Whiskey hits Chinese market dominated by baijiu

Chinese New Year is traditionally a time for gathering with family and friends to eat and drink.

And for hundreds of years, the drink of choice in China for these celebrations has been baijiu. This is a clear spirit made with fermented grains that packs a powerful punch.

Baijiu is often drunk straight or at social events such as weddings and birthdays.

Alcohol by volume (ABV) can exceed 60%. By comparison, distilled spirits such as Scotch whiskey and tequila typically have an alcohol content of around 40%.

“Baijiu certainly has its place in China’s liquor consumption, even among younger consumers,” says Alison Malmsten, director of public research at Daxue Consulting.

It accounts for well over 90% of China’s spirits sales, with annual sales of around $160bn (£127bn).

But in recent years, foreign beverages have become increasingly popular in the world’s largest spirits market.

According to market research firm Euromonitor International, whiskey sales in China are estimated to be $2.3 billion in 2022.

The country’s whiskey market is expected to grow around five times faster than the world, and this figure is expected to nearly triple by 2027.

These sales are driven by young, urban, middle-class, educated and increasingly female drinkers.

Malmsten said many of them are avoiding baijiu in favor of lower-alcohol spirits from outside China.

Growth in demand for whisky, in particular, is encouraging international brands to open distilleries across China.

These include French drinks giant Pernod Ricard, which owns the Jameson Irish whiskey brand as well as Beefeater gin and Absolut vodka. The company is investing $140 million in a production site near Emishan in southwestern China’s Sichuan province.

British-based rival Diageo also opened a factory in Yunnan province in December, which is currently undergoing trial production and is expected to be fully operational later this year. The company also plans to open an Asia-Pacific Innovation Hub in Shanghai.

Atul Chapalwal, managing director of Diageo’s China office, told the BBC: “We are here for the long game.”

He is bullish on the market, saying demand is so strong that there is space for everyone.

“Given the overall vibrancy of China’s whiskey category, there is plenty of room for growth for single malts, blended whiskies, local companies and imported whiskies,” he says.

“Currently, whiskey accounts for less than 2% of the total amount of spirits consumed in China. This shows how much leeway everyone has to play here. ” he added.

This includes home-grown distilleries that have sprung up all over the country. Pernod estimates the number to be between 30 and 50, many of which are still under construction.

The whiskey market is also expanding in other parts of Asia.

“The growth is immense,” Jamie Lee of spirits retailer Maison du Whiskey told the BBC from the French company’s store in Singapore.

Mr Lee, who is responsible for sales to South Korea, Japan and China, expects an increase in tourist numbers as Chinese tourists visit Singapore during the Lunar New Year.

“Chinese New Year is like Christmas in Europe. It’s festive and people want to spend money, buy nice gifts and have something memorable. So whiskey is a part of their memories. “It’s a department,” he says.

An increasing number of collectors are “buying and holding” bottles of whiskey, which are expected to increase in value.

However, Ms Malmsten warns that it is not all smooth sailing for China’s whiskey market.

“Local distilleries are still in their infancy. 80% of the whiskey is only aged for less than two years. There is a shortage of barrels and there is a shortage of experts to help with production,” she says.

Still, if the success of China’s wine industry is important to you, then “this is the area to keep an eye on” when it comes to whisky.

“What we saw in China’s wine industry is that once it started to mature, the demand for Chinese wine skyrocketed. Our recent survey showed that Chinese wine was the second most preferred after French wine. “We found that there were a lot of problems,” Ms. Malmsten said.

“As China’s whiskey production matures, demand for domestically produced whiskey is likely to rise as well.”