For centuries, baijiu has been a staple at celebrations in China. The fiery alcohol has aided diplomacy, as when Richard Nixon and Zhou Enlai raised a glass or two to toast the Sino-U.S. detente in the 1970s. And to this day a $390 bottle of Moutai, a preferred gift across the mainland, can still open a surprising number of doors.
But China’s potent national tipple, usually imbibed over long banquet meals, faces a challenge. The older generation, for health reasons, is consuming less of what’s broadly viewed as the booze of choice for men in their 40s and above. And younger Chinese don’t care much for it. At about 110 proof, the clear liquor distilled mostly from fermented sorghum is an acquired taste for many hipsters, who increasingly are likely to experiment with Western wines and cocktails.
Chongqing Jiangxiaobai Liquor Co. is trying to revive the traditional drink by appealing to two previously neglected groups: millennials and the generation after that, Gen Z. And it’s resorting to tactics considered heresy in the $147 billion industry long dominated by staid state-controlled giants Kweichow Moutai Co. and Wuliangye Yibin Co. For starters, Jiangxiaobai’s marketing blitz includes colorful baijiu bottles emblazoned with enigmatic phrases that appeal to the young, and the company is even offering peach- and grape-flavored drinks that seem closer to cocktails.
Many have tried—and largely failed—to bring the drink to a younger generation, but Jiangxiaobai has attracted well-known investors including Hillhouse Capital Management Ltd. and Sequoia Capital Operations LLC. Founded in 2012, it’s been profitable since 2014, according to the company, with 2019 revenue of almost 3 billion yuan ($463 million). “We are somewhat like the Uniqlo of baijiu,” says Jiangxiaobai founder and Chief Executive Officer Tao Shiquan, referring to the Japanese retailer that’s won global fame for its utilitarian clothing. “We serve the consumer’s basic needs. We want our products to be affordable and easily found.”
Jiangxiaobai—the name is slang based on Chinese characters associated with self-deprecation and humility—is among a flood of new food and beverage companies spreading across the country. Rising incomes are stoking a consumption boom. Retail sales of $6.1 trillion in 2020 are closing the gap with the U.S., and startups are betting that capturing even a sliver of a popular segment can result in a major business.
“Even if you just serve one niche category, the potential market size still won’t be small,” says Zhou Jianhong, investment director at Cyanhill Capital, an early-stage investment company.
Jiangxiaobai’s leaders say they need to use unconventional tactics to help boost consumption of baijiu, because the giant producers of the liquor are keeping supply tight and prices high to maintain their premium status. A half-liter of Moutai Flying Fairy—if you’re lucky enough to find one—has an official retail price of 1,499 yuan ($232). But some distributors sell it for more than 3,000 yuan.
Price of Baijiu
Per liter
Data: Euromonitor International
Just as Scotch whisky is native to Scotland, some provinces of China are known as particularly good producers of baijiu. Connoisseurs can tell the difference. A half-liter Moutai made in the town of Maotai in northwestern Guizhou province, distilled to mimic the taste of 50-year-old liquor, can cost as much as $4,000.
On the other end of the spectrum, cheaper varieties of baijiu aimed at working-class consumers can cost as little as 164 yuan for a pack of a dozen half-liter bottles. But as leading baijiu makers have shifted toward even more premium-priced brands—sales revenue increased 39% while consumption volume declined 21% in the past five years, according to market researcher Euromonitor International—some smaller makers of the cheaper varieties are shutting down. Data from the China Alcoholic Drinks Association show the number of sizable baijiu companies (excluding small family-based distillers) fell to 1,040 last year, from about 1,600 in 2017.
Jiangxiaobai has departed from the norm by selling smaller 100-milliliter bottles, with a pack of six going for 178 yuan. Given that baijiu is so strong, a smaller bottle can be shared with a friend or two, and there’s no pressure to finish the pack, unlike bigger bottles, which are typically used at large business meals with more than 10 people at each table.
The company has also used marketing unusual in the tradition-bound baijiu industry. In 2017 and 2018 it promoted the brand on two seasons of an anime series whose main character is a boy named Jiangxiaobai. It engages with fans, calling on them to suggest phrases that get printed on its bottles. An example: “I have a bottle of baijiu. I have something to tell you.” (It sounds way more poetic in Mandarin.) The company also uses media and events popular with the young, such as online dramas, films, and music festivals, to promote its products. Like beermakers, it’s struck deals with restaurants, while maintaining online stores on Alibaba Group’s Tmall, China’s largest business-to-consumer e-commerce platform, and the popular WeChat app. At the 2019 Vinexpo Bordeaux in France, it promoted its ties to Chinese culture, with its bottle designs incorporating traditional poetry and calligraphy.
Eschewing expensive television commercials while tapping avenues popular with younger consumers has helped keep marketing costs down. Tao says Jiangxiaobai spends 10% of sales on marketing, vs. spending by industry peers that largely fall in the range of 10% to 20%. “They picked a very specialized race course early enough and applied some marketing skills from the consumer goods industry,” says Zhong Yuchen, Chengdu-based owner of baijiu technical consulting company Yuan Kun Education. “Packaging, storytelling, crossovers—these tactics were never heard of before in the baijiu industry.”
Value of Alcoholic Drinks Sold in China, 2020
Data: Euromonitor International
Valued last year at about $1.6 billion, Jiangxiaobai is looking to go public in three to five years, Tao says. When the Covid-19 crisis hit China, Jiangxiaobai suffered like other businesses, but sales will continue to grow 20% annually in the next three to five years, he says.
“Before Jiangxiaobai appeared, the industry consensus was that young people did not drink baijiu,” says David He, managing partner at BA Capital in Shanghai, one of the upstart’s investors. “Tao founded a brand that focuses on the young segment of the market and made it grow.”
Tao is intent on keeping sales bubbling by introducing products popular in online marketplaces, where plum wine and baijiu were the fastest-expanding alcohol categories in the 12 months through November 2020, growing at more than 90% and 50%, respectively, on Tmall. Bowing to demand from female drinkers who prefer sweeter, low-proof alcohol, Jiangxiaobai introduced its plum wine in late 2019.
The brand’s growing popularity is attracting competition. Targeting young female consumers since its founding in 2019, Miss Berry has become one of the top sellers of fruit wine on Tmall. Hong Kong property tycoon Adrian Cheng’s C Ventures is among the investors in Miss Berry.
There’s also pressure from foreign alcohol giants. Pernod Ricard SA has announced plans to introduce a made-in-China whiskey brand by 2023. Les Domaines Barons de Rothschild and LVMH Moët Hennessy Louis Vuitton SE are among the investors in Chinese vineyards.
Tao says he will continue to turn out new products and explore high-end lines while keeping prices low. He plans to double Jiangxiaobai’s geographical footprint in five years, expanding beyond the 30 countries or regions where it’s currently available and making growth in Asia and Europe priorities.
Back home, Tao may also benefit from the growing number of Chinese consumers who are turning increasingly to local brands that understand their tastes, says Wang Mi, who works in the creative industry in Chongqing and is a Jiangxiaobai plum wine buff. “People in my generation,” she says, “don’t automatically opt for Western brands like in previous generations.” —With Stephen Engle
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July 15, 2021 at 03:00AM
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Baijiu Maker Jiangxiaobai Wants Millennials, Gen Z to Drink the Liquor - Bloomberg
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