11/05/2023

How has Chinese consumer sentiment shifted since the end of lockdown restrictions in 2022?

IWSR analyses changes in consumer price sensitivity and sentiment amongst Chinese alcohol consumers

After Covid-19 restrictions were lifted in China, consumer sentiment and personal confidence levels amongst Chinese alcohol drinkers have risen further, allied to a far more positive consumer attitude towards drinking out in bars and restaurants. This is impactful in a market where, pre-Covid, the on-trade commanded over 45% channel share by volume.

Latest findings from IWSR’s ongoing alcohol consumer sentiment tracking shows that the removal of pandemic restrictions has led to positive momentum across a number of categories. There are strong increases in stated consumption for Irish and Japanese whiskies, as well as for tequila/mezcal (from a low usage base) between September 2022 and February 2023.

This recalled consumer behaviour aligns with market trends as well. For example, within whisky, which commands around a quarter volume share of China’s spirits market (excluding national spirits), Japanese and Irish whiskies have historically performed well, with volume CAGR growth 2016-2021 of 22% and 56% respectively.

Stated premiumisation is also evident across multiple categories, from beer to sparkling wine to whiskies of all origins.

Single malt Scotch appears to have benefited particularly from the end of lockdowns. While the user base remains steady at around one in seven Chinese urban affluent adults who drink alcohol (the sample for the longitudinal tracking), those saying they drink single malt several times a week has jumped from 8% to 22% in February 2023 compared with September 2022. Half of single malt drinkers say they are drinking this beverage more often, and four in 10 think they are spending more money on a bottle when they buy it.

“China is one of the most positive global markets, with alcohol consumers generally feeling confident about their financial position and future,” says Richard Halstead, COO Consumer Research, IWSR. “China’s urban middle class consumers are positive in general and specifically in their attitudes and behaviour towards beverage alcohol.

“Personal confidence levels are higher than in 2022. Sentiment around drinking and dining in the on-premise has improved, and there is positive momentum across a range of beverage types, with premiumisation still occurring.”

The rebound in single malt Scotch reflects a broader uptrading sentiment in the whisky category generally. Irish whiskey is, says Halstead, “a notable success story”, with 43% of consumers saying they are buying more expensive bottles in February 2023, up from 32% in September 2022. Japanese whisky has experienced a similar dynamic (up from 35% to 46%), as has US whiskey (up from 38% to 47%).

Between September 2022 and February 2023, the attitude of Chinese consumers towards the on-premise has been transformed. Many in the most populous cities had either been prevented from drinking out by Covid-19 restrictions, or reluctant to take the risk. Now a significantly higher proportion say they will return to China’s bars and restaurants, with a greater appetite for socialising in general.

Levels of price sensitivity are broadly in line with 2022, although both Irish whiskey and vodka have broadened their spectrum of acceptable prices in the eyes of Chinese consumers. At a time when many global markets are notably cost-conscious and characterised by downtrading, China stands out for its willingness to spend.

“Top-end stated spend on alcohol is comfortably in ultra-premium territory,” says Halstead. “Across all spirits categories, Chinese consumers consider a price within the ultra-premium band to be acceptable – but standard-and-below-priced drinks are often considered too cheap.”

These developments are broadly mirrored by recalled category momentum in consumption terms over the past six months, with strong moves for beer, wine and whisky, and positive trends for rum and RTDs.

Of particular note is the rebound in Cognac consumption. Drinkers of Cognac who said they consumed the beverage more than once a month jumped from 64% to 74% between September 2022 and February 2023, and almost half of this group said they thought they were drinking Cognac more often, and a similar proportion (46%) thought they were spending more on a bottle when buying Cognac compared with the previous 6 months.

A similar story, off a much smaller base, can be found in consumption of Tequila/mezcal. “Tequila drinkers are significantly more likely to say they are drinking it more, in line with category growth,” explains Halstead. Tequila/mezcal, which commands a 2% volume share of the Chinese spirits market (excluding national spirits), has seen steady volume growth of +17% CAGR, 2016 to 2021. In September 2022, 43% of tequila drinkers said they were consuming more of it; by February 2023, that figure had risen to 53%, while in the same period the user base nudged upwards to 12% of the urban affluent alcohol drinking population, and weekly+ recalled consumption increased from 8% to 14% of users.

The positive picture extends to the no/low category, where moderation levels have risen, along with the recalled consumption of no-alcohol products in particular. For the latter, 46% of consumers say they are drinking no-alcohol alternatives, up from 41% in September 2022.

A significant negative factor impacting consumer sentiment within China’s beverage alcohol market is the relatively pessimistic attitude of younger adult Gen Z consumers, who account for an increasing proportion of the consumer base but have suffered from an unusually high level of unemployment in the past few years.

“Gen Z consumers are notably less positive than older generations, perhaps because they felt the impact of the pandemic at a more formative period in their lives,” says Halstead. “Despite the Chinese market being more optimistic in general, Gen Z consumers of legal drinking age are more likely to have financial concerns and worries about the future.”

You may also be interested in reading:

Consumer confidence in the US remains broadly positive
Consumers opt to spend less on beverage alcohol, but confidence in the future is improving
The 8 drivers of change for beverage alcohol in 2023 and beyond [ebook]