Trouble brewing

PUBLISHED : Wednesday, 25 February, 2009, 12:00am
UPDATED : Wednesday, 25 February, 2009, 12:00am

At first glance, sake and baijiu could be cousins. Both are clear, potent drinks with a taste people either love or hate. But baijiu - liquor distilled from grains including sorghum and millet - remains unrivalled as the mainland's most popular spirit, while Japanese sake brewers are facing their toughest time ever: domestic sales have slumped more than 50 per cent in the past three decades.

Even so, the mainland now holds a potential lifeline for struggling sake brewers as young Chinese rapidly are acquiring a taste for Japanese rice wine. The mushrooming of Japanese restaurants across the big cities has led to sake shipments doubling in the past six years. The mainland has become the world's sixth-largest sake importer, downing 482,000 litres of the Japanese rice wine last year.

Sake is now a trendy choice for young, affluent Chinese looking for an alternative to beer and baijiu. Crucially, it is far more popular with women than baijiu.

'Sake is lighter than baijiu and much easier to drink,' says Wei Ying, a 30-year-old media consultant in Beijing. 'I sometimes have to drink baijiu when I am with work colleagues and I never like it. It's far too strong for most Chinese women.'

It helps that the flavour of sake is more familiar to Chinese people than most other foreign spirits.

'I always drink it when I go to Japanese restaurants. It's similar to baijiu, but not as strong,' says Fu Xiaodan, 29, who works for a government association representing small and medium-sized enterprises.

Mainlanders have become an increasingly thirsty lot. Sales of wine and spirits are rising 13 per cent annually - a trend that is expected to continue until 2011, according to market research company International Wine and Spirit Record. As incomes rise, foreign drinks are gaining popularity.

Sake brewers are keen to ride the wave. 'With our share of the local market declining, we are looking abroad to make up the difference,' says Hiromichi Ono, director of the Japan Sake Brewers Association.

Last year, sake exports reached a record high of 11.3 million litres. The US accounts for a third of the total, but growth is fastest in Asia.

Ono hopes the mainland can follow the example of Taiwan, the second-biggest overseas market for sake. 'China is a country with a huge population and there's a big potential for economic growth. Also, China and Japan have a lot of cultural similarities. That's all very positive for the future of sake in China,' he says.

But Japanese brewers have run into an unexpected hurdle in their efforts to promote sake.

Opportunistic companies and individuals are registering the names of famous sake brands on the mainland, including the premium Koshino Kanbai, in the hope of forcing sake brewers to buy back their brand names.

Under Chinese trademark law, if a brand name is already registered it can't be used again. That means the sake brewers are unable to sell their brands on the mainland unless they change the names.

'It is really a pity that some Japanese sake brands can't be sold legally in China under their own names. It is having a big impact on the industry because it's shutting us out of the market,' Ono says.

Five of 25 trademarks used by Japanese brewers have been registered on the mainland so far, and applications to register another 10 are being considered. That leaves brewers with the stark choice of fighting lengthy legal battles to overturn the registrations or buying their brand names back.

Such sharp practices remain common on the mainland, despite Beijing's insistence that it's paying more attention to enforcing intellectual property laws.

And they are effective. Some brewers, such as Hiroshima-based Kamotsuru Sake, have taken the legal route, but others are paying up. One brewer reportedly paid 1.1 million yuan (HK$1.25 million) to buy back its name after deciding it would be cheaper and less time-consuming than contesting the case in court.

The mainland market holds such huge potential that wine and liquor companies around the world are scrambling for a share.

'There are great opportunities for the further growth of foreign spirits in China because the market is far from being saturated. And as the market develops, we're seeing that Chinese consumers are becoming increasingly sophisticated,' says Paula Eriksson, vice-president of corporate communications at The Absolut Company, part of the Pernod-Ricard group.

Like most western liquors, Absolut vodka went on sale on the mainland only in the late 1990s. It's now the leading vodka there. But, like every other foreign drink, Absolut has some way to go before it can challenge the supremacy of baijiu.

Foreign spirits account for just 1 per cent of all alcohol consumed on the mainland and baijiu remains far and away the most popular spirit, selling 520 million nine-litre cases every year.

There are at least 30,000 baijiu manufacturers, led by Kweichow Maotai, Wuliangye Yibin and Jiannanchun.

'[Wuliangye Yibin] sales in 2008 were worth 30 billion yuan, a 12.5 per cent increase on 2007,' says Lu Na of Xiqiao International Communications, which handles publicity for the brewer. 'The reason our wine is so popular is that it represents thousands of years of tradition and the culture of the country,' Na says.

But mainland distillers would be wise to heed the ominous signs presented by the decline of sake in Japan. 'Around 30 years ago, the trend in Japan was 'everything from Europe or America is good'. Lifestyles became more diversified and people started drinking different brands of alcohol,' Ono says. 'Also, a lot of people criticised sake for being too strong, saying that it wasn't suitable for a modern, busy society.'

The effect on sales was dramatic: sake consumption fell from a high of 1.7 billion litres in 1975 to just 700,000 litres in 2006.

Baijiu, which is normally more than 50 per cent alcohol by volume, is even more potent than sake and the lunchtime baijiu bender is increasingly frowned upon. Business banquets, where glass after glass is downed to cries of ganbei!, have become less common, too.

Worse news for baijiu companies is the way prosperity has changed the attitudes of the mainland's growing middle class; an expensive bottle of foreign liquor has become synonymous with affluence.

No brand has benefited more than Chivas Regal whisky, which sells for around 300 yuan a bottle. In the west, the whisky is associated with middle-aged golfers, but on the mainland, it's the first choice of the nouveau riche.

The success of premium western brands is having a knock-on effect on the baijiu market.

Top brewers are trying to change the traditional image of baijiu as the drink of the labouring masses by producing brands aimed at the top end of the market. In 2006, a 90-year-old bottle of Wuliangye sold for 880,000 yuan in Shenzhen.

Some are turning to western companies for help with marketing. Diageo, the world's largest alcoholic beverages firm, has joined forces with the Shuijingfang brand, and Pernod-Ricard has formed a joint venture with Jiannanchun to make baijiu for well-heeled drinkers.

'It gives us an opportunity to blend our marketing strengths with Jiannanchun's knowledge of baijiu production,' Eriksson says.

Whether such partnerships can stop the rising tide of foreign spirits in the long run remains to be seen. And, unlike sake, there is little demand for baijiu overseas. Ono is pinning his hopes on resolving the trademark disputes and seeing sake sales take off.

'Even though there are problems now, I have high expectations for the mainland market. In the future, more and more Chinese will be drinking sake.'




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