China's Baijiu market recovers after a cold spell

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According to Nielsen's tracking data for more than 1,100 hypermarkets that covers a total of 22 key cities across China, in off-trade channels, the Baijiu market, after an inhibitory decline, got warm again in 2014, when the sales of Baijiu grew by 5.5% compared with 2013, while in 2013, the sales dropped 2.7% compared with 2012.

Compared with imported spirits, beer, wine and other alcoholic beverages, Baijiu enjoyed the strongest growth of 5.6%, followed by Vodka at 5.1%, while the growth rates of other alcoholic beverages stayed below zero.

However, in terms of the sales value, the growth rate of mass-consumption alcoholic beverages, such as Vodka (3.1%) and beer (2.7%), all enjoy a higher growth than that of Baijiu (-1.2%). Meanwhile, Whisky (-9.1%), Brandy (-23.2%) plunged quite a bit in sales in 2014.

"Besides the promising factors – optimistic Chinese consumer confidence, increasing purchase intention especially amongst consumers from Central-West China and Tier 2-3 cities, the recovery of Baijiu growth is largely attributed to the enhanced promotions by Baijiu manufacturers, as well as the growth during off-peak season," Fan noted.

"It is an inevitable trend for high-end Baijiu to appeal to a wider audience in the future, and for those brands whose growth relies on the sales of high-end Baijiu, it's time to transform in order to cater to the needs of public."

According to Nielsen research, in 2014, sales driven by promotion accounts for 31.2 percent of the total Baijiu sales, 2.3 percentage points higher than 2013. As for the top ten most popular products, sales grew 18 percent, with the average price dropping 6 percentage points.

According to Nielsen data, the Chinese New Year and Mid-Autumn Festival are still the two most important holiday for Baijiu sales. However, in 2014, sales during these two main holidays declined by 9 percent and 1 percent compared with the sales in 2013.

On the contrary, the sales growth rate in off-peak seasons grew by 6 percent. And in off-peak seasons, product for self-use grew 7 percent, compared with 4-percent growth for products in gift-packaging format.

When it comes to price, sales of Baijiu priced between 300 yuan and 700 yuan grew by 8.6 percentage-points compared with 2013 sales and accounted for 21.9 percent of total sales in 2014. Sales of Baijiu priced below 100 yuan accounts for 39.4 percent of the total sales, 3 percentage points higher than the previous year. However, the importance of high-end Baijiu priced above 700 yuan against the total Baijiu sales dropped 9.1 percentage points in 2014 compared with 2013.

"It shows the middle-to-low priced Baijiu has gradually become an important engine to drive Baijiu's future growth. With Baijiu returning to mass consumption, further development of the retail channel will help promote Baijiu's future growth in the "new-normal" economy," Fan pointed out.

She sad "Moving Baijiu from formal occasions to ordinary dining tables is the key to winning the Chinese Baijiu market in the future."

Time to make adjustments

The "New Normal" economy brings both challenges and opportunities to China's Baijiu Market. The Nielsen study identified that it's now the right for Baijiu manufacturers to make overall adjustments to their strategies in order to win.

According to Nielsen's survey, consumers aged between 35 to 45, especially those in the middle-class consumer segment, are most important to the Baijiu market.

However, with the evolving and diverse needs of Chinese consumers, younger generations such as the post-80s and 90s, are the key to drive future consumption.

Nielsen research shows that at the current stage, Generation X and Millennials of legal drinking age (post-80s and post-90s over 21 years' old) are at the stage of discovering new brands and shaping brand preference and loyalty.

In another qualitative research by Nielsen on the Baijiu consumer, it shows that consumers start to discover high-end Baijiu between the ages of 25 to 35. During this period, they begin to increase their drinking volume and to explore different brands. Then from the age of 35 to 45, they gradually form their brand loyalty.

"Our study shows that, most younger consumers discover alcoholic beverages in their 20s, and they always start with beer. The key for Baijiu market to keep growing relies on how to help the younger generation have a better understanding of Baijiu as well as the unique culture associated with it," Fan said.

In another report by Nielsen on post-90s consumers, it shows that today, the young Chinese consumer not only have increased spending power but also more "sophisticated" tastes. "For Baijiu manufacturers, besides resorting to new and innovative means to engage with younger consumers more effectively, they also need to create unique brand stories that match the aspirations of these young consumers, thus winning their hearts and minds," Fan says.

Consumers' needs for alcoholic beverages can be divided into four categories: Business, Social Networking, Self-Indulgence and Entertainment, Nielsen's research show that so far, only the business demand is satisfied for Baijiu consumption.

Fan noted that apart from relying on the shopping carnivals (like Singles' Day, Chinese New Year) and holidays both online and offline, Baijiu manufacturers should broaden their marketing campaigns to stay innovative in product packaging and positioning, so to better cultivate the Baijiu market.

"For example, Baijiu manufacturers could launch customized Baijiu products and new packaging to rejuvenate their brands and attract more consumers. Also by leveraging Baijiu's unique drinking cultural and heritage, Baijiu manufacturers can bring a special product experience to the Baijiu consumer," said Fan. "Through connecting traditional consumption patterns with the new, trendy, fast, emotional and extravagant style, there are opportunities for Baijiu manufacturers to lead a new consumer trend for this particular category," Fan added.

According to the Nielsen survey, around 77 percent of surveyed alcoholic beverage buyers are willing to increase purchases Baijiu via online channels in the next two or three years, compared with 53 percent of respondents who are willing to increase purchases via offline channels for Baijiu.

Nielsen's e-commerce research also shows that by the end of 2014, online sales will takes up one third of the sales in off-trade channels, with a growth rate of 108 percent.

"In recent several years, China has seen more and more Baijiu companies move online. Right now, though online sales only take up a small part of the total sales for Baijiu, there's huge potential to tap into this over the next few years," Fan pointed out.

Nielsen's study shows that the potential risks of receiving fake products (64%) or being broken in transit (57%) are the key concerns that prevent consumers from buying Baijiu online. "If Baijiu manufacturers could dispel these concerns, while at the same time, better leverage the benefits of online purchases of alcoholic beverages such as big discount, convenient home-delivery services and diversity of products, then we believe the emerging online channels will finally take the Baijiu business to a new height," Fan concluded.

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