The two companies in the top 100 are both state owned enterprises that have succcessfully adapted to the new economic reality in China. Still, the second two are private enterprises.
Spirits remains the best represented type of business with four companies on this list. If we broaden the scope to alcoholic beverage in general, we can add Qingdao and COFCO (Great Wall Wine) as well, to make 6 out of 17 companies.
However, as Mengniu Dairy is now a subsidiary of COFCO, the current list also de facto comprises 4 dairy companies, 2 of which are in the top 100.
You may want to compare this list, which is based on the 2013 turnover, with the list of the Top Food Companies of 2014, which ranks the enterprises according to their estimated brand value.
Food & Beverage in China’s 2017 top brands
The 2017 China Top 100 brands have been published late May. I have extracted a sublist of the food and beverage companies in that list and simply add it to this blog, so we can compare the results with the situation of 2014. First the list.
Spirits stand out as the leading industry with 6 out of 18 brands in the national Top 100. Dairy is the runner up with 4. Quanjude is a restaurant chain rather than a manufacturing company, but it also markets vacuum packed ducks ready for consumption. Regular readers of the blog will recognize most of the names. Don’t hesitate to use the Search function to look for more information of each company in other posts.
Almost all companies have rising dramatically, in particular Moutai. Three years ago, only 3 F&B companies were included in China’s top 100, now 18. This corroborates what has been said about the Chinese food industry in numerous recent publications: it is rapidly becoming a pillar of the national economy.
2017 was the year of baijiu brands. For the first time, the fiery Chinese drink now accounts for a greater share of brand value than any other spirit type. In 2016, baijiu accounted for 23% of the total brand value of the Brand Finance Drinks 50 behind Whiskey on 37%. However this year, the tables have turned. Whiskey’s share has dropped to 28% while baijiu has surged to 37.5%.
China has produced 119.81 mln hls of spirits in 2017; up 6.9%.
Top 10 distillers of the 3rd quarter of 2017
Being lured into drinking numerous shots of local spirits during a Chinese banquet is a recurrent theme in the tall stories foreigners take home from their China trips. While Chinese are often imagined in Western literature as a tea drinking nation, alcoholic beverages have been the typical drinks to wash down your dinner in China, and especially business meals are not complete without at least one bottle of distilled liquor.
There is an endless variety of local spirits and the local brew is often used in the self promotion of regional governments. The World of Chinese has compiled a useful overview. However, they share a common denominator: baijiu, which literally means: ‘white wine’. However, that translation is never used, as it will put most Westerners on the wrong foot, mistaking it for fermented white grape wine. In 1989, China National Food Industry Association (CNFIA) selected the top 17 famous Chinese Baijiu.
Chinese make them strong. Most spirits have an alcohol content exceeding 50%, and even the more recently developed ‘low degree baijiu’ is usually stronger that whiskey or brandy. A sip of baijiu is a completely different experience than savouring a glass of Chardonnay.
This video provides a look in a baijiu production plant. It is in Chinese, but those familiar with the distilling industry will understand most of it.
China has produced 135.836 mln hls of spirits in 2016; up 3.23%. The following table lists the regional breakdown of the spirits production in China in 2014, and the in- or decrease compared to 2013.
The order of the regions has hardly changed in 2014. Sichuan has been the absolute top region for many years. The (much) higher than average increase of some southern provinces is conspicuous in the current statistics. Traditionally, the people in the north are the heavy drinkers.
The following picture shows how well Chinese spirits companies are appreciated among international investors. The stocks marked in red are baijiu producers.
Age and education matters
A survey into the development of the popularity of baijiu among different market segments conducted in China during the first half of 2017 reveals that spirits are getting slightly more popular in the youngest drinking age segment and then significantly more among people of 40 and up. However, this trend is considerably stronger for the low end spirits than for the high end varieties. The older consumers drink more spirits, but prefer the cheaper brands, while the beginning drinkers like to start with the high end products. This can be partly explained as a cultural phenomenon. Starting baijiu drinkers like brag about it and then the effect will be best if you can brag about your first sip of Wuliangye, rather something from a local still.
Similar curves can be observed for the various levels of education. The letters refer to the highest diploma of the respondents; legend: P = primary school, H = high school; M = intermediate vocational; V = higher vocational; U = university. It is not easy to explain why people with a higher education would drink more baijiu, while you would expect them to be more interested in wine. However, when they drink it, they prefer the high end brands.
Distillers started to gear their advertising more towards the younger consumers in the course of 2020. This is reflected in new ad designs that appeared that year, like this one by Shede.
The Chinese production of alcoholic beverages has a long history. The most ancient, chemically-attested, alcoholic beverage in the world was recovered from a Neolithic tomb site in Jiahu (Henan), dating back to 7000 BC. This discovery dates to almost 2000 years earlier than the hitherto discovered most ancient wine production in the Middle East. A mixed fermented beverage of rice, hawthorn fruit/grape and honey was reconstructed on the basis of the analyses of the pottery recovered from the Jiahu site by Delaware-based brewing company Dogfish Head Craft Brewery with the help of the University of Pennnsylvania. The brew is marketed under the Chateau Jiahu brand. The ancient Chinese made a unique contribution to alcoholic beverage-making by using specific grains, especially rice and millet, whose carbohydrates were broken down into simple and fermentable sugars by mold saccharification or amylolysis.
The Moutai story
Ever since US President Nixon tasted Moutai at a state banquet in China, what was already recognised as the nation’s national spirit then became known worldwide instantly. Interestingly, this brand has been developed with the aid of the State, witness the following timeline.
1951-1952: The Chinese government purchased Chengyi, the biggest local distillery, and merged it with another two distilleries, Ronghe and Hengxing, establishing the State-owned Moutai Distillery.
1952: Kweichow Moutai was rated as a nationally famous liquor, and top ranked among eight national liquors.
1957: China invested 1.3 million yuan ($197,511) in expanding liquor and yeast production, liquor storage, and laboratories. Moutai formalized 14 operating rules and procedures for producing Moutai, fully restoring traditional techniques.
1962: The Office of Light Industry of Guizhou province designated the annual output of Moutai as 500 metric tons, with 610 employees.
1972: During the National Workplanning Conference, Zhou Enlai instructed that in order to maintain water quality for Moutai production, no more mines or factories, especially chemical factories, should be built along the upper reaches of the Chishui River. Also the year of Pres. Nixon’s seminal visit to China.
1979: Moutai won the National Liquor title for the third time and the National Golden Award for Quality for the first time.
1980: The packaging of Moutai liquor was transformed into a semi-mechanical, continuous production system, effectively improving its quality and increasing efficiency.
1983: The security committee of the Office of Light Industry proclaimed that the techniques of Moutai production had been officially listed in the first batch of confidential projects in light industrial science and technology. The production process was opened for visits but could not be photographed.
1989: Manual stomping to make distiller’s yeast was fully restored. Moutai Distillery revised the national standard for first-class sauce aroma liquor distilleries. Kweichow Moutai won the Golden Award at the Fifth National Liquor Tasting Conference for the fifth consecutive time. Despite the overall decline of sales of white spirit in China, sales of Moutai surpassed the goal set by the nation and exceeded 100 million yuan ($15 million).
1991: The Kweichow Moutai brand from Guizhou gained top ranking in the first China Famous Trade Marks appraisal.
1996: Guizhou provincial government gave approval for Moutai Distillery to restructure into an exclusively State-owned enterprise, and to be renamed as China Kweichow Moutai Co Ltd. The series of 500 milliliter bottles of Kweichow Moutai (including Feitian and Wuxing) formally started to use customized caps provided by Italy’s GOALA, with anti-counterfeiting marks, anti-refilling and safe-to-use functions.
2001: Kweichow Moutai launched Vintage Moutai, marking its production date at a conspicuous place next to the Moutai brand. Kweichow Moutai was successfully listed at the Shanghai Stock Exchange, raising RMB 2 billion.
2006: The Moutai liquor-making technique was selected on a list of the first batch of National Intangible Cultural Heritage.
2010: Annual sales revenue of Moutai Group exceeded RMB 15 billion. The company expanded its production capacity by more than 35%. The total market value of Kweichow Moutai Group Co Ltd reached RMB 173.5 billion, the highest of all listed white spirit companies.
2013: Heritage sites of the Moutai liquor-making industry were placed seventh on the list of key national-level cultural relics under protection. The Kweichow Moutai brand was valued at 82.4 billion yuan, topping the Chinese food and beverage industry list.
2015: Moutai initiates an annual Moutai Day in San Francisco.
2016: Moutai is officially launched in Germany.
2017: Moutai pops up as the world’s leading spirits brand on Brand Finance’s list.
2017, Sept. 9: Moutai University, China’s first university named after a liquor company opens its doors for the first cohort of 600 students. The university has five undergraduate majors: liquor-making, grape wine-making, food quality and safety, resource recycling sciences and engineering, and marketing.
To meet rising demand from home and abroad, Moutai Group will launch a new project that will produce 66 mln hls of liquor in 2018. The company expects to reach a turnover in 2022 of RMB 127.2 billion.
In the first 10 months of 2017, Moutai exported 16.23 mln hls of alcoholic beverages and earned $281 mln. The group’s sales revenue is estimated to have exceeded RMB 60 bln in 2017, with profits of RMB 30 bln. By 2020, the amount of Moutai liquor sold overseas will account for at least 10% of the company’s total production, according to the group’s strategy.
Moutai has made strong inroads in France, with efforts to acquaint drinkers with the unique taste of baijiu. Lin Xuyang, vice-president of Cammy France Development, the sole distributor of Moutai in France, said the company sold around 60,000 bottles of the spirit in 2017, an increase of 30% year-on-year.
Baijiu comes is distinct flavour types:
Rice aroma: The basic baijiu. Expect a floral, mild flavor, almost like rice (hence the name), and an exceptional smoothness from triple distillation.
Light aroma: A popular style in Northern China, this baijiu is made from a rice and sorghum blend that displays some of the restrained aromas of sake. The feature that distinguishes light aroma baijiu from it’s more pungent cousins is the ceramic jars in which it’s fermented, which keep the spirit’s aroma fairly neutral. Also, the mash often include peas, as is the case with the famous Fenjiu, imparting a sweet, floral taste. Light aroma baijius are typically the least expensive to produce.
Strong aroma: The most ubiquitous and widely consumed style of baijiu. It is spicy, fruity, and packs a serious aftertaste that pairs well with cuisine in the Sichuan region where it is produced. Strong aroma baijiu is fermented in earth pits with recycled mash, which help to develop the spirit’s flavor over the years.
Sauce aroma: From Guizhou province (the home of Moutai), this baijiu style is full-bodied with a sharp taste (akin to soy sauce, hence the name) and is the most labor-intensive to produce. The spirit passes through up to eight rounds of subterranean fermentation and distillation and at least three years of aging, which is why it’s more expensive.
Like Western distillers, all major producers have their own confidential process, mixing cereals with herbs, spices, berries, beans and even Chinese medicinal herbs. However, sorghum is the bulk ingredient for most types of baijiu.
An interesting novel use of this traditional distinction of flavours is implemented by Hexiaoshuang, a young brand of baijiu from Inner Mongolia. It presents its spirits in two bottles, a lighter flavour in a white bottle for consumption during day time and a more fragrant version in a black bottle for your night cap.
All manufacturers and certainly the cheaper brands, have modernised their production processes, regulating the flavour of their end products using additives. These can include small amounts of sweeteners like sodium saccharine, sodium cyclamate or acesulfame-K. Commonly used aroma chemicals are: ethyl acetate, ethyl butyrate, ethyl lactate and ethyl formate. Ethyl acetate is the substance most influential to the prominence of the typical baijiu flavour.
A number of Chinese flavour companies have developed ready to use mixes of aroma chemicals for baijiu. Some of these are even supplying mixes to imitate the typical flavour of famous brands, like a flavour company in Guangzhou that is advertising for ‘Maotai flavour’. Moutai has so far not undertaken legal actions against such suppliers. Perhaps their confidence in their own product is strong enough.
New raw materials are also being explored. A distiller in Sichuan is currently experimenting with sugar cane. A distiller in Beijing has launched a baijiu made from quinoa in 2018.
In spite of the fact that the list of top food brands still includes several types of spirits, the production has shown considerable fluctuation during past decades. With the increase of spending power of the average Chinese consumer, the consumption of alternatives, first beer, later followed by wine, grew rapidly to the expense of spirits. This trend was reinforced by the central government that wanted Chinese to consume less baijiu, for health reasons and to save cereals.
The market has been rising again in recent years, and the output of 2013 was 123 mln hls, up 11% compared to 2012. However, this trend is not likely to be continued in 2014, as baijiu, in particular the top brands, is suffering most from the new government’s cut down on public spending. Famous spirits used to be an indispensable ingredient of an official banquet. Government organizations, but also enterprises, are now wary of feasting on Moutai or Wuliangye and are choosing less expensive brands.
Consumers aged between 35 and 45, especially those in the middle-class bracket, are crucial to the baijiu market, according to a recent market survey. They start to discover high-end baijiu between the ages of 25 to 35. Then from 35 to 45, they gradually form a “brand loyalty”.
As a result, the China’s top distillers need to reconsider their strategy in two respects: the domestic repositioning of their brands and exploiting the international market. The growing Chinese communities all over the world form an interesting market, but the real challenge will be to lure Western drinkers to switch from their familiar whiskey or vodka to baijiu.
The buzz word of the China Foods & Drinks Fair (Tangjiuhui) of October 2014 was: ‘spirits for the masses (dazhongjiu)’. Several of the top producers were pushing cheaper brands. Moutai is now also offering a Small Moutai, Wuliangye has teamed up with Xijiang (also Sichuan) as a mid level priced baijiu. The latter option is a win-win strategy for both brands. Xijiang can link its brand to its famous brother Wuliangye, while Xijiang is promoting Wuliangye whenever it is advertising for itself.
An Beijing-based initiative to promote baijiu is World Baijiu Day. It is actually a weeklong series of events that runs from August 1 – 9, 2016.
Yet another ruse is selling top spirits for a very low price to get new customer types hooked on the product. Right after the 2014 National Holiday, Luzhou Laojiao‘s top product sold for RMB 9 for a short while (original price: RMB 288). You can imaging the rush.
Xifeng, another old respectable baijiu brand has announced that it intends to take in about 10 of its largest domestic agents as shareholders. Its agent for the Beijing region, Beijing Sugar, Tobacco & Alcohol Group, will even hold a 5% share. This has been revealed in the papers necessary for Xifeng’s intended IPO in March 2015. An interesting example of value chain integration.
Sichuan-based Luzhou Laojiao has launched a special type of baijiu geared to what it refers to as ‘young business people’. This strategy is aiming at two promising market segments, young people and business people, simultaneously. It is a top quality baijiu packed in a smaller than average bottle, to decrease the costs of business lunch or dinner. This strategy therefore also tries to fit into the new policy of the national government to curb spending on wining and dining for business.
The promotion abroad seems to get results. The list of the world’s top 10 distillers published by Brand Finance early 2017 includes 6 Chinese brands, with Moutai featuring as the world’s leading brand of 2017.
Baijiu dedicated bars in China
A new bar in Beijing billing itself as the world’s first dedicated to baijiu,named Capital Spirits, has opened its doors in Beijing recently.
“A lot of people have had bad experiences at banquets” where they might be coerced into drinking shot after shot of the colourless liquor, says American William Isler, one of the bar’s owners. “They throw up and say, ‘Never again.’”
Capital Spirits has the vibe of a speakeasy, with muted lighting, plenty of antique wood and a stainless-steel still in the corner churning out distilled beer and wine. There’s no sign on the door, although a ledge outside is set up with small wooden chairs, low tables and candles.
The Schoolhouse at Mutianyu, a restaurant and lodge project in Beijing’s suburbs near the base of the Great Wall, that produces baijiu-based liqueurs.
Mott 32 recently won media accolades as the top baijiu spot in Hong Kong.
R&D Cocktail Lab, a Taipei venue that is dedicated to alcohol experimentation. It will feature kaoliangjiu, the baijiu most associated with Taiwan.
Baijiu dedicated bars outside China
Exports of baijiu have been increasing recently. The customs of Yibin, (Sichuan), the home town of Wuliangye, report that 14,880 hls of baijiu were exported in 2015, an increase of 92.4% compared to the previous year. Let’s have a look at the situation in a few selected countries.
An important boost to the consumption of baijiu abroad is making it an ingredient of cocktails. In December 2016, Moutai Group launched its Moutai brand in Hamburg, Germany. About 300 guests were served the liquor in three cocktails designed by a local bar catering service. “Moutai has a smell and taste of cocoa, so in one cocktail we combined it with a chocolate vodka and chocolate bitters,” said Alexander Brittnacher, founder of Next Level Cocktails.”In another we looked for food pairing partners and we found that blackberries are a good combination.”
Another way to facilitate baijiu making its way to the Western world is creating cocktails. Peking Tavern, a hip Northern Chinese restaurant in Los Angeles mixes baijiu into a slew of cocktails (with names like: Peking Coffee, Jin Jing, and Wong Chiu Punch), as does Korean eatery Drunken Dragon in Miami and New York’s Asian fusion den Buddakan. In early March 2015, Lumos, a new evening haunt specializing in baijiu,has landed in Manhattan. Lumos has a menu of more than 60 baijiu cocktails. Owner Salicetti was introduced to baijiu by his architect partner Li Qifan and realized baijiu would be a great way to stand out in a city awash with specialty bars.
Golden Monkey, a cocktail bar and restaurant in Melbourne, Australia, with many China-inspired dishes and drinks.
The Hide, one of the London bars co-owned by Paul Mathew. Mathew, owner of the Arbitrager and the Hide cocktail bars in the British capital, said Moutai’s strong aroma is tricky to compliment, so he likes to use things such as pomelo, strong teas, pear or smoky flavors to mix Moutai cocktails. The distinctive character of the spirit adds a complexity to drinks when mixed well, he added.
Connoisseurs whose opinions can make or break a wine have been part of the wine industry for a long time. As imitating what others do well is a typical feature of Chinese culture, the Chinese baijiu industry has started to groom a similar type of experts a few years ago, and the first list of baijiu connoisseurs was published in August 2014, comprising 41 people.
It will be hard for these people to exactly copy the ritualistic activities of wine tasters. Spirits do not differ each year depending on weather conditions and other parameters, so it will be useless to decided that Moutai of 2008 was better than that of 2011.
Moreover, most of the people on the current list are employed by distillers; some even are managers. This will make it hard for them to judge competitive products fairly.
Some multinationals are already trying to cash in on the expected discovery of baijiu by the international market. Diageo has acquired a stake in the Shuijingfang (Sichuan province; the top region for baijiu, see the above table) brand of baijiu a few years ago, and has recently bought out the Chinese partners. The company now intends to take baijiu to the international market. Diageo is looking to market it as a luxury drink for £99 a bottle to high-end Chinese restaurants such as Hakkasan and Mr Chow, and is looking to benefit from the growing affluent Chinese population in London, which is said to be close to 2 million, including (semi-)permanent residents and visitors. Diageo seems to be doing well, as Shuijingfang is one of the recent newcomers in the list of top Chinese food brands of 2014. The brand started to generate better figures in 2017. Shuijingfang filed a turnover of RMB 2.048 bln for 2017, and a net profit of RMB 335 mln; resp. up 74.13% and 49.24%.
However, Diageo is still affected by the spin-off of the anti-corruption campaign. The former Chinese CEO, who had stayed on after the foreign take-over, has left, and was replaced by James Rice. A Chinese has already taken over again. Rice has It will be interesting to see how a foreign will a Chinese company active in a market with such a strong bond to Chinese culture.
We still have to see the first Chinese distiller venturing overseas production of baijiu. However, two US investors have started producing versions of their own.
Byejoe Spirits in Houston is marketing two varieties under the Byejoe brand. The company gets baijiu from a Chinese distiller. However, this is not the same baijiu that is in your Byejoe bottle. The Chinese baijiu is shipped to a distillery in South Carolina where the alcohol is further cleaned and distilled.
Vinn Distillery (Portland), established by a Vietnamese of Chinese descent, is producing baijiu using an old family recipe.
Baijiu production has been growing so rapidly, that China now needs to import part of the sorghum from abroad. Australian sorghum exports to China peaked in 2015 at over A$ 500 mln aﬂer baijiu manufacturers ramped up imports from down under. Sorghum exports beneﬁted from tariff reductions under the recent China-Australia free-trade agreement. A team from various Australian research institutions is now working to identify the quality and varieties of sorghum that are best suited to the China baijiu market.
Three baijiu makers, Fenjiu (Shaanxi), Baofengjiu (Henan) and Laobaigan (Hebei) have participated in a trade manifestation organised by the US-China Business & Culture Association in San Francisco in January 2015 in a joint attempt to promote baijiu in the US. The China Wine Newspaper was also represented. These three brands have all won prizes during the 1915 Panama Pacific International Exposition, but apart from the honour, it has so far not won them any share in the US market.
Luring the young
Traditional baijiu drinkers in China are men born in the 1950s and 60s; an aging market indeed. To lure back a number of younger consumers, the baijiu industry is developing new types of spirits that better suit the palates of the young urban professionals. One example is Xingpai, a brand name that is said to be a translation + translitteration of High Passion. It is a so called ‘rice aroma type (see above)’ of baijiu. It is said to be made from the highest quality of rice and no flavours or other addidives are added. However, Xingpai is still 52%, so quite strong for young people used to accompany their meals with beer or wine.
Jiangxiaobai – maverick or game changer?
I have pointed at a number of attempts to revive the rather dusty image of baijiu at several places in this post. A player that is actually trying to implement a number of these is Jiangxiaobai. The name Jiangxiaobai is derived from the company’s original name: Jiangji Distillery. Xiao means ‘small’ and ‘bai’ refers to baijiu. Jiangji Distillery is located in Baisha town, Jiangjin District, Chongqing. Chongqing is now a city with provincial status, like Beijing, but used to be part of Sichuan province, the home of some of the top baijiu brands. Chongqing Jiangxiaobai Spirits Co., Ltd., the parent of Jiangji Distillery, is an integrated sorghum liquor enterprise that incorporates ecological sorghum growing, R&D, brewing and distillation, packaging and production, and marketing.
Jiangxiaobai’s products are divided into the following major series:
The different products have different flavours, packaging design, etc., all geared to different consumer segments. It is in this aspect that Jiangxiaobai is an interesting innovator in the Chinese baijiu industry. I will select one product as an example: YOLO. The brand name is an abbreviation of: You Only Live Once. YOLO encourages people to make the most of their life. It is geared to young consumers. It comes in 330 ml bottles and has only 25% alcohol. It has a sweetish flavour that appeals more to young consumers.
This trend towards smaller bottles for the younger generations was followed by the developers of Jiangemian (literally:’Let’s meet once’) who accumulated their starting capital on the online platform Ebrun, early 2020. I will monitor and report on this development here. At least their bottles are innovative.
Baijiu College – educating a new generation of baijiu makers
A Baijiu College has started operating in Yibin, the home region of Wuliangye, in 2018. This school – built in only nine months – is one outpost in Chinese Chinese government’s national push to rethink the country’s growth recipe as trade frictions with the United States intensify. Beijing aims to produce more goods at home and sell larger numbers abroad. This includes upgrading the image of traditional Chinese spirits. The state-funded Baijiu College in the misty Sichuan mountains teaches students how to craft baijiu — or work on robots that could someday automate the brewing process. The goal is to turn China’s native liquor into the next whiskey or tequila or gin: a drink with global recognition.