Exporting Alcohol to Mainland China

Introduction

This is part of the four-part series on the advantages and disadvantages of the Greater China markets—Mainland China, Hong Kong, Macau, and Taiwan – regarding importation, sales and promotion of foreign alcoholic products. In this article, the focus will be on the largest of the four markets – Mainland China. Doing Business in the Mainland

Advantages for Foreign Companies

With a population of 1. 4 billion, China is the fastest-growing consumer market in the world. Domestic consumption is driven in large part by the growing middle class, whose increased disposable income allow the purchase of premium and more expensive goods. It is not surprising, therefore, that the market is teeming with unaccountable opportunities for both local and foreign investors. Alcohol consumption in China has changed over the years. Increased exposure to foreign lifestyles has paved for the rise of global consumer culture in the country. There is an increased desire for premium and foreign alcohols. The consumers’ growing discretionary income resulted to an unprecedented rise in booze consumption and a huge change in the Chinese’s drinking habits. China’s alcohol market is booming. Annual consumption is expected to reach approximately 65 billion liters by 2020. The spirits market is predicted to grow at 15% in the next three years, reaching more than US$ 450 billion. The country is also set to become the second biggest wine market across the globe by 2020, with sales reaching US$21 billion.

Annual beer consumption is at 45. 7 billion liters, the largest in the world. China’s rapid economic development and urbanization also guarantee of a stable market for alcoholic beverages, whether in urban or rural areas. Typically, the highest alcohol consumption is concentrated on developed cities and coastal provinces, where consumers are wealthier and have greater exposure to foreign markets and cultures. Rural people also have their fair share of imported alcohols, thanks to China’s improved supply chain and modernized logistic infrastructure. Challenges and Business RisksTo successfully tap China’s alcoholic beverage market, foreign investors must overcome certain hurdles. To bring in products to the Chinese market, exporters need to follow certain protocol which, at times, is taxing. For instance, they must have a contract registered with the General Administration of Quality Supervision (AQSIQ), their products properly labelled and approved by the China Inspection and Quarantine (CIQ) and pass customs’ inspection. Due to increasing health concerns among the Chinese, companies must maneuver through the country’s changing regulatory environment.

The government has increased base tax and consumption tax rates on high-strength alcohol and banned sales to consumers below 18 years old. Media and industry promotions for healthier drinking habits were also intensified. While beverages like wine benefited from the campaign, high-strength alcohols were affected as more consumers choose healthier alternatives. As consumption becomes the major driving force of China’s economy, competition among alcohol brands has become stiff. To stand out, companies must invest in product innovation, precision marketing and channel expansion. The market is also dominated by major companies. Over the years, these top players have acquired smaller firms to gain market share and access to lower-tier cities in China.

There is also the ongoing competition with counterfeit brands that generally target lower-income consumer groups. While many foreign companies have tried entering China’s alcohol market, only a handful have staying power. The key is on how their products suit the Chinese palate. Many foreign brands have attempted to localize their alcohols to appeal to the taste of the consumers. Due to the increased exposure to foreign culture, more and more have become adventurous in trying out new alcohols. In fact, 65% of market growth in China comes from new product purchase. ConclusionConquering the alcohol market of mainland China is no easy feat, but with the right marketing plan, it is workable. Foreign companies must consider the advantages and disadvantages in starting a business venture and make strategic decision to succeed.