Diageo Plc (DGE), the world’s largest liquor company, will expand sales of the Shuijingfang white spirit to Italy, Spain and the Middle East this year to reduce reliance on the liquor’s home market by tapping Chinese abroad.

Overseas sales may rise to 40 percent of the company’s total as early as 2016, from about 10 percent now, said James Rice, general manager at Sichuan Swellfun Co. (600779), the Diageo unit making the white spirit, or baijiu. Chinese travelers and overseas Chinese will be the core foreign buyers of the sorghum- based liquor in the short to medium term, he said from Chengdu, western China, without giving a more specific timeframe.

“Westerners can acquire a taste for baijiu” in the longer term, Rice said in a phone interview on March 22. “Baijiu is the best drink to go with Chinese food. It’s a perfect match.”

The international expansion by the maker of Smirnoff vodka and Johnnie Walker Scotch whisky comes amid Chinese President Xi Jinping’s curbs on extravagant spending by government officials. The crackdown has hurt sales of high-end goods including baijiu from Swellfun and Kweichow Moutai (600519) Co.

“Swellfun should target the Chinese population overseas as a starting point,” said Jessie Guo, head of Asia consumer research at Jefferies Hong Kong Ltd. “Non-Chinese may find it hard to accept the taste, so the market potential for white liquor overseas may be limited.”

About 50 million people of Chinese origin live outside China, Li Haifeng, former director of the State Council’s overseas Chinese affairs office, said March 12.

Worldwide Network
Diageo will leverage its global network to expand marketing of Shuijingfang outside China, with sales starting in Italy, Qatar, Spain and the United Arab Emirates this year, Rice said. The liquor, originating from a 600-year-old distillery, is already sold in 42 airports and as well as stores in markets such as South Korea.

Swellfun is about 40 percent owned by Sichuan Chengdu Quanxing Group Co., which is 53 percent controlled by Diageo. The London-based distiller has said it would like to increase its stake at some point, Lisa Crane, a spokeswoman, said in an e-mail on March 25.

Diageo shares rose as much as 0.4 percent to 2034 pence and traded at 2028.50 pence as of 8:38 a.m. in London. Swellfun dropped 2.8 percent to close at 16.18 yuan in Shanghai trading.

Kweichow Liquor
In Chinese tradition, baijiu is synonymous with lavish banquets and is favored by the wealthy and government officials as holiday gifts. A one-liter bottle of Shuijingfang with 54 percent alcohol content in a gift box sells for 2,899 yuan ($467) on Amazon’s China website.

A same-sized bottle of 106-proof alcohol from Kweichow Moutai, China’s largest baijiu producer by market value, is priced at 799 yuan, according to amazon.cn. Kweichow Moutai sells its white liquor overseas through a distribution partnership with French cognac maker Camus.

Sales of baijiu are forecast to rise 4.9 percent in 2013, unchanged from the past two years, according to Euromonitor International. An estimated 98 percent of China’s sales of spirits, which include vodka and whisky, were made up of baijiu last year, according to the market researcher.

Baijiu Cocktails
Diageo plans to hold baijiu-tasting sessions at top restaurants overseas, and introduce chefs from Chengdu who will show diners how to pair the liquor with food, Rice said. The company also plans to host a baijiu cocktail-making competition this year to expand consumption of the spirit beyond the dining table, he said.

President Xi’s austerity drive among government officials helped push down prices on some high-end spirits by about 30 percent over the Lunar New Year holiday in February, according to Ministry of Commerce figures.

Rice said he expects the impact on the baijiu industry to be limited to the short term. With longer term growth in mind, Diageo is looking to create other premium white-spirit brands, he said.

“Baijiu’s not going to leave the Chinese dining table,” Rice said. “It’s just going to be sold through different channels and different consumers.”

Source: Business Week


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