What Luxury Brands Can Learn From Baijiu’s Anti-Corruption Comeback

Baijiu is on the rebound after being hit hard by China's

Baijiu is on the rebound after being hit hard by China’s anti-corruption campaign. (Xinhua)

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If there’s one premium product that was unquestionably hit hard by China’s anti-graft campaign, it was the Chinese spirit baijiu. While China’s anti-corruption campaign rages on, baijiu is on the rebound thanks to several key adjustments that have helped keep it afloat—adjustments that can provide valuable lessons for all luxury brands aiming for growth in the China market.

In 2013, overall sales of baijiu dropped 2.7 percent, with high-end brands such as Moutai struggling the most. The slide in sales of expensive bottles can be contributed to the fact the segment has traditionally been dependent on “gifting” among Chinese officials and the hard-drinking banquet culture—both of which dried up quickly after the launch of Beijing’s anti-corruption efforts.

Now, the fiery liquor is on the comeback trail. A recent Nielsen survey found that sales of baijiu grew by 5.5 percent in 2014 year-over-year. However, this doesn’t spell the end of the anti-corruption campaign—this remains in high gear, as evidenced by the extreme focus on austerity at the recent annual Chinese People’s Political Consultative Conference (CPCC), during which complaint boxes were placed in officials’ hotel lobbies to tattle on one another for any “extravagant” indulgences.

Neilsen identifies adjustments made by brands as the main contributing factor to baijiu‘s recovery, highlighting several key takeaways for other high-end brands hit by the campaign.

First, the survey found that it’s important to make one’s brand appeal to the mass consumer for personal use, rather than for gifting purposes. Since gifting has taken a hit, Nielsen found that baijiu sales still slid during the gift-heavy Chinese New Year and Mid-Autumn Festival periods, and sales of bottles lacking gift packaging grew almost twice as fast as those in gift packaging (7 percent vs. 4 percent). In addition, cheaper baijiu grew the fastest, while bottles over 700 RMB (USD$113) declined 9.1 percent in 2014.

In order to achieve future growth, baijiu brands need to address the way the modern Chinese consumer shops—especially in the millennial age group. Nielsen found that 77 percent of those surveyed plan to buy more baijiu online in the coming three years, making e-commerce crucial to growth among the young, tech-savvy consumer. To reach younger consumers, baijiu brands also need to adjust their marketing to meet demands for spirits consumed for social networking and self-indulgence rather than just business, according to the report.

These lessons are relevant not just to Chinese spirits brands, but to any premium goods company that has struggled due to cutbacks on gifting and/or banquets. Growing middle-class spending, a focus on self-indulgence, and the rise of online sales span multiple sectors and have major industry implications for all segments of the premium market. As the Chinese middle class and young consumers become increasingly dominant forces in the luxury market, it’s up to brands to figure out why and how they’re planning on buying high-end goods in the years to come.

 

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