November 2010 Management Briefing - Niche Spirits - Part II
Emerging markets producing consumers for niche spirits
If there is one good indicator that niche spirit markets are developing in emerging markets, it has to be sales of single malt Scotch. By that rough and ready yardstick, such markets are certainly on the rise. Even in recessionary 2009, key emerging markets saw growth – and those that did not are well-placed to rebound.
According to trade body the Scotch Whisky Association, the number of nine-litre cases of single malts exported to China last year rose by 1% year-on-year to 67,109 cases. In value terms, single malt boasted a 20% leap in China to GBP3.9m (US$5.9m). This figure is probably higher still, says the SWA, if one takes into account cases routed via Singapore or Hong Kong. Another important market, Mexico, saw volumes grow 46% to 12,091 cases in 2009. And, while volumes to India slumped by 25% to 20,857 cases - down 22% in value to GBP1.9m (US$2.8m) - it is likely that this whisky-loving market will start buying single malts again now economic health is back.
But, emerging markets also have niche home-grown spirits to offer. In China, sales of baijiu (white alcohol) remain robust. It is a very strong (40% to 60% abv) distilled drink, usually made from grains such as sorghum, wheat or barley, and – in the south – rice. Baijiu has been drunk in China for thousands of years; young Chinese mix it with green tea in bars and clubs. Non-Chinese, however, sometimes compare it to drinking paint thinner because of its strong taste.
Most baijiu is drunk inside China but two companies – Wuliangye Group and Kweichow Moutai Co Ltd – have been exporting it to overseas markets for some years, according to Matthew Crabbe of marketing research company Access Asia. This is mainly due to the overseas Chinese restaurant trade, Crabbe notes.
The strong taste, which is popular in China but unfamiliar to overseas consumers, means “it is difficult for baijiu companies to find takers for their products abroad with the exception of overseas Chinese and probably South Korean and Japanese consumers,” says Tan Heng Hong, Access Asia’s consumer market researcher. Expensive baijiu brands, such as Maotai, can sell for CNY1,500 (or US$224.12) a bottle, and is seen as a status symbol in China, although this prestige branding has not yet crossed to non-Chinese markets. “It is hard for westerners to give this drink the same value,” says Tan. “Moutai obtained only 3.55% of its 2008 revenue overseas. The future for baijiu is still in China.”
Recently, China's spirits producers have started branching out from just baijiu. Last June, Diageo launched a joint venture with Chinese spirits producer Shui Jing Fang to make Shanghai White Vodka. It is early days though, says Tan. “It seems this made-in-China vodka is still being confined to the Hong Kong market. Shanghai White Vodka is seen as an experiment by Diageo to gauge the reception for Chinese-made hard liquor and the choice of Hong Kong as the place to test-market the product is not a surprise due to its proximity to China.”
And, if proof were needed that the niche spirits sector is becoming truly international, then India is seeking to build on domestic sales of unusual spirits by honing recipes for overseas markets. Pramod Krishna, director general of the Confederation of Indian Alcoholic Beverage Companies, tells just-drinks that he is travelling to Mexico in November to study technology used to remove esters imparting unwanted odours from Tequila. The goal is to remove pungent aromas from Goa’s ‘fenny’ spirits – made from coconut sap, or cashew apples. These smells have hamstrung attempts by distillers to export fenny. “We will see if there is any synergy and if the same could be applied for fenny,” he says.
Krisha says that there have also been attempts - unsuccessful so far - to popularise saffron liquor from Rajasthan. “Ganganagar Sugar mills and Rajasthan Heritage Spice Liquor were trying to promote it," he says. "But, commercially, nothing successful or viable has happened.” He stresses that branding has been a problem, with consumers perceiving that India lacks a quality alcoholic drink manufacturing tradition. “We have to create a brand image for ourselves, which we are trying but it’s a long haul,” he says.
The raw material is there, however. At New Delhi’s luxury Samrat Ashok Hotel, general manager Vaibhav Singh notes that “many bartenders are already making cocktails out of paan liquor [made from the betel leaf chewed by many Indians]. I think that, in the next four to five years, it will be in demand internationally with new drinks and recipes,” Singh says.
And, whilst not necessarily niche, India’s popular dark rum ‘Old Monk’, made by Mohan Meakin in Uttar Pradesh, is popular, according to Singh. The brand is currently exported to Asia, the US and Europe. Singh also highlights the single malt whisky brand Amrut, produced in Bangalore by Amrut Distilleries.
In Africa, the market for niche spirits is small – even in relatively wealthy South Africa. Here, value-for-money brands are what the majority of African customers are looking for when buying spirits, according to Shannon Yuill, group portfolio manager for spirits at Brandhouse, a leading alcoholic beverage company in South Africa. With the impact of the global recession over the past few years, the Cape Town-based company has noticed this value-driven behaviour pattern continue, prompting customers to return to well-known trusted foreign brands like Bells whisky and Smirnoff vodka.
But, Yuill believes that there are also emerging niche markets at the upper end of the consumer base that, while not big, are experiencing growth spurts in pockets.
“Affluent and discerning consumers are looking for the next ‘big thing’ so we are constantly trying to meet that demand," she says. "We are also finding that consumers at the high end are looking for things that can’t be bought off-the-shelf. They want rarity, and are willing to pay a lot of money for it.”
Of the locally-produced spirits, a cane spirit produced by Mainstay International called Mainstay, and the Cape Town-produced Bain’s whisky and Knights - a three-year-old whisky blended from South African and Scotch whiskies - are popular. The leading home-produced spirit brands are Klipdrift, a brandy that has become popular among male drinkers, and the cream liqueur Amarula, which is made from the fruit of the Amarula tree.
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