Whisky industry needs to invest to gain from massive Chinese consumer market

Kelvin Tam likes to introduce himself as China's very own "Scotch whisky priest".

On the evening we met in Beijing, share prices had tanked 8.5 percent, and so his offer of a soothing glass of Scotland's national drink would certainly have been comforting to anyone who had been on the receiving end of such a bruising day in the market.

But Tam was proposing something even more appealing than just hard liquor and a pastoral ear.

More formally, he is marketing director of the Single Malt Club China, whose 5,000 members have been on a mission here since 2005 to promote a drink that he and his fellow "connoisseurs" like to hail as the "pinnacle of enjoyment in spirits".

The organization has just launched an investment fund which hopes to raise 3 million pounds ($4.65 million) over three years to acquire limited editions of Scotch brands and "guarantees" investors an 8 percent annual return.

As an investment vehicle, Tam insists "whisky has taken over from wine", enthusiastically adding the fledgling fund hopes to increase the 60,000 bottles of Scotch it imported last year (worth 1.4 million pounds) by a further 20 percent every year.

Until now Malt Club's activities have focused on monthly whisky tastings to help promote 31 of Scotland's oldest brands in China.

Suitably kilted that night, he was among a spirited gathering at Beijing's Kerry Hotel welcoming Scottish First Minister Nicola Sturgeon to China on a six-day trade visit. Sturgeon had just opened the club's own new Whisky Experience Centre.

Tam and his team seem to be pushing just the right buttons to attract the typical modern Chinese middle-class consumer. They are offering a cast-iron return on a quality product still steeped in tradition.

But Scotch sales are struggling badly in China, and elsewhere for that matter. Direct exports to China fell by an annual 23 percent to 39 million pounds, sending the world's second-largest economy to a dismal 26th on the product's list of markets by value. Its total global exports also dropped for the first time in a decade, by 7 percent to 3.95 billion pounds - that is 80 percent of Scotland's entire food and drink exports.

That evening Sturgeon dutifully enthused that Tam's fund would "allow Chinese whisky connoisseurs to invest in some of Scotland's finest and rarest drams".

There wasn't a word, though, about whether the Scottish government or whisky industry had actually invested in the Malt Club's new center in Beijing, nor whether they had any ideas of their own on how those brutal sales figures might be reversed.

As a Scot myself, whose father worked in the industry for 20 years, I am proud of what is undoubtedly our most recognizable international brand but equally disappointed to witness what is clearly a gross under-investment by the country's leading players in its promotion in China.

The marketing approach of the Scotch Whisky Association, the national body whose members represent 95 percent of whisky production, or around 2,500 separate labels, has remained admirably stoic for years: "Centuries-old quality will conquer all".

But in a market, where there are now 600 million middle-class people with money to burn on quality, luxury brands, it seems inconceivable that such a meager 1 percent of Scotland's whisky exports currently manages to find the bottom of a glass here.

One of the firms loyally championed by the Malt Club is Springbank Distillers Ltd, a family-owned firm based in Campbeltown, on the Scottish west coast. David Allen, its regional sales manager for Asia, told me China is among its top 10 export markets.

But the main hindrance to growing sales of what he calls his "hand-crafted, niche" brand is a limited "budget for glossy marketing campaigns".

Recent estimates suggest that China's favorite tipple, baijiu, still accounts for 80-plus percent of the liquor market in China. Whisky, of all kinds, contributes 6 percent, brandy and cognac 9 percent, with vodka, gin, rum, tequila, and liqueurs combined, the rest.

A Scotch whisky fund might attract a few devotees interested in making a profit and having a nip or two, but if the Scottish whisky industry is serious about making a meaningful dent in the massive Chinese consumer market, some major money has to be spent on finding ways of getting people to buy it and drink it.

Employing a strong national team of "whisky ambassadors" across China, headed by Tam, might be a good start.

The author is a writer with China Daily. Contact him at nicholas@chinadaily.com.cn