China’s beverage alcohol market is struggling to recover this year due to widespread downtrading and high inventories inflicted by the country’s stuttering economic performance, according to the latest IWSR Drinks Market Analysis data.
The country’s drinks trade is currently focused on de-stocking high-end spirits such as baijiu, cognac and scotch whisky, IWSR said. Chinese consumers have little discretionary income with travel and experiences now often preferred to purchasing alcohol.
Last year, according to IWSR’s data, the alcohol market in China suffered losses of 9% for spirits and 14% for wine, although beer (+3%) and RTDs (+1%) enjoyed gains. For the first time since 2000, scotch declined in every price bracket despite the reopening of the country’s on-premise following the pandemic.
Cognac volumes dipped 3% but a loss of value was more significant at -5%. The immediate outlook for cognac depends on the potential impact of tariffs on imports of EU brandy later this year, IWSR noted, after the Chinese Government launched an investigation probe last month into whether EU producers are selling brandy in the country at artificially low prices.
In contrast, white spirits fared much better last year as the on-premise reopened. Gin (+25%), vodka by (+24%) agave-based spirits (+40%) and white rum (+44%) did well, although IWSR said it doubts whether these on-premise-driven double-digit gains can be repeated this year.
Beer was another winner with 3% volume growth amid clear signs of premiumisation but wine suffered a year of double-digit falls.
“Still wine’s declines are likely to continue, with an anticipated 2023-28 volume CAGR of -2%,” said IWSR’s research director for Greater China, Shirley Zhu. “China removed the tariffs on Australian wine in March, and an influx of Australian wines can already be seen. This is likely to take volumes away from some other countries of origin, but total wine consumption is unlikely to rise suddenly.”
The more general outlook for this year looks downbeat. The latest IWSR ‘Bevtrac’ consumer data indicates that growth in recalled spend per unit has dropped in many alcohol categories, with evidence of downtrading emerging for the first time among the lower-income group of middle-class Chinese typically earning between CNY5,000 (US$690) and CNY15,000 per month.
Over the longer term, IWSR predicts the country’s total beverage alcohol market in volumes terms will remain flat over the next four years. However, this key market will continue to premiumise, IWSR claimed, with an additional US$14bn of value being added by 2028, around two-thirds of which will be generated by domestic baijiu.
The headwinds facing the Chinese market are being reflected in the latest financial results of the industry’s biggest international players. Earlier today, Anheuser-Busch InBev reported a 15.2% sales decline in China during the three months to the end of June.
