Drinks giants target China

01 June 2011

BEIJING: Pernod Ricard and Diageo, the premium spirits groups, are battling to get the attention of China's aspirational consumers.

Speaking to the Financial Times, Pierre Pringuet, Pernod Ricard's chief executive, suggested several shifts should fuel demand for its brands in China.

"China is today our second-largest market. Second to the US," he said.

"China is definitely a very attractive market because of the growth of the country and the fact that there is an emerging market middle class with a strong appetite for international brands, and in particular for brands such as Martell or Chivas or Ballantine's."

Pernod currently contributes a 44% share of spirits imported to the rapidly-expanding Asian economy, giving it a leading position overall.

"I think most companies would love to have the business that we have in China," Pringuet said.

At present, China delivers 10% of the French multinational's annual revenues, and this figure could climb swiftly going forward.

More specifically, tastes are almost continuously evolving in the world's most populous nation, with a new breed of high-end bars often able to charge $1,000 for the best foreign wines.

"If you look historically, the first international category to develop in China was cognac," said Pringuet.

"We introduced the whisky category, which is today ahead of cognac, and we are clearly thinking about a strategy for our vodka Absolut."

As well as boosting the returns supplied by global offerings, Pernod Ricard is seeking to enhance its status concerning baijiu, a local rice wine.

The firm inherited a joint venture with Jiannanchun Group, one of the biggest players in this segment, upon acquiring Swedish operator Vin & Sprit in 2008, but believes further room for progress remains.

"We have a lot of interest in the medium term for that category," said Pringuet.

"Let's be clear, we have not yet found the proper recipe to develop this category within our portfolio, but it's probably a medium term project."

Elsewhere, James Thompson, chief marketing officer of Diageo Asia Pacific, argued in a recent presentation that unique opportunities and obstacles characterise the region, and especially China.

"The structure of the on-trade in Asia - and China is an exaggeration of what is found in the rest of Asia - poses real challenges to building loyalty to brands," he said.

To engage shoppers in new ways, Diageo has launched the Johnnie Walker House in Shanghai, an exclusive destination educating influential individuals about scotch whisky.

This will be coupled with an online communications initiative to reach a broader demographic.

"In the Johnnie Walker House we will provide rare and special occasions for opinion formers," said Thompson.

"This is part of establishing Scotch as a fundamental part of a sophisticated and luxurious lifestyle here in China."

Alongside targeting the digital audience, Diageo wants to tap the "premiumisation" trend with goods including Johnnie Walker Blue Label, Shanghai White vodka and the "super deluxe" Windsor line.

"Cognac's been established as the luxury category for 70 or 80 years," said Trevor Stirling, an analyst at Sanford C Bernstein.

"What Diageo has to hope is that a younger generation of Chinese will start to behave like Western consumers and say, 'We want a drink for our generation.' But it's likely to be a slow burn."

Data sourced from Financial Times, Diageo, Business Week; additional content by Warc staff