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Spirits set to beat wine in China profits chase - study

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Wine volumes in China are set to outpace spirits over the next decade, a new report has said, but the category risks treading water when it comes to profits growth.

Total consumption of grape wine in China will increase at an average 6% a year to 2025, according to research from Goldman Sachs and Gao Hua Securities. In the same period, spirits volumes are expected to remain the same.

However, because of better premiumisation efforts, profits for high-end spirits are set to jump by an average of 18% a year to 2021. In comparison, wine profits are estimated to rise by just 5% a year to 2025, in line with volumes.

In the China alcohol report, released last week, Goldman Sachs blamed "intense" competition among imported brands for the pressure on wine margins, as overseas companies chase the relatively-high margins in China's wine market. It also said Australian wine producer Treasury Wine Estates could face challenges in the country because the roughly 10%+ price premium it gets in China could fall, "which might offset the premiumisation trend".

There was good news for international wine producers - the report said that stronger branding and higher quality will give imported wine a bigger share of the Chinese wine market. Goldman Sachs said imported wine sales share is expected to jump from 40% last year to 63% in 2025.

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