We established our China business in 2002 and over the years, we have developed an outstanding portfolio of international and local premium beverage alcohol brands in China, ranging from Scotch whisky, gin, vodka, liqueur, rum, and beer to Chinese baijiu. Today, China is one of Diageo’s top three global strategic markets.
Over the last few years, Greater China has increased from 2% to 5% of Diageo’s global net sales. In the first half of the 2023 fiscal year, Greater China net sales grew 2%, driven by Scotch with strong performance in the super-premium-plus segment.
We are rapidly expanding our strategic footprint in China and have made a series of investments to better serve the growing market. For example, in May 2021, we established a regional Logistics Hub in Shenzhen to service China and the Asia-Pacific region, and the Diageo Eryuan Malt Whisky Distillery in Yunnan Province is under construction and due to open next year. The distillery will be carbon neutral in operations and will produce the highest quality Chinese single-origin whisky.
Speaking of carbon neutrality, our 10-year sustainability action plan, “Society 2030: Spirit of Progress”, which focuses on promoting positive drinking, championing inclusion and diversity, and pioneering grain-to-glass sustainability, underpins our sustainable business strategy.
In terms of challenges, the restrictions of the Covid pandemic impacted our business, both in terms of employee welfare and sales and distribution of our products. Nevertheless, we responded with speed, agility and a strong sense of community. We always put our people first. During the extended lockdown in Shanghai, we delivered multiple food care packages to employees and their extended families and friends and provided counselling and support services. This commitment has helped strengthen our brand and competitive advantage to further attract talent critical to our future growth.
The Chinese economy has proven remarkably resilient, and we expect that the easing of Covid control and entry policies will bolster the economy, boost domestic consumption and enhance foreign exchange and cooperation. Nevertheless, China’s market is complex and rapidly evolving, with multiple consumer segments and sophisticated demands. It has taken patience, agility and hard graft to build categories, educate consumers, enhance brand awareness and expand our route to market. We have learnt a great deal in our over 20 years in China, and we will continue to grow our business and continuously fine-tune our strategy to meet market requirements.
Atul Chhaparwal, Managing Director, Diageo Greater China,
China is the world’s largest beverage alcohol market, with 25% of global total beverage alcohol (TBA) value and one of the fastest-growing TBA markets in the world. The share of international spirits still remains low (RSV accounts for 2.5% of TBA market), but this reflects the huge growth potential.
Whisky – our core strength – is the second-largest international spirits category in China but also among the fastest-growing beverage alcohol categories. We posted double-digit growth in Scotch in our 2022 financial year despite the impact of Covid restrictions. Our whisky retail sales value is ranked no.1 in China market, according to statistics from IWSR 2022 [a market analysis company].
We are confident about double-digit accretive growth in China for our international spirits business. We can expect that China will continue to open up and pursue high-quality development and that consumers will continue to seek higher levels of quality consumption, further boosting an already vibrant consumer market and continuing the trend of premiumisation.
China is one of the world’s most exciting markets for spirits producers. The potential has always been clear, but it has been fantastic to see how consumers in China are increasingly embracing international-style spirits – particularly Scotch whisky, which is proving especially popular with younger consumers.
As one of the world’s leading international beverage alcohol companies, we have witnessed the booming development of international spirits in China and the trend of premiumisation. We are excited by the potential of the market and will be continuously developing innovative products that both cater to China consumers’ diversified demands and pay tribute to local Chinese culture.
At the same time, baijiu plays an important role in China’s unique alcohol culture. Diageo is currently the only international beverage alcohol company to participate in the dynamic baijiu sector, and we are very proud of our involvement with the iconic Shuijingfang brand.
Chinese consumers are also among the most sophisticated digital consumers in the world. We are actively embracing new consumption trends and continue to invest in digital and e-commerce channels and work with local partners to integrate online and offline strategies that jointly contribute to the development of the industry in China.
Overhead view of the design of Diageo Eryuan Malt Whisky Distillery
The TBA market continues to grow across all categories in China. While international spirits is the fastest-growing category, it still only represents around 2.5% of the total market, presenting a clear opportunity for Diageo.
At the height of the pandemic, the extended closure of our on-trade channels, such as restaurants and bars, due to lockdowns significantly impacted our business. On the other hand, we saw an increase in in-home consumption that led to growth in our e-commerce channels. In fact, Greater China achieved a 2% growth in net sales value in the first half of the 2023 fiscal year.
In 2020, as part of our global initiative to support and sustain the hospitality industry, we launched the “Raising the Bar” initiative in support of more than 1,000 bars and restaurants in six cities across China.
We remain optimistic about the China market and the growth potential for our business and expect the market to rebound strongly as consumer confidence gradually returns.
As China has set itself highly ambitious targets on sustainable development goals, I have noticed a growing awareness of sustainability and social responsibility among consumers, especially in terms of responsible drinking and environmental protection. There are emerging wellness trends towards lower alcohol and lower calorie drinks offerings, and consumers are becoming more discerning and choosing brands with strong environmental sustainability credentials.
We have an opportunity to work with Chinese industry and government to address many of these challenges and position ourselves as thought leaders in this area. Our Society 2030: Spirit of Progress initiative is setting the standard for ESG and is opening doors at multiple levels for us to engage with key stakeholders in China.
Diageo’s Positive Drinking Month initiative
Today, we are building on a successful track record of ESG progress. For example, we have localised our flagship responsible drinking programme, DRINKiQ, to educate Chinese consumers on the effects of alcohol and inform them of the choices they make when drinking.
Our integrated ESG strategy is anchored around our business and its positive impact on our people, our communities and broader society. Importantly all our initiatives are aligned with China’s own sustainable development goals.
We will continue to increase our strategic footprint through a series of “in China for China” initiatives. For example, our Diageo Eryuan Malt Whisky Distillery is scheduled to open next year and will bring China into the centre of the global whisky conversation.
Meanwhile, we will continue to expand our local innovation and production capabilities and develop innovative products that satisfy Chinese consumers’ diversified demands.
We are committed to ensuring that our sustainability and ESG strategy aligns with China’s own high-quality development goals, be they industrial, social or environmental, and we look forward to continuing to work with local partners, industry peers and organisations such as the China Alcoholic Drinks Association (CADA) to support China in its goals to improve quality of life, facilitate sustainable development and optimise the business environment.
Our “Society 2030: Spirit of Progress” sustainability action plan will continue to guide us to create a more inclusive and sustainable world.
Stay at the forefront of Chinese consumer insights and trends to ensure your brands and products remain relevant in this rapidly evolving market.
This article was produced as part of a series for China Consumer 2023.
Learn more about CBBC’s flagship consumer event of 2023 here.
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