So Much For The Boom In China

by Oliver Klimek on January 31, 2014

Yesterday Diageo published their sales figures for the second half of 2013. They were worse than expected. While net sales still were up a meager 1.8%, sales in Asia declined 6%, and in China they were even slashed by 23%.

Not long ago, Scottish distillers were nothing short of euphoric with regards to the sales outlook in Asia, and China in particular. Especially the new generation of young successful business people was the prime target of the marketing campaigns, those who want to show their good taste and sophistication buy putting bottles of expensive Scotch on the table at the traditional after-work booze-up.

On the whisky front, Diageo opened luxurious “Houses of Johnnie Walker” in Shanghai and Beijing to promote their whisky in a prestigious setting. Diageo’s new Roseisle distillery and the recently announced £1bn expansion plan were largely motivated by the growth prospects in Asia, with analysts even talking about a “new ‘super-cycle’ in demand”.

While the published sales figures of course are only a snapshot of the current economy, they do show that the spirits business is not a one way street. It looks as if the distillers have to prepare for a rough ride, now that China’s economy shows first signs of cooling off. And the recent crackdown of the Chinese goverment on luxury spending of party officials only adds to this.

In April 2013 The Independent wrote in a report about the Chinese Johnnie Walker Houses: “The breakneck pace of growth of the world’s second-biggest economy may be cooling but there’s little sign of Chinese drinkers slaking their thirst.”. Only a few months later, the signs are evident.

A scenario where global demand for whisky would be significantly lower than predicted a few years ago is entirely possible. We are anxious to see how the whisky industry would react then after having built up big overcapacities.

{ 6 comments… read them below or add one }

Miguel January 31, 2014 at 12:41 pm

Love to start the day with good news. Now I just hope they have to drink all the f#@$% whisky.
That would be poetic justice… and I would be able not to buy, but at least to taste Port Ellen :)

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Carlton January 31, 2014 at 5:50 pm

It would be fun to watch the marketing spin of some of the big producers if they have excess stock. After blowing smoke about NAS releases, they would again be trumpeting that age is king. Given the price gouging of the past few years, it wouldn’t bother me at all if we had a mini Whisky Loch. I don’t want to see wholesale distillery closures, but I would like to see a price correction on ridiculously overpriced standard bottlings.

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Jordan January 31, 2014 at 9:36 pm

Given how much money Diageo has been pouring into Roseisle and various other distillery expansions, closures of smaller and less efficient distilleries seems like a distinct risk. Could be the 1980s all over again if things really turn down.

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MargareteMarie January 31, 2014 at 8:28 pm

I’m afraid that’s wishful thinking, Carlton. Diageo has already announced a price increase of at least 10% and we will see quite a lot of luxury bottlings very soon, e.g. “orphan barrels” with Bourbon or “Mortlach” with Malt.

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Eli February 1, 2014 at 6:33 pm

This is either a hiccup or a sign of changing times. While I have no doubts whisky in general has gained a lot of new fans and appreciators both young and old, today’s massive popularity is a trend. And history, time and time again, has proven trends come and go and the ones purely speculating or looking to invest in whisky will no doubt have to look to a new trend in the future. It won’t happen overnight or even all at once but the fad with fade out.

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Robert Sprague February 11, 2014 at 8:28 am

Just proves that noveau-riche Chinese can be fucking idiots like the rest of us when it comes to fleeting tastes in whisky or whatever else counts for “status” :-/

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