Luxury goods firm ups beverage investments in China

Managing director of LVMH-Möet Hennessy Diageo China confirms that the French wine and spirits business is stepping up its investments in China, which it considers to be a major long-term growth market, driven by demand from the emerging middle class and the fact that China remains the world's fastest-growing wine market. The French firm is also tapping into the rapid growth of the e-commerce market, launching its first online flagship store on JD.com in January.    

The world's largest Cognac maker is stepping up its investments in China as it remains upbeat on the company's long-term growth prospects in the country, a top executive said.

Frederic Noyere, managing director of LVMH-Moet Hennessy Diageo China, said he believes that in the future, the wine market in China will center on consumption by the emerging middle class.

Already the company's second-largest market after the United States, China will play a major role in the French firm's business, Noyere said.

Since the end of 2012, sales of high-end imported wine have cooled in China, mainly due to the implementation of an anti-graft campaign and a crackdown on lavish public spending. The slowing economy has also dealt a blow. As a result, liquor consumption has shrunk.

In addition, a 2015 report from the public relations agency Ruder Finn and market researcher Ipsos showed that wines, watches and cars were among the luxury goods that Chinese consumers had the lowest willingness to buy.

After a few years of slow growth, Hennessy's wine and spirit businesses started to pick up in the second half of 2015, fueled by demand of from the middle class, and China remains the world's fastest-growing wine market, Noyere said.

Profits from brands including Moet Champagne and Hennessy Cognac were up by 19 percent in 2015 and sales in China bounced back in a further sign that the country's challenged Cognac market has bottomed out, its parent company LVMH said this month.

"We are extremely committed to China and we believe that this market will continue to grow, thanks to the emergence of the middle class, who likes to consume and enjoy our products on private occasions, such as dinners, friends' parties and discos," Noyere said.

"We have a lot of faith on China. We plan to redeploy our sales as the market requires a different product mix and a different distribution channel mix. In that regard, e-commerce will play an important role."

Hennessy launched its first online flagship store on JD.com in January. Its new e-commerce strategy covers all brands and categories with limited editions, as the brewer bets on China's rapid growth of e-commerce.

The price of a bottle of Hennessy ranges from $15 to $100, with some high-end products carrying a price tag of up to $300.

"Our sales channels are equally divided between on-trade, including bars, restaurants, and off-trade, like supermarkets and liquor stores," Noyere said.

"E-commerce is changing the dynamics by creating a new channel. The convenience and authenticity of ordering online from brand flagship stores is driving e-commerce sales."

Mark Edwards, general manager of Diageo, said that he is confident of the wine market potential in China. "Wine covers only 2 percent of the drinkers population on the Chinese mainland. There is still much room for growth."

zhuwenqian@chinadaily.com.cn