Chinese prosperity boosting drinks groups

Related tags Economics World trade organization China

Growing consumer spending levels in China have helped boost sales
at two of the world's leading drinks groups. South Africa's
SABMiller and France's Rémy Cointreau both benefited from the
increasing interest in premium drinks brands as status symbols,
writes Chris Jones.

SABMiller this week said that organic volume growth in China was more than 12 per cent in the third quarter of the year, up from 10 per cent in the first half, and that value sales were finally starting to improve as well.

A price rise in the company's core market in north east China at the end of last year - ostensibly to offset increased input costs but also as a reaction to the rapid improvement in Chinese income levels there - was maintained with no adverse impact on volumes.

The north eastern part of China has benefited from considerable government investment in recent years to stimulate economic growth there, and both SABMiller's China Resources Brewery unit and local rival Harbin, owned by Anheuser-Busch, have managed to maintain their price hikes after years of price deflation in the Chinese beer sector.

China's beer market is dominated by economy beer brands, which still account for around 90 per cent of volume sales, but the increasing affluence of many Chinese consumers following the country's entry into the World Trade Organisation in 2001 has seen a steady migration towards premium beers.

Premium beer brands, both local and imported, sell for around RMB5-8 per litre, far higher than the RMB1 per litre cost of most economy brands, and drinking one of these more upmarket brands is increasingly seen as a status symbol in China - proof that the drinker can afford the high price of foreign brands.

SABMiller has been steadily ramping up production of its local premium brand, Snow, moving it out of its north eastern homeland into the rest of the country through its growing network of brewers, and the brand now accounts for 30 per cent of its sales. More importantly, perhaps, Snow is growing more quickly than the local economy brands, suggesting that the move towards premium brands is not confined to a handful of provinces.

Indeed, SABMiller is so confident of growth in the premium segment of the market that is to roll out one of its international brands there in 2005.

Cognac growth

Being able to afford premium beer at RMB8 a litre is one thing, but forking out upwards of RMB200 for a litre of Cognac is another altogether. Yet this growing desire to be seen drinking the most expensive products possible has helped boost sales at French wine and spirits group Rémy Cointreau in the first nine months of the year.

Total Cognac sales were up 5.2 per cent on a like-for-like basis during the period at €251 million, with China leading the growth. "China has grown so rapidly since its accession to the WTO in 2001 that we have been able to begin local distribution,"​ the company's spokesperson Joëlle Jézéquel told​. "We used to distribute all our Cognac from our base in Hong Kong, but demand has risen so much that we have now been able to invest in a new base on the mainland, at Shanghai."​.

She said that the group's Cognacs were continuing to benefit from growing consumer awareness as a result of the expansion of the international retailers in China, and increasing numbers of bars were also starting to stock Cognac. Sales had traditionally been limited to upmarket outlets in the major cities, the only places where consumers were sufficiently affluent to afford the brandy.

"We have really seen a major take off for our top-of-the-range Cognacs,"​ said Jézéquel. "For increasing numbers of Chinese consumers it is a reflection of their social standing to be seen drinking Cognac, and the more expensive the better."

Related topics Market Trends

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