably karaoke clubs) are most popular amongst Chinese. Banqueting halls (banqueting is an important occasion for alcohol consumption, particularly baijiu) are the only on-premise venue still universally shut across the country.

The gradual return of the night trade, especially enthusiastic in terms of openings in Southern areas of China (including Guangzhou, Shenzhen, and Fujian), will bring with it an increase in demand for international spirits (Cognac, whisky and cocktail bases), beer and wine.

Cognac and Scotch are, by far, the largest imported spirits in China, with Cognac particularly popular in the South.

Cognac is the best understood imported spirit in China and remains an aspirational drink for many Chinese. Rising incomes as a result of economic growth will see more consumers enter the category. A more relaxed attitude to extravagant spending will help the category further as well. While aspirational, a growing number of younger LDA consumers view the drink as a more traditional option, and increasingly opt for other drinks, such as wine, instead.

Scotch whisky benefits from being a brown spirit, which makes it immediately different from local spirits (ie: baijiu), and thus easier to charge a premium for. Its status as a global category makes it attractive to more internationally minded Chinese, while the age statement (if it exists) provides a simple yardstick for quality.

Baijiu, a traditional meal accompaniment, is seeing a rise through increased restaurant attendance, although it is still hampered by the complete absence of banqueting and larger functions. That said, as regulations ease further, IWSR expects the consumption of the total retail value of baijiu in China to reach more than US$200bn by 2024. Many Chinese have been trading up to smaller volumes of baijiu at higher quality. In 2019, the value of baijiu in China was greater than the value of the entire spirits markets outside of the Asia Pacific region.

Although consumer confidence is yet to fully return, and larger gatherings are yet to be both allowed and encouraged, the Chinese authorities are keen to boost the economy, with a continued eye on public health.

The findings from this article are based on IWSR’s report series examining the impact of Covid-19 on 12 key markets. This report series is updated every two weeks, in order to help the beverage alcohol industry stay on the pulse of the impact of the pandemic around the world. This report series is available complimentary for current subscribers to the IWSR Global Database.

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