As an old friend of the Chinese whisky market, Diageo has embarked on a new journey under the leadership of the newly appointed General Manager of Greater China, Cheng Zhanpeng, for over a year. In Cheng Zhanpeng's eyes, whisky has been popular in China for a relatively short time, and compared to mature markets in Europe and America, the Chinese market has a deeper level of development. With the increasing diversification of domestic consumer groups and the continuous improvement of market maturity, the development potential of whisky in the Chinese market has also been clarified.
The transition from bars and nightclubs to home-based consumption scenarios, from middle-aged consumers to young consumer groups, and from nightclubs to consumer channels covering retail and duty-free shops. For the current whisky market, the change is overnight. Based on such changes, the transformation of the Chinese whisky market is also quietly taking place.
"New Friends" and "Old Friends"
In recent years, the Chinese whisky market has become a new trend, with both imported brands represented by Diageo and domestic brands frequently targeting the whisky market.
From building a factory in Yunnan to brewing whisky products with Chinese characteristics, to deepening its multi-channel layout, Diageo is both a new and old friend in the Chinese market. "Old friends" lie in the fact that various imported whisky brands under Diageo have already become familiar faces of consumers in the end market, while "new friends" lie in the fact that Diageo's Chinese brewing products were officially launched in March this year.
When talking about the current situation of the construction of a whisky distillery in Eryuan, Yunnan, Cheng Zhanpeng said, "Our whisky distillery located in Eryuan, Yunnan is the first single malt whisky distillery under the Diageo Group in China. The distillery began trial operation in November last year and officially started production in March this year. The distillery will produce high-quality single malt whiskey originating in China in the future, committed to pushing China to the central stage of global whisky dialogue."
When imported whisky brands, including Diageo, frequently shine their swords, the size of the Chinese whisky market is also constantly increasing, attracting many brands to enter.
According to the 2023 China Whiskey Industry Development Research Report, the size of China's whisky market was approximately 5.5 billion yuan in 2023, an increase of 10% compared to the previous year. In 2023, the total production of whisky products was approximately 50000 kiloliters, a year-on-year increase of 127%, with malt whisky accounting for 65%, a year-on-year increase of 35%. It is worth noting that there are 42 units with legal personality in whisky production and operation in China (including two in Taiwan, China).
As the market and participants continue to ignite their passion, the market share of whisky has become a competitive point for liquor companies. Faced with fierce market competition, as an established whisky brand, Diageo holds an absolute share. According to the 2022 report released by IWSR Beverage Market Analysis, Diageo ranks first in the total retail sales of whiskey in the Greater China market, accounting for 22.1% of the whiskey market share.
Although Diageo is far ahead in market share, it also needs to face the problem that troubles other whisky companies - the low penetration rate of Scottish whisky in the Chinese market. For this issue, Diageo has found new development momentum in the midst of difficulties. Cheng Zhanpeng candidly stated, "Compared to other major markets, the overall market penetration rate of Scottish whisky in China is relatively low. However, we believe that the Chinese market has enormous potential and vitality, thanks to China's growing whisky consumer group, diversified consumption scenarios, and growing interest in whisky culture. We are very pleased to see more and more industry colleagues joining this track. We believe that with our joint efforts, the entire industry will achieve sustainable and healthy development, whisky culture will be further popularized, and industry standards will continue to be improved."
Market size impact of 50 billion yuan
As Cheng Zhanpeng said, the Chinese whisky market has infinite potential for Diageo and even the overall whisky track. According to the IWSR report, whisky is expected to maintain a compound annual growth rate of 6.3% in the Chinese market from 2021 to 2026, and the domestic whisky market is expected to hit a scale of 50 billion yuan in the next 5-10 years.
Cheng Zhanpeng told Beijing Business Daily reporters about the future development prospects of the domestic market that the factors driving the growth of whiskey in the Chinese market in the future are, on the one hand, that as China continues to accelerate high-quality development, promote consumption upgrading, and support foreign investment through important policies such as the 14th Five Year Plan, this also provides valuable opportunities for Diageo; On the other hand, the growing middle class in China and the eager "Z generation" to try new things will also drive the growth of the Chinese whisky market in the future; In addition, calculated by market value, China has become the world's largest alcoholic beverage market, but the penetration rate of international spirits in China is relatively low (about 3%), which also creates growth space for Diageo's long-term development in China.
According to Boston Consulting, from 2022 to 2030, the middle class and affluent population in China is expected to increase by 80 million, accounting for nearly 40% of the total population. Meanwhile, according to a report released by Morgan Stanley in 2022, over 50% of whiskey consumption is contributed by young urban populations under the age of 34 in China.
As the market size continues to expand, the differences between domestic whisky consumption characteristics and the international market gradually become apparent. In the international market, there is a certain gap in whisky consumption scenarios and channels compared to the domestic market. Home drinking and online consumption have become the main battlefields of domestic whisky consumption in recent years.
Cheng Zhanpeng candidly stated that the difference between the consumption characteristics of domestic whisky and the international market is firstly due to the different market penetration rates. Whiskey has been popular in China for a relatively short time, and its proportion in the scale of the Chinese alcoholic beverage market is still relatively small compared to other markets. However, the increasing diversification of consumer groups and the continuous improvement of market maturity also reveal the development potential of whisky in the Chinese market. In addition, the consumption channels are different. China's digital ecosystem is particularly developed and advanced, which undoubtedly brings growth opportunities for Diageo's business growth, enhances our market penetration and consumer reach. More and more consumers are discovering, understanding, and purchasing our products online. Our e-commerce channel business relies on the strategic cooperation with mainstream e-commerce platforms such as Tmall, JD, and emerging social e-commerce platforms such as Tiktok, and is also expanding its business layout and strength.
In addition to market penetration and consumption channels, there are also differences in drinking culture between domestic and international markets. "For the various drinking scenes of whisky, whether at home, in restaurants or at banquets, we have carefully combined Chinese traditional culture with whisky culture, innovatively matched Chinese traditional food and tea culture, and brought consumers new taste and taste experience. In addition to taste innovation, we also echo the trend of" China-Chic "and" Guofeng ", and constantly launch limited special edition products that blend with Chinese traditional culture." Cheng Zhanpeng further pointed out.
Dialogue with Cheng Zhanpeng, Managing Director of Diageo Greater China
Beijing Business Daily: Please use three key words to describe the current Chinese whisky market.
Overall, we feel that the Chinese whisky market is presenting three major characteristics: "diversified consumer groups," "mature consumer markets," and "high-quality consumer experiences.". Among them, the consumer group is diversified, that is, in addition to the middle-class, millennial and "Z generation" consumers mentioned earlier, more and more female consumers are also starting to try tasting whiskey. The diversified development of consumer groups and consumption occasions undoubtedly lays the foundation for the development of our category; The maturity of the consumer market, which is different from the early recognition of whiskey as a form of identity, Chinese consumers are increasingly able to appreciate whiskey. They hope to deeply explore the products they purchase, including their traceability, craftsmanship, history, culture, etc., and value the added value of the products more. Therefore, they are willing to pay corresponding prices; Quality oriented consumer experience means that in addition to the quality of the product itself, Chinese consumers are also seeking innovative and unique high-quality consumer experiences, enabling them to enjoy whisky consumption and gain a deeper understanding of whisky culture. We collaborate with whiskey specialty stores, Diageo Whiskey Academy, and other consumer formats such as art, music, entertainment, nightlife, and adventure travel to create high-quality consumer experiences in a creative way and promote the development of whiskey categories in China.
In addition to building a factory in Yunnan, Diageo has continuously expanded its presence in the Chinese market in recent years. It is understood that Diageo has previously laid out retail channels for tourism in Hainan. May I ask, what is the current layout of the aforementioned channels? What achievements have been made?
For Diageo Group and our global tourism retail department, our channel layout in the Chinese market has always been a focus of our attention. Especially in the new development pattern of domestic circulation as the main body and domestic and international dual circulation promoting each other, the development of duty-free business has brought momentum to China's tourism consumption. With international spirits being included in the duty-free category, this undoubtedly brings huge opportunities for Diageo. As the forefront of duty-free business, Hainan has unique tourism resources, continuously deepening policy support, and expanding retail scale, connecting China's huge consumer demand with global resources. We will continue to actively embrace this opportunity through brand marketing and offline channel layout.
From the perspective of channels, whiskey was mainly consumed in nightclubs such as bars and nightclubs in 2019. However, in recent years, the consumption scene has gradually shifted towards family and self drinking. May I ask, what impact does the shift in consumer scenarios have on Diageo?
We are delighted to see that Chinese consumers are increasingly fond and interested in whisky. Many emerging consumer scenarios have also emerged, such as an increasing number of home drinking scenes, dining scenes in Chinese restaurants, smaller gathering scenes, whiskey bars, whiskey boutiques, etc. This has also given us more opportunities to continuously expand our customer base and deepen our connection with consumers.
Diageo is actively embracing these new consumption trends, working simultaneously with both online and offline channels, and maintaining close cooperation with our partners to jointly promote the vigorous development of international spirits in the Chinese market. At the offline level, we are continuously increasing our city coverage and new distribution channels. Currently, we have opened nearly 10 whisky boutique stores (Diageo specialty stores in partnership with sales partners) and 78 whisky selection stores in 41 major cities in China to meet the growing demand for high-quality whisky from Chinese consumers. On the online level, the digital trend enables us to deepen market penetration and quickly reach foreign wine enthusiasts with our products. We are also constantly strengthening our capabilities in the e-commerce field, and continue to expand our strategic cooperation with mainstream e-commerce platforms such as Tmall, JD, and emerging social e-commerce platforms such as Tiktok. For example, we have reached a strategic cooperation with JD's real-time retail platform "JD Daojia" to jointly provide consumers with a new real-time retail experience of "hourly delivery of foreign liquor". As of now, this service has covered nearly 230 cities in China. In addition, we also collaborate with new retail formats such as Sam's and Hema to promote online and offline strategic linkage and jointly contribute to performance growth.
In response to the consumption trend of home drinking, we have actively launched a series of marketing activities on e-commerce channels and social platforms to promote the drinking scenarios of home bartending and respond to the increasingly personalized and diversified needs of consumers. For example, we have participated in the "JD Summer Wine Mixing Festival" for two consecutive years, collaborating with different categories of beverage brands to unlock a series of special recipes for consumers. We have also released many cocktail blending plans for spirits on our official social media platforms to give mixers more inspiration.