As luxury brands scramble to secure a foothold Asia-Pacific’s burgeoning economy, the drinks industry is racing to keep ahead of what resembles a modern-day gold rush. For Scotch, China holds all the promise of the Far West in the 18th Century, but does it represent a fundamental reposition for this category or is it just a flash in the pan?
As Western economies stagnate and traditional markets stall, it can hardly be considered surprising that many eyes are turned East, where the seemingly unstoppable force of the Asian flagship markets is helping to keep smiles on the faces of most CEOs. While the rest of the world was crying into its collective spilled milk in 2009, China posted growth of 9.2 per cent, a drop on previous years but still well beyond the wildest dreams of the West. Such growth rates, which look set to continue regardless of the risk of ‘double dip’ elsewhere, are driven by: “fiscal stimulus and a massive increase in credit and public investment,” according to Spiros Malandrakis, alcoholic drinks analyst at Euromonitor International.
He continues: “China’s rates of real GDP growth should remain above nine per cent per year in the medium term and the number of urban households earning more than the annual benchmark of US$5,000 will grow substantially, creating millions of new consumers”.
Hot on China’s heels, South Korea and Vietnam are also flexing their financial muscles as the benefits of long-awaited trade agreements and liberalisation of their taxation regimes starts to be felt; resulting in an inevitable rise in middle class spending power, coupled with an increase in Asia’s existent discerning drinkers.
"Recent reports show that Scotch sales in China have gown nearly 12 fold in the past decade"
Signs of this New World Order are already apparent. The drinks market in Asia Pacific posted more than five per cent growth in 2010, with China witnessing its third consecutive year of six per cent annual increase and South Korea and Vietnam posting respective growth rates of seven per cent and 13 per cent. While these figures might not seem particularly high, they are positively celebratory in the face of a one per cent volume decline in Western Europe and North America in 2010.
For Scotch in particular, the future in Asia seems bright. The Far East’s love affair with whisky seems to be a long-term relationship rather than a summer romance, with Scotch sales bouncing back, in the wake the 2009 financial crisis. Recent reports show that Scotch sales in China have grown “nearly 12 fold in the past decade”, from 142,000 nine litre cases in 2000 to 1.6 million in 2009, with further documented exports to China rising a further 24 per cent to 55 billion last year.
Although increased consumer demand in the Asia-Pacific region contributes largely to its healthy export sales statistics, the Scotch whisky industry also has recent changes in legal protection to thank. Towards the end of last year, an agreement was signed between UK Business Secretary Vince Cable and Chinese officials, which recognises that any whisky sold as ‘Scotch’ in China, must be produced in Scotland. This may sound trivial, but it will counteract the sales of any whisky being passed off as Scotch that may have been produced in countries such as India.
However, it would be foolish for the drinks industry or indeed any other, to place all its eggs into one giant bird’s nest. While the growth of China to date has been buoyant, and there are signs the market for luxury goods will continue to power ahead, not least as a result of the inevitable rise in the value of China’s currency, it should not be forgotten that China is still an emerging market; with all the risks associated with that status. It would of course, be unwise for the likes of Scotch or anyone in the premium spirits category to ignore the obvious benefits of the eastern markets but they should not ignore the other emerging titans of the global economy such as Russia, India and Brazil, in which premium drinks brands are equally coveted.