Diageo and Pernod Ricard have spent much of the last year talking up China’s thirst for premium spirits, but some of their smaller rivals are happy to leave the ‘big two’ to fight it out in the country – for now.
Diageo’s recent deal to increase control of one of China’s leading producers of premium Baiju spirit has only heightened interest in the country’s market potential.
Pernod Ricard managing director for finance, Gilles Bogaert, also spoke of his firm’s “strong position” in China in an interview published on just-drinks this week.
Both drinks behemoths have seen continued consumer demand for high-end Cognac and Scotch whisky in China over the last year, despite a frail world economy. As analyst Trevor Stirling, of Sanford Bernstein, put it: “Premiumisation is not dead, it is alive and well, and sipping Cognac in China.”
However, not every multinational drinks company is clamouring to drink at China’s well, as shown by the third quarter results conference held by Jack Daniel’s whiskey maker Brown-Forman this week.
“China will be a huge market for Jack Daniel’s over the very long-term, but right now it isn’t offering some of the near-term growth that other markets might be,” Brown-Forman CEO Paul Varga told analysts.
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By GlobalDataVarga and Brown-Forman CFO Don Berg suggested that the cost of keeping up with the Jones’ in China has begun to outweigh the returns.
“We had nice growth in China up until a couple of years ago, when things got a lot more competitive,” said Berg.
He said that while Brown-Forman has “aspirations” to do well in Asia, the group, which also produces El Jimador Tequila and Finlandia vodka, is “looking at it with a very long-term perspective”.
Varga said Brown-Forman has scaled back investment in China in the last year. “The costs to play in the market were extraordinarily high,” he said.
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