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Practical guide to the Alcoholic Beverage Market in China

For many years, Chinese consumers favored domestic alcoholic beverages. This habit is changing rapidly and though the most popular spirit continues to be the nation’s most revered high alcohol “rice vodka,” baijiu, more and more Chinese are learning to enjoy other spirits, wine and imported beer.


China represents one of the world’s largest alcoholic beverage markets. According to Statista, revenue in the Alcoholic Drinks market will amount to US$336.40 billion in 2023. The market is expected to grow annually by 3.47% (CAGR 2023-2027).


Spirits is the market's largest segment with a market volume of US$165.90 billion in 2023.

The alcoholic drinks category can be segmented into beer, flavored alcoholic beverages, fortified wine, brandy, gin & genever, rum, specialty spirits, vodka, and whiskey, among others.


Alcohol has been consumed in China for over 9000 years. It was always an indispensable element to religious ceremonies and important events, such as weddings and funerals. Jiu is the general term for alcohol. The traditional beverage was usually distilled from sorghum or rice, ranging from 20% (huangjiu) to over 40% of alcohol content (baijiu).



China’s population size, rising disposable income and increased consumption of alcohol by younger generations, have been key factors in the market growth. The changing social norms and the growing acceptability of alcohol have led to higher and regular consumption among people in the region.





China's alcoholic beverages market has been primarily led by the constant rise in consumption and increasing demand for premium brands. According to the World Health Organization, China is one of the largest consumers of alcohol, with an increase in per capita consumption of 0.9 liters of pure alcohol by 2025 from 2016.


China’s alcohol industry is mainly driven by local beverages such as baiju and others. Maotai is one of the most popular baijiu brands produced in Guizhou. However, foreign spirits have become more popular despite high import taxes, restricted distribution channels, and fierce domestic competition.


In the alcoholic drinks market, volume is expected to amount to 63,730.00 million liters by 2027. The market is expected to show a volume growth of 0.6% in 2024, while the average volume per person is estimated to reach 42.59 liters in 2023.


An estimated 25% of total revenue will be generated through online sales by 2023, and by 2027, 40% of spending and 37% of volume consumption in the alcoholic drinks market will be attributable to out-of-home consumption (e.g., in bars and restaurants).


In 2022, China’s spirits market generated around US$319.8 billion. Such turnover represents a big opportunity not only for domestic producers, who want to get their slice of the pie in the Chinese spirits market, but also for the foreign investors, who have recognized the huge potential of such market segment.


In China, the world of alcoholic drinks is quite diverse, however, in 2021 the most consumed beverages were spirits and beer, holding respectively 47.8% and 39.1% of the market revenue, followed by wine with 8.2% of the total revenue.


As far as spirits go, baijiu outperforms all other competitors. Baijiu, which means “white spirit”, is produced through the distillation of sorghum, but can also be made from rice, wheat, millet, and corn. It is the most common alcoholic beverage in China.


According to the National Bureau of Statistics, baijiu’s cumulative value of production was 2.02 billion liters in March 2022, with a growth of 60% compared to February. The importance of baijiu in China was proven last year, when 24 bottles of the premium brand Kweichow Moutai were sold for US$1.4 million at Sotheby’s, the world’s largest marketplace for art and luxury.


Although baijiu dominates the production and the revenue in China, other spirits have an important role in the Chinese spirits market too, the main ones are whiskey, brandy, and vodka.


Although Chinese people have a millenarian tradition in brewing alcoholic beverages, drinking is not one of their favorite activities. In 2022, the average annual alcohol consumption in China was 6 liters per person, which is small compared to other countries like France, where the consumption reaches 12 liters per year. However, alcohol consumption is not equally distributed between the two genders. Indeed, men consume far more alcohol than women, almost 10 liters compared to roughly 3.


In China, young people, especially Gen Z, are taking over the spirits’ market. 57% of people who often go to pubs are aged between 18 and 24 years old. The new generation of young adults represent the main driving force of the alcohol market in China.


To simplify the process of purchase, several alcohol-delivery platforms have emerged. Founded in 1998, “1919” is one of them. In 2018, Alibaba invested US$288 million to expand 1919.cn presence in China. Its main strengths are promotions and a 19-minutes delivery, but the service only works in certain cities.


Despite the rich tradition in drinking alcohol, the new generations prefer to stop the abuse of these beverages, especially during working hours. The episode which began the “boozy infamy” among young people happened in 2021, when a Chinese girl working for the giant Alibaba reported her boss for sexual assault.


The woman claimed that she was asked to drink during a business dinner and then she was molested. According to local customs, young people are expected to give toast to their superiors and clients to show respect and hospitality. The tradition is claimed to be a patriarchal heritage from ancient China, something that the new generations are trying to eliminate.


Though they prefer not to drink during work hours, young Chinese enjoy drinking at bars and restaurants. “Night economy” is a major driver of alcohol consumption. It refers to all activities taking place between 6 p.m. and 6 a.m. In 2022, it reached US$5.7 trillion. Night restaurants cover up to 40% of all the night economy, while bars account for 19%. Going to bars represents a key factor for social relationships, especially among Gen Z.


China’s domestic spirits may dominate the market, but the demand for foreign alcoholic drinks is growing. Such demand is mainly satisfied by France, which in the first half of 2022 was the biggest alcoholic beverage exporter to China, with a total value of US$847 million.


Foreign liquors are seen as a status symbol in China, for this reason, they are usually used during dinners and social events. Brandy was the largest imported spirit in 2021, covering 68% of all spirits’ import value and having an import volume of 48.71 million liters.


France remains the predominant country in brandy imports, topping the import market with a 98.8% (US$1.68 billion) market share in 2021. When it comes to whiskey, England is by far the largest exporter, covering 80.1% (US$371.74 million) of the 2021 market, followed by Japan, whose whiskey only detained a 10.91% (50.61 million USD) market share in the same year.


Vodka also plays a big role. China imports vodka from 40 countries, but Sweden is the biggest exporter. In 2020, the most consumed vodka in China was the Swedish label “Absolut Vodka”, holding the 52.7% share of consumption volume by brand.




Though these numbers seem high, they could never outperform baijiu’s huge distribution and popularity. In 2020, the sales value of liquors in China was ruled by baijiu, detaining 94% of the sales, while whiskey and brandy combined barely reached 5%.





The Chinese wine market is expected to double in size in the coming decade, despite the major setback caused by the pandemic. The total imports of bottled wine have seen a stable growth since 2006, from 2.25m nine-liter cases to 50.5m in 2019. Data from Vinexpo reveals the imported wine market in China has a long-term upward growth trend.


Currently, consumption of imported wines is concentrated in urban areas. China’s wine consumption is still lagging behind 2019 levels; however, experts predict a more gradual rebound instead of a “V Shape” as seen after 2008, adding that China is still set to become the world’s second biggest wine market after the U.S. The global beverage industry will likely return to pre-COVID levels in 2024, as the disposable income and employment require a longer recovery.


Companies interested in the Chinese market must have a sound understanding of the implications of the latest market developments.


Research firm Wine Intelligence suggests that the market is shifting towards maturation, however opportunities are opening up, given the changes in the industry.


France, Australia, and Chile have been the unchanged top three importing countries of China. Australian wines succeeded in surpassing the French in 2019, making China the country’s largest export market, taking up close to 40% in sales value and third largest by sales volume. Its success is driven by the cost-effectiveness, accessible flavor profile and good penetration on the Chinese E-commerce platforms.


The wine drinking habits in China have evolved over the last ten years, and consumers are gaining more curiosity and knowledge in wine. While wine has played an important role in social occasions to elicit prestigious and hedonistic lifestyles, this category has succeeded in capturing new clientele: legal-drinking-age adults and women. Driven by the increase of the middleclass and westernized lifestyle, more consumers are willing to pay for a quality mid-range bottle.


Mid-aged consumers who have higher income and living standards are showing more interests in premium wine in China. Those aged between 20-39 are actively searching for premium wine information on Baidu. E-commerce platforms and mobile apps have boosted this development.


During COVID, the Chinese wine market experienced a significant drop (32%) of sales value in 2020. Even during lock-down, the little “drinking at home” did not make up for the loss, while Western countries saw a surge in home consumption.


The latest IWSR E-commerce Study predicts that the Chinese alcohol E-commerce market value will have a compound annual growth rate of 15.8% between 2019 and 2024. The pandemic has accelerated the expansion of this fast-growing channel. Baijiu and imported wine account for over 80% of the online sales. In 2020, 20% of all wine sold was purchased through websites, which suggests a huge potential of this channel.


China has fully embraced the potential of wine E-commerce, far more than any country in the world. In contrast, baijiu only performed well at the high-end segment (e.g., Maotai, Luzhoulaojiao, Wuliangye), while the mid-and lower range is struggling.


Currently, the sector is led by Tmall.com with a market share of 50%, followed by JD.com with nearly 25% of all online alcohol sales. Recent data shows that Tmall’s own alcoholic beverage store far outperformed the rest in 2020. Therefore, many brands have opted for partnerships with these two giants due to their enormous reach of consumers and advanced infrastructure.


E-commerce will continue to be the key sales channel, due to its ability to carry many SKUs, more detailed product information and no limitation of shelve space. Along with the continual improvement and increasing usage of online payment mediums like Alipay and WeChat Pay, integrating online sales channel should become the norm.


The Chinese beer market is dominated by low-end mass market brews, primarily pale lagers. However, this segment is led by major domestic brands and is quickly saturating. Although high-end imported and craft beers are becoming increasingly popular, showing rapid growth in both sales volume and value over the past five years, they remain a relatively small portion of beer sales in China overall.


To succeed in China’s alcoholic beverage market, businesses should determine how to feasibly sell in China, localize their brand and product(s) as needed, deploy an effective marketing strategy, find reliable distributors, and establish diversified sales channels, and find a professional local partner who can help navigate common challenges and carry out necessary due diligence and preparation to reduce costs and maximize long-term returns.


The experience of St. George Distillery--a producer of spirits--demonstrates the value of investing in determining feasibility and testing the market. Pillitteri Estates Winery’s success in China shows the returns firms can enjoy when they accurately assess the market and consumer preferences, properly localize and market their brand and products, and employ the time and due diligence necessary to develop strong relationships with local partners who can help them establish reliable sales channels.


Feasibility can be determined by measuring the affordability of your product, creating an appropriate pricing strategy, understanding existing competition, assessing consumer awareness, and understanding of your product, and geographic targeting.


Localization can be addressed by assessing to what extent your brand and/or product(s) ought to be adjusted to fit the Chinese consumer market and how this can be done within a defined budget.


For wine, spirits, and beer educating consumers needs to be a key part of any effective marketing strategy. This should be combined with clever use of Chinese online platforms and social media, which are often the primary gateway for consumers to learn about products.


Finding a reliable distributor can be challenging—particularly for small and medium producers.

This can be solved by working with a reliable local partner who knows the market, language, legal framework, and way of doing business to carry out due diligence, facilitate communication, and ensure all agreements are fair, transparent, and legal.


Pillitteri Estates, based in Canada’s Niagara wine region, produces a broad range of wines, including varieties of red, white, and ice. With decades in the business, they’ve earned numerous awards and have become a major exporting producer, including China.


Their success in China is due to multiple factors. The first one is timing. They began exploring the market when demand for wine in China was growing and competition was low, giving it an advantage as an early mover in an underdeveloped market.


Second, they correctly assessed Chinese tastes; with many consumers in China preferring sweeter wines, Pillitteri adjusted its product mix, emphasizing ice wines, which are naturally sweeter.


Third, they properly localized their branding, taking advantage of the uniqueness of the narrow bottles typical of ice wines, developing more ornate labels to further appeal to Chinese preferences, while also drawing on the unique characteristics of the winery’s history and place of origin. This mix proved a major success.


Working with a Chinese partner, they were able to establish effective sales channels and develop a marketing strategy that resonated with Chinese corporate buyers and end consumers.

Despite the growing demand for wine in China, most foreign wineries do poorly because they fail to understand the market, assess consumer demand and preferences, localize their branding and marketing, and work with suitable partners to establish reliable sales channels.



St. George Spirits, based in California, produces a broad range of spirits, including gins, vodkas, whiskies, brandies, and several liqueurs. With 35 years of experience, positive public coverage, and awards under their belt, St. George began exploring whether to sell in the Chinese market, primarily their gins.





First, they conducted a feasibility study—assessing pricing, demand, competition, and the overall market environment—and executed a modest soft launch of some of their products in China. Based on the outcome, they determined that, although demand for gin was growing and in the process of transitioning from low-end products, competition for high-quality gins was high.


Additionally, consumer awareness was still low, which would require years of high investment in marketing. These factors convinced them that they would have difficulty selling high enough volume to justify the investment--at least for the first few years of operation in China.


For these reasons, they ultimately decided not to enter the Chinese market, though may revisit it as consumption matures. By investing in early testing and feasibility study, St. George saved considerable time and money that would have been lost had they launched blindly into the market.

For the import of alcohol into China, exporters must work in collaboration with a local import entity that is in possession of a valid import business license, and personal and company customs and CIQ (China Inspection and Quarantine) certificates. Once conditions are agreed upon, a contract can be signed with the Chinese import agent and registered with the General Administration of Quality Supervision (AQSIQ).


Then, the beverage for import must be labelled according to China’s food labelling standards. Both the original and translated labels in Chinese are required, and a digital version of the Chinese label registered with the China Inspection and Quarantine (CIQ) on the first instance of import. After approval, the labels can be printed.


At customs, a country-of-origin certificate, health certificate, product ingredients list, product sales approval registration document, packing list, invoice, contract, and bills of lading will be required. Accuracy of information provided is important as any delay at customs may affect perishable goods.


Once customs receives the documents, it will release the goods to the agent. Imported goods must comply with relevant standards, and once passed, the CIQ will issue a commodity inspection document to customs, which is then given to the agent. Once received, the labels can be applied to the products by the importer.


Customs will then levy customs duties and other taxes and will release a customs clearance document. At this point, the importer can collect the goods and proceed to deliver to the distributor.


Localization of alcohol manufacturing is an effective way to reduce costs and improve competition. This is achieved by circumnavigating import and shipping costs and warehouse rental and making use of lower labor costs. It can also help to adjust products to the local market and lead to faster response times.


As exemplified by Carlsberg, the local production method is especially popular for the beer industry. China’s beer manufacturing market is regionally fragmented, with local producers dominating smaller markets. In recent years, it has been common for larger beer manufacturers to acquire smaller local manufacturers to improve their brand quality.


For these reasons, and because of strong support for domestic manufacturers, foreign producers may find it hard to invest in the beer segment. Therefore, joint ventures (JVs) and acquisitions are a preferable way to enter the Chinese market.


China is one of the largest and most dynamic markets for alcoholic beverages in the world. Consumption of imported alcohol will only continue to increase due to the growing demand for high quality products. While exporting to the region is a rigorous and often complicated process, following the regulations and standards will help ease the way.

 

Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms. Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

 

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DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.

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