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Beverage Case Study Baijiu

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Beverage Case Study Baijiu

  1. 1. INSTITUTE OF HOTEL MANAGEMENT AURANGABAD Food & Beverage Enterprise Management Case Study on Alcoholic Beverage Sumant Jain Roll No.-1374410 “Submitted in Fulfillment of the Requirement for BA (Hons.) In Hotel Management” THE UNIVERSITY OF HUDDERSFIELD, UNITED KINGDOM April 2015
  2. 2. Case Study on Alcoholic Beverage Sumant Jain Page No. 1 1377410 ABSTRACT The following case study deals with the impact changes in consumer tastes and alcohol consumption patterns in a country has on its indigenous alcohol. To elaborate this, the student has taken the aid of an indigenous alcohol of China- Baijiu and the impact of increased wine consumption on its market.
  3. 3. Case Study on Alcoholic Beverage Sumant Jain Page No. 2 1377410 INTRODUCTION How the changing consumption patterns and consumer tastes in a traditional market can affect the domestic alcohols? Alcohol consumption in China has been traditionally popular at social events- spring festival, at wedding ceremonies, birthday parties, New Year celebrations and business dealings. However, one of the contributing factors that have brought about a change in the alcohol consumption pattern in the country are: rapid growth in the economy, increased disposable income of the middle class- which made up 66% of the population. According to the estimate of Wolfensohn Center for Development at Brookings, by 2015, the number of middle class consumers in Asia will equal that of Europe and North America. In China alone, by 2025, there could be over 670 million middle class consumers, compared to the approximate 150 million in 2010. (G, 2010) (D B. , The Rise of the Middle Class in China and Its Impact on the Chinese and World Economies, 2013) Rising disposable income has induced in the middle class a desire to experience new products, to try new-imported brands and has led to extravagance. As they make up a large portion- 74% of the private consumption of urban China. If we consider China as a whole, the make up 58% of the private consumption. In terms of GDP, they account for 24% of the urban GDP and 20% of the total GDP. (D B. , The Rise of the Middle Class in China and Its Impact on the in China and Its Impact on the , 2013) Drinking alcoholic beverages has been traditionally accepted in China during major social events, such as the spring festival, wedding ceremonies and birthday parties. However, the rapid growth in the Chinese economy has been accompanied by noticeable changes in the drinking behavior of
  4. 4. Case Study on Alcoholic Beverage Sumant Jain Page No. 3 1377410 the Chinese population. Furthermore, alcohol is now commonly consumed to relieve stress, facilitate social interaction and foster good relations between supervisors and employees, since these often eat out together after work or hold business meetings over dinner. However, post the Red Obsession that China experienced, the consumers have been greatly influenced by fruit based alcohols such as Wines. Their tastes have evolved beyond high alcohol content beverages towards low alcohol content, complex favored beverages. Due to this the alcohol of choice of the people of the country, which earlier used to be a ‘white spirit’ known as Baijiu is now facing challenges from French Wines- particularly red wines. Unlike its pungent grain-based liquor, red wines provide a wide variety of flavors & aromas which have attracted the eye of the Chinese. The changing alcohol consumption preferences of the people has led it towards become the 5th largest wine market in the world. With this the sale of Baijiu has marginally seen a point of saturation in its domestic market owing to the competition provided by French wines. The middle class of China wish to consume higher priced and more sophisticated beverages. Their willingness to try new brands has increased. By volume, Baijiu is still one of the most consumer alcohols in terms of volume in the world but is seeing a gradual decline in acceptability as its market is penetrated by wine. In 2013, it accounted for 99.5% of the spirits sold in the country. It makes up one third of the liquor consumption of the world. (K, 2014) China was the largest consumer of spirits in the world with 1.201 billion 9-litre cases in 2012, equivalent to almost 40% of the total volume of spirits consumed worldwide. Between 2013 and 2017, the VINEXPO/ The IWSR study has forecasted further growth in Chinese spirits consumption, but at a lower rate of 8.69%. As compared to the 82.7% growth experienced between 2008 & 2012. (K, 2014) Despite such high demands for spirits, consumption of Baijiu has fallen in China post the red obsession. Which brought about a desire to consume wine rather than traditional spirits. Baijiu which is ideally consumed in the form of shots, held in the mouth for a short duration of time & then swallowed. Unlike Wine, which allowed the drinker the ability to savor the experience for a
  5. 5. Case Study on Alcoholic Beverage Sumant Jain Page No. 4 1377410 longer period of time. It has led to an increase in women who drink alcohol as Baijiu- having a high proof is now widely accepted by women. Wine is often a measure of an affluent lifestyle. This is another reason why is being consumed more by women countrywide. This is due to the reason that the middle class are looking for a healthier and more sophisticated alternative to Baijiu. The majority of the populous have shifted their alcohol consumption pattern towards wines: specifically still, sparkling and low alcohol content wines. Especially in the past 10 years, the alcohol consumption pattern of China has changed from a high alcohol content Baijiu to relatively lower alcohol content beverages such as beer and wine. (S, 2011)
  6. 6. Case Study on Alcoholic Beverage Sumant Jain Page No. 5 1377410 DISCUSSION How are the current characteristics of Baijiu different from the modified preferences of consumers? Now that we have taken a look at the beverage consumption pattern, it is logical for us to analyze the how the most popular indigenous brand is combatting such a challenge. Baijiu, as we now know has several varieties as does wine. It may possess a light aroma or a very strong one. The current features of Baijiu are:  Grain Based: It is a grain based liquor, similar to whiskey. The principal grain used is sorghum. However, some varietals use other grains such as rice/sticky rice, wheat or even corn.  Varied Flavor Profile: Baijiu refers to an entire category of spirits and not just a single beverage. Thus, its flavor profile is very vast- depending on the brand of the beverage. Flavors range from hay, citrus, raisins to nutty sherry. This makes it very foreign flavor profile for the Western palate. However, it is also this distinguished flavor profile that makes it so intriguing.  Aroma: Baijiu has a very distinctive aroma which is not very acceptable by foreigners. Its strong potency coupled with its explosive aftertaste have prevented it from being accepted outside China. What did Baijiu do to overcome this? To see what Baijiu did to overcome their slack sales, let us take the example of China’s popular Baijiu brands- Sichuan Swellfun. Sichuan Swellfun relied on government officials to a great extent for its sales. However after the president’s introduction of an anti-corruption campaign due to its excessive government expenditure. This has greatly affected the sales of Baijiu in china- as 40% of its sales come from government channels. (D B. , 2015) James Rice, managing director of Sichuan Swellfun Co Ltd, was one of the first Baijiu producers in western China to suggest marketing its beverage to the western world. He believed that people were interested in the Chinese culture and Baijiu was a way to give them a taste of China right at their dinner table.
  7. 7. Case Study on Alcoholic Beverage Sumant Jain Page No. 6 1377410 This idea even attracted entrepreneurs like David Zhou- founder of Washington-based Everest Distillery to begin importing Chinese Baijiu rebranding and then selling it locally. Torsten Stocker, the head of the Greater China consumer practice at the Monitor Group in Hong Kong, was unconvinced of its prospects overseas. He believed that its distinguished taste and fuel- like odor would make it difficult to sell in the western market. He took inspiration form Tequila and with the belief that wise marketing in the form of cocktails could earn it a place in the bars of the western market. (Reuters, 2013) Have Baijiu’s efforts been successful? Did it act wisely? Baijiu, in times of adversity forwent its domestic market where it has an already established brand and tried itself in a market which not only already had several choices of alcohols to choose from but also had a different culture and alcohol consumption pattern. It is common for firms to exit their home market due to factors such as change in the market environment, rapidly increasing competition & dissatisfaction of consumers. Baijiu has done the same by targeting the American market. It failed at first because of the differences in alcohol consumption pattern. However, exiting the market may not be the best decision. Some cases prove that reentry into the same market can be very rewarding for expansion and growth. (International Market Reentry: A Review and Research Framework, 2011)
  8. 8. Case Study on Alcoholic Beverage Sumant Jain Page No. 7 1377410 The above framework shows a model framework for reentering an international market. It can be applied to Baijiu’s fruitless efforts in the western market. Their failure to gain popularity in America has also provided them an insight into the American market. Especially for a brand which is globally known, it will possess greater knowledge of market understanding of its domestic which can be applied to gives it a competitive advantage. All the actions of Baijiu are based on its knowledge of the consumers, competitors, and the culture of its domestic market. However, it must understand the need of the American market and mold itself to suit it better. A company which has been well known for its successful reentry into the Indian market is Coca- Cola. Its success does not just lie in its explicit knowledge of the Indian economy but also in its political and cultural system. Other knowledge such as that of the country’s regulatory system and knowledge of its consumer, competitors, suppliers aid in their reentry. Its reentry as a cocktail mix proved to gain a small margin of acceptance but not to the extent that they desired. It is advised that they do not forego the American market due to these factors, rather- they should use their publicity and capitalize on their previous expenditure by reentry. It is inevitable that they will face challenges due to previous negative acceptance. But many Baijiu producers agree that the American market is now ready for their product. They need to only give it time. The process might be more difficult than the first attempt, but the knowledge of the American market might assist them in capturing it. They should focus themselves on the shifts in the lifestyle patterns and alcohol culture of the host country.
  9. 9. Case Study on Alcoholic Beverage Sumant Jain Page No. 8 1377410 CONCLUSION Some would say that the decision of the Baijiu industry to shift its focus from its domestic market to a foreign market which it had no knowledge of was wrong. That the product was better suited to re-introduce itself in its host market. It might have introduced itself as a cocktail mix in its host country rather than trying the American market. Its success rate would be higher as it already had a pre-established brand in its home market. However, in the present scenario, it would not be wise for Baijiu to forego the American market after its unsuccessful venture. Rather, it should learn from its experience and try to re-enter the same market through an indirect approach such as through a Baijiu bar. It could even try to bring about the development of a new product- through pre-mixed Baijiu cocktails. This would allow it to possibly penetrate the American market by changing their perception of the alcohol. Baijiu should try to strengthen itself in its home market as it already has an established brand. However, there are factors in the domestic market such as government policies that are having an adverse impact on the alcohol. This is beyond its control. Its growth will remain limited if it is unable to capitalize on foreign markets.
  10. 10. Case Study on Alcoholic Beverage Sumant Jain Page No. 9 1377410 REFERENCES D, B. (2013). The Rise of the Middle Class in China and Its Impact on the Chinese and World Economies. McKinsey & Company. D, B. (2015, April 24). If you could put China's problems in a bottle. Retrieved from Fotrune G, K. H. (2010). The New Global Middle Class: A Cross-Over from West to East . Wolfensohn Center for Development at Brookings . K, N. (2014, September). Baijiu Buying Tips. Retrieved from Wine Enthusiast. Rajshekhar et al (2011). International Market Reentry: A Review and Research Framework. International Business Review. Reuters. (2013, July 29). Baijiu, World's Most Popular Liquor, Could Find International Market Outside China. Retrieved from The Hufington Post. S, P. (2011, July 18). Economic Boom In China Sends Booze Market Skyrocketing. Retrieved from Business Insider.