Focus - Brown-Forman holds back on China
China is still a long-term play - B-F chief
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.
Varga 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.
"Right now the Chinese market is mostly a Cognac and whisk(e)y market. There are other markets around the world that are really nice whiskey, vodka and Tequila markets," said Varga, adding that these markets "fit more naturally with the portfolio that we have". He cited Russia as one example.
For now, it appears some of the second tier wine and spirits multinationals are quite content to let Diageo and Pernod lay the foundations of a market in China and scrap between themselves over early share.
Despite China's domestic spirit, Baiju, being a white spirit, the country has yet to develop a serious taste for vodka and Tequila. Pernod has spent the last year seeding Absolut vodka in high-end outlets in the country, but just-drinks understands that this, again, is a long-term play.
That is not to say that Brown-Forman has taken its eye off China.
"It's not an either or, we are constantly checking and rechecking our strategy in China," said Varga.
He said that, like Diageo, Brown-Forman has "looked at" baiju companies in China. Commenting on possible acquisitions in the country, he said: "Like anything in this area, it is something that we keep our eye open for and are constantly looking at and thinking about."
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