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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 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 with a market share of 50%, followed by 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.