There has been much talk of the success of international spirits brands in China, and evidence of high demand for brown spirits in particular. Undeniably sales are growing, but does focusing on fast growth segments give a true picture of where investment should be focused?

China was the world’s largest alcoholic drinks market by both volume and value in 2016; around twice as many alcoholic drinks are sold by volume in China compared with the nearest rival, the US.

China undoubtedly has a growing luxury consumer base among the urban population, but the significant market penetration opportunity would be for mid-range international brands to challenge the local spirit baijiu and this will not be an easy displacement. Retail sales of speciality spirits (including baijiu) in China are well into the hundreds of billions of US dollars.

Which brands are benefitting?

There is plenty of evidence of potential. A well-placed Chinese new year drove sales for Paris-based Pernod Ricard beyond market expectations, the Martell cognac maker said last month. The celebrations had taken place later in February and meant for favourable financial comparisons for the French spirit maker.

Demand for Martell lifted Pernod Ricard’s revenue by 9.3% on an organic basis in the three months to March (compared with the 6.5% growth that analysts had predicted). The group even said it would limit Martell shipments to China later this year to ensure sustained growth globally for the brand. Pernod Ricard joins Remy Martin and Hennessey in reporting strong cognac sales in China.

Who is buying?

One particular cohort with a rapidly developing a taste for luxury whiskey is young high net worth individuals, Jing Daily believes. They are buying for themselves and for gifts, and a significant minority are happy to spend upwards of $100 on a bottle (with their average whiskey purchase being around $80).

All this luxury international spirit growth speaks of the tail end of the anti-corruption drive which drove down such sales earlier this decade. However, a focus on fast growth can exaggerate the reality – which is that the majority of the Chinese spirits market is still dominated by baijiu.

There is still work to be done

Commenting on an event at the Chinese Alcoholic Drinks Association, Sarah Dickson, Scotch Whisky Association director of global affairs said: “Scotch plays a relatively small role in the Chinese spirits market, but I detected a sense of optimism about growing understanding and confidence among Chinese consumers in Scotch Whisky.”

Certainly a commitment to consumer education is still needed, as events such as Diageo’s Whisky Summit show. Last year autumn brought the second Scotch summit Diageo has held in China, and it included tasting masterclasses, knowledge sharing and panels to discuss trends and opportunities.

For more insight and data, visit the GlobalData Report Store – Verdict Drinks is part of GlobalData Plc.