Companies coy over Chinese gains

The rush into China has been underway for many years. First Western spirits companies scrambled to forge distribution networks or set up their own companies with local partners.

Both Diageo and Pernod Ricard have taken direct stakes in the baijiu market, with Diageo being the first Western company to gain control of a significant Chinese producer.

The reasons are simple: all want an increasing share of the world’s most populous drinks market, one that rapidly could become the most valuable single market for international spirit brands, let alone the source of enormous local profits from home produced products such as baijiu.

But while they love to trumpet their successes in a general way, the big Western groups are coy about putting monetary figures on their activities in China. At best the answers are opaque.

They will talk about their brand positions or gains in percentage terms, but not much more. Pernod Ricard will say that China has become its fourth largest market and Diageo will points to its massive investment in Shui Jing Fang as a benchmark to the importance it places on the market.

All will give broad figures for the growth of their overall Asian arms, but commercial confidentiality is the usual reason for a lack of more specific financial numbers.

That is no surprise when clues to those numbers become available. It is estimated that by the end of this decade there will be 700 million members of China’s middle class, the target market able to afford aspirational international brands. That is more than twice the population of the US today.

But that is future potential. The market, and profitability, is roaring ahead today, as figures unearthed by Shanghai Securities News demonstrate.

The profit increases posted by local companies have been phenomenal. Spirits producer Jiangsu Yanghe Brewery recorded a 135% profits rise to about £850m in the third quarter on the same period last year.

For 2011 as a whole the company estimates that its profits will rise by about 90% because of sales growth, notably beyond its traditional home regional market.

Meanwhile, Anhui Distillery says its net profit is up by 145% so far this year, Sichuan Tuopai Shede Wine has recorded a 74% increase and Tuopai Wine is looking at a 70% increase in the full year.

Rival Anhui Golden Seed Winery is predicting a 150% rise in profits in the first three quarters of 2011 and Sichaun Swelfun is looking at doubling its profits.

The factor linking these Chinese companies are that they are all high-end producers of spirits. With profits growth rates like that, no wonder the big Western producers are seeking an ever-larger slice of the action while at the same time wishing to conceal from their rivals as much of the data as possible.