Go back to just the last decade and the thought of ‘drinking in China’ would bring up hazy memories of relentless ‘gan bei’s, with each shotglass of baijiu downed to uproarious celebration (and if you were lucky, that’s all it would bring up). Of course, nationally, baijiu remains the leader in all senses. Yet nowadays, the drinking scene in first-tier cities is more about aperol on the terrace, a gin masterclass at a rooftop bar, or some combination of ‘classy tipple meets panoramic view in luxurious setting – with guest bartender’.
Starting with Shanghai, it’s fair to say that consumers are now spoilt for choice. While bars are crowded with the city’s Millennial drinkers, the marketplace is also flush with products – not only the big names but a diverse, ‘premiumisation of the drinks market‘. The queue to get to the bar is just as long on both sides of it.
Previously having covered the fruitful opportunities that the wine industry is seeing, The Luxury Conversation moved on to spirits and cocktails (as any good evening should), speaking to each side of the bar, the brand, as well as the importer between them.
The bar: Gary Hu, Head Bartender of The Middle House Shanghai.
What are you seeing in Shanghai’s bars in terms of drinking culture this year?
The drinking culture is driven by the 25-35 age range. Currently, in terms of spirits, whisky is still ahead in terms of popularity – but the gin revolution is taking place. The drinkers in this city are moving to quality and simplicity, rather than a glass adorned with ten flowers, blueberries and some frosting. Of course it needs to look good for both the presentation and for their WeChat photo, but in a more understated way.
Roughly speaking, 70% of drinkers are happy to stick to the famous brands, while 30% are looking for craft brands, from small batches.
How are brands best getting in front of their target and speaking to them?
Any brand in Shanghai needs to be working on the full range of promotional types, and having a broad range of campaigns going on. This isn’t simply to talk directly to their target, but if anything it’s more to show us, the bar, that they are a brand worth working with. Coming to the bar to offer us the product and getting to know each other is fine, but we want to see that they have the plan and tools – masterclasses, cocktail competitions, pairing dinners and so on – done in a way that will excite our customers.
A couple of good examples of what some brands do are Pernod Ricard and the Bacardi training program. The Bacardi fellowship trains consumers on how to make mojito or daquiri and so on at home. It’s a starting point that lets people easily recognise that Bacardi is rum and what drinks on the menu they can look out for.
Pernod Ricard are well established on WeChat – they have a series called ‘Ask Jerry’ and followers can learn information about how to choose different drinks, how to order, how to get to know bartenders and so on.
Chivas relate their drink to hip hop festivals, with the big-name celebrities such as DJs or movie stars. This works for them as a big brand themselves, but smaller brands coming into China won’t benefit from a typical KOL who has high follower numbers. In our industry it’s about finding the real bar people, mixologists and bar tenders who know what they are talking about and can provide detailed advice and even know the history of each drink. That’s the kind of information drinkers in Shanghai now look for.
How are hotel bars finding the market this year?
Hotel bars in China are undergoing a lot of changes now. They have to adapt, because there is a booming number of independent, very high-quality cocktail bars. Many hotels are removing service charge for one thing, which might seem small, but any change in a huge corporation is noteworthy.
A bar needs to escape the very idea of ‘a hotel bar’ and feel like an independent bar in itself. They also need to attract talent: fresh blood with crazy new ideas!
Sustainable mixology is another big trend in China too, to present an environmentally friendly and natural concept. But, at the end of the day, pricing is key. 70-80 RMB for a top quality cocktail is reasonable, rather than when places go up to 120 and even 150 RMB for a simple mix of rum and a couple of fruit juices. To be frank, the business of those places with a simple cocktail for 150 RMB is worsening. You can’t fool the customers these days, as they have so many choices.
Aside Shanghai, Chengdu and Shenzhen are developing a lot in terms of F&B spending and lifestyle. In Chengdu there is a lack of supply versus demand. The population is keen on lifestyle and nightlife and, while they are still more regionally traditional or loyal in terms of dining, they are looking to upgrade their drinking experience.
Shenzhen benefits from a kind of overflow of lifestyle trends from Hong Kong and a culture that is happy to recruit international talents. Their first step into drinking culture has been higher and faster than Guangzhou or Beijing, which are still more traditional. The market in Shenzhen has a lot of promise – it feels a little like Shanghai 10 years ago.
The importer: Daniel Taystlin, Gotham East
You work with brands right at the start of their China entry, on to their growth. How does it start?
The first question that I ask a business is: why China? If it’s only because they’ve sat overseas and read about the big numbers, presuming that means income and growth, then I ask them about their business at home and their existing export business. Are they crushing it in their home market? How wide is their distribution? If they’re, say, a small gin brand in Napa and have done zero China market research, then I suggest that they could start by giving a bunch of their product to the Chinese student unions in the universities around California.
A business needs to understand the budget necessary for entering China – there is a lot to do here from all of the translation, customs issues and of course the marketing. Even for the well-established brands that are trending in the world’s top 50, their product can take 30 days to get here, two weeks to clear it, and then selling begins. Distributors can pay quickly while big hotels can be very, very slow to pay which can disrupt the business flow.
When a brand has done their market research and is really ready to sell in China, the three key issues are the packaging, the liquid itself, and importantly, the price. It’s a competitive industry and these days you don’t only need distributors, but sub-distributors in order to extend reach further – so this affects the margins.
How can smaller brands get going, once committed to China?
Brands need to know that while the market has developed very quickly, it is still immature, especially in terms of knowledge. The issue for the consumer is being confused by the menu, and a bar assuming that the customer can easily understand the different drinks just from the drink name or descriptions.
The industry can make itself overly intimidating. Bringing in guest bartenders, or permanent international bartenders, can work very well – yet if they just come in to a bar thinking that they are rockstar mixologists then it can actually put off Chinese customers.
This is where going out of the big, first tier cities is actually more useful for those just starting in China. In Shanghai there are lots of events, and the large brands have the budget to create many large-scale events and related sponsorship. Away from the big cities, both the trade and the consumers are more eager to learn, so, we focus on the consumer and give them tips and education, so they have the fluency they need to confidently have a good night in a bar.
What’s your role in the process and how can a brand start their China entry?
A brand must show commitment to China in the long term.
Once a company is committed, we firstly prepare all of the logistics – the back labels, streamlining the customs process so everything is prepared for, and so on. Then the industry social media buzz begins, by posting the sell sheets and fliers around to drum up pre-orders from distributors.
When they are here in Shanghai we might firstly go with pairing dinners, inviting distributors, media and VIP customers and so on, while outside of Shanghai we will opt for masterclasses and tasting, as well as placing different bartenders at different bars all on the same night, with special menus.
Over the first month, the brand people will join us by going with international and Chinese bartenders, into partner bars, in order to interact with both the B2B and B2C sides of the market. That local interaction is key for learning and to grow the business potential, with things in China done face to face, based on establishing relationships and trust.
Away from the first-tier cities, the masterclasses and tastings are always more popular. The market in Shanghai is a little spoilt – there’s always guest bartenders and lots of bar promotions by the biggest industry players. Yet I can go just an hour outside of Shanghai into a relatively small city and easily fill a bar-full of 50 people interested in a masterclass, learning tips on ordering, the drink itself and such.
That number itself might not seem much, but, doing this repeatedly really builds the numbers and spread by word-of-mouth. Never under-estimate the word-of-mouth spread by those Chinese consumers that are the most curious, hungry to learn and really keen on a particular lifestyle. They are influencers in their own right.
The brand: Killian O’Sullivan, The London Distillery
How did you find your own ‘China entry’? What’s your expectation for the future?
The London Distillery Company (TLDC) entered China in 2016 with our partners at Gotham East. It was a slightly unusual way to go about it as we took a shareholding in a newly established distributor run by an American living in Shanghai! However, we knew that we wanted to build brands in bars and restaurants first, but in a way that would stand out in a very crowded and costly market.
We are playing a long game in China but we are extremely pleased with coverage in key markets such as Shanghai – for example, you can find Dodd’s Gin & Kew Gin in both international bars, restaurants and Chinese outlets. Attracting Chinese consumers is critical for us and we work closely with the team at Gotham to ensure that our messaging is locally relevant. It should be our largest market within 5 years.
How do you see the importance of the Chinese customers liking the taste of the product versus the brand itself?
The taste, quality and provenance of the product are really important factors. Imported liquor is costly in China so to justify that price premium, when you have some really interesting and high-quality local spirits, you have to produce a top class product which has the provenance to get consumers to consider it.
However, the branding and brand recognition is almost as important, as Chinese consumers have been bombarded for years by the larger western spirits companies. For a small, craft producer such as us it is key that our branding stands out and triggers recall of the fantastic product that the consumer tasted previously.
We’re very lucky as both of our brands have incredible branding, but particularly Kew given that the artwork on the carton comes from the iconic art collection from the archives at the Royal Botanic Gardens, Kew in London.
Versus other countries or regions, what has been specific about China for you?
The similarity to other markets is that it requires trial and re-trial amongst consumers, and that this all has to be delivered by a genuinely passionate team which is well networked in the trade.
What we find most challenging is the sheer scale of the China market for a relatively small business such as TLDC. Breaking out of Shanghai (where Gotham East is based) and other key markets such as Beijing is something that the team has been working really hard on over the last 12 months and our team now covers places such as Guangzhou, Chengdu and Kunming.
We’ve had a lot of help from the China Britain Business Council, the UK Department of International Trade and a huge number of local people who have bought into the TLDC story in our efforts to reach as many consumers as a brand of our size can.
You must have an open mind in China, so recently the team signed Kew Organic Gin up as the official gin of X Games. That’s not something that you might see as a natural fit if you only look at things in a UK or western context, but we believe in letting the team in China build the brands with as much freedom as possible.
What are you aiming to achieve and how do you rank success in China?
Our business is focused on Asia, China in particular. In terms of exports, it vies with Denmark and France for us in terms of scale. Our aim over the next 12-18 months is to more than treble the business that we are doing today.
We’re very confident about the market, despite signs that overall economic growth may not be as strong as in previous years, as we are seeing tremendous demand from millennial consumers for western spirits to complement the growing range of Chinese spirits.
Like consumers anywhere else they want a repertoire of drinks and to explore different versions of spirits in the same category. We see no slowdown in their desire to try new things and success for us will be to continue to roll out the model that we have built with the Gotham East team in more markets across China.
