Editor's Viewpoint - Spirits in China: The Blip is Here to Stay
I'm calling it, people. Today is the day that I feel confident enough to conclude that the China 'crisis' is not a blip.
It was 13 January 2013 when we first noted the introduction of a ban on high-ranking Chinese military officials from “indulging in alcohol” on official visits. The ban formed part of an anti-corruption programme launched in China after Xi Jinping took over as head of the Communist Party in November, 2012.
The measures quickly hit international spirits, particularly Cognac, with Pernod Ricard and Remy Cointreau both getting caught in the crossfire. Since then, the two companies have struggled to deal with the new landscape, with both seemingly preferring to bide their time until things calmed down a bit.
Then, late last month, a swathe of China's on-trade was targeted by authorities keen to curtail the prostitution industry in the country.
Finally, earlier today, Diageo released a gloomy trading update for the nine months to the end of March that, while not directly flagging China's anti-austerity measures, certainly shows that the country constinnues to provide international spirits companies with a headache.
It is clear to me that this headache is here to stay. When our reporter, Andy Morton, flagged “the new normal” in China last month, he highlighted that the heady days of the 1980s, 1990s and 2000s for brown spirits in China are over.
While analysts forecast a return to growth for international spirits in the country – some say as soon as next year, some estimate it may take a while longer – the folk at Diageo, Pernod, Remy et al would do well to look at how they trade in this new environment. One source tells me that his company is looking at innovations at lower price points to fire up growth in China.
That's a start, but simply waiting for the good times to return looks like a fruitless exercise.
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