COVID-19 & the Alcoholic Drinks Market In China: Outlook & Digital Strategy

In the third interview of our “Innovating through the Crisis” series, we speak to Thomas Piachaud, Director of Consulting at Kantar Consulting in Shanghai, on the effects of COVID-19 on the alcoholic drinks industry in China and recommended digital strategies for brands in the sector.

Hi Thomas, I am guessing with most bars and restaurants in China doing very limited business in Q1, that the numbers related to drinking outside the home must be quite ugly. How did the crisis affect alcohol consumption in the home over this period, and how is the outlook for the rest of the year?

The first thing to consider here is contextual. Drinking alcohol in China is strongly related to the formation of social bonds and is heavily connected with socializing over a meal. With the pandemic shutting down many bars and restaurants over a considerable period it certainly has impacted sales significantly, with some subcategories within alcohol looking at 80% reduction in sales. This was especially impactful considering the timing over the Chinese New Year, which is typically a heavy consumption occasion (especially of BaiJiu – Chinese rice wine)

This issue will continue to have an impact moving forward, as much of the stock will be somewhat stuck along distribution lines, and the expectation that offline retail will suddenly bounce back in Q2 is most likely inaccurate, not that consumers will not return to drinking, but more due to the fact that distributors will be working to clear their supply lines of long shelf life alcohols.

Additionally, we have seen from our consumer surveys that consumers have claimed to be consuming less alcohol. At Kantar we have been running three waves of consumer surveys over the period – our COVID Barometer – the figures from this show that the translation of alcohol sales from on-premise (bars, clubs, restaurants) is not having the same cut through to home channels (53% disagree that they are buying more alcohol for at home occasions than usual with only 21% agreeing). This highlights the fact that the occasion of consumption just does not exist in the same way at home as it does outside of the home.

For the rest of the year we should expect to see an initial surge of consumption as we move into the summer months, and people reconnect with friends, family and colleagues they have not seen in a long time. However, underlying trends that have been accelerated throughout the period may lend themselves to risks and challenges for alcohol.

Bars and restaurants in China can expect an upturn in Summer months but long-term future is unsure

A stronger focus on health and wellness may result in a reduction in overall alcohol consumption. A need for control of environment from a hygiene and cleanliness perspective may shift consumption towards small groups and more intimate venues, posing risks/opportunities for different subcategories

Over this year have you witnessed any interesting ways that alcohol brands or F&B companies have reacted to the situation using digital innovation?

Digital as a sales channel for alcohol had been under development long before COVID, with ~10% category penetration into the channel. However, many brands have not optimized their ecommerce channel for their complete portfolio and multiple SKUs/packs and more needs to be done to pick up the pace.

However, under the guise of innovation, the focus has been around innovating communications and platforms. One notable example that we saw was Boxing Cat Brewery collaborating with Land of Glory, an online game from Netease. The result of this collaboration was that the Boxing Cat brand mascot was digitally created in game and gave gamers quests and challenges. Aside from the in-game rewards, gamers could also be rewarded with vouchers for free beer through Tmall to be delivered to their door.

Boxingcat Brewery collaborated on the game Land of Glory

This was interesting in two ways; it bridged a platform that resonated with the brands target audience to in home consumption of product and highlighted the power of creating truly digital assets in collaboration with a unique partner.

With many consumers in China still choosing to spend leisure time at home or away from crowds, in terms of innovation, what advice can you give to alcoholic beverages companies in China?

livestream cocktail china
Livestream cocktail mixing

Optimizing digital channels will be one of the main routes for growth moving forward. Whether it’s live streaming or social ecommerce, brands need to align to these new growth platforms. social ecommerce, for example, is perhaps more relevant for lower premium brands as you are putting the brand image in the hands of consumers rather than within your own control. In a more premium space, live streaming has become a big trend, big baijiu and spirits brands have started to use the channel by delivering premium experiences with either KOL or company leaders leading the charge. For example, we have started to see live cocktail mixing sessions showing rewards for spirits brands.

From a messaging point of view, it is important for alcohol brands to be truly brand led. The first step is to understand the new context they find themselves in considering the pandemic and the changes in consumers values, attitudes and behaviors. Continually trying to communicate a declining value (take for example, premium sophistication when consumers may be looking at more authentic brands) or a now, less relevant occasion, will not return the same ROI as before. Brands must adapt their positioning, and work with partners to elevate the experience of their products and brands in a new reality.

Thanks very much Thomas

Key Takeaways

  • Alcohol consumption habits in China look to be substantially altered, at least in terms of the short to mid-term. Crisis of these types have the potential to fundamentally re-mold behaviors. While there is likely to be somewhat or rebound in on-site alcohol consumption in the short-term, it’s uncertain with a move to healthier lifestyles that this can be maintained.
  • Digital selling of alcohol was strong in pre-crisis China and has been boosted over the last few months. Brands need to adapt their marketing and product selection for e-commerce
  • Digital is the key medium for communication with consumers post-crisis. Authenticity is the key in terms of messaging for alcohol brands and the key opportunities for this are digital. From live-streaming to games, there is now a real chance for brands to re-stamp their relationships with consumers.