CONSUMER: Bacardi Chases Baijiu Crowd With Tea Liquor
Bottom line: Bacardi’s new Tang tea-based liquor could do well despite its premium pricing and Beijing’s frugality campaign if it takes aim at affluent yuppies who like to try new things and are put off by the stodgy image of baijiu.
It’s hard to get excited about a liquor story as the world returns to work at the start of a new week; but I’ll admit I’m just a bit intrigued by reports detailing a new attempt by global giant Bacardi to tackle China with a new tea-based spirit. Frankly speaking, I’m a bit surprised that no one has tried this before. That’s because such a liquor, if packaged and marketed properly, could quickly win over many of China’s urban yuppies who eschew traditional homegrown baijiu liquors but haven’t exactly embraced western alternatives like whisky and rum.
I’m no liquor expert, but I do know that it’s possible to make spirits from just about anything. Vodka is distilled from potatoes, while sugar cane is the source of rum and gin comes from juniper berries. Even coffee has its own liquor, the popular Kahlua, which was one of my favorite drinks back in college. So there’s really no reason why tea shouldn’t have its own liquor, which is what Bacardi has done with its new Tang drink.
According to the latest reports, Bacardi developed Tang as part of a broader drive to create drinks specifically for the China market. (English article; Chinese article) US liquor giant Brown-Forman (NYSE: BF-B), maker of popular Jack Daniels whiskey, in December announced its own similar move to develop drinks for the China market through a tie-up with local favorite Wuliangye (Shenzhen: 000858). (previous post)
The latest reports say Tang has already entered commercial production, and will make its debut in duty free shops in Hong Kong. From there it will migrate to bars and restaurants in big cities like Beijing and Shanghai over the next few months.
Tang certainly isn’t cheap, selling for $260 per 500 milliliter bottle, indicating Bacardi is going after the high end of the market. The company is taking things slowly, with an initial production run of only 2,000 bottles. That price may sound a bit high, though it’s actually relatively reasonable when compared with premium brands of baijiu, China’s traditional spirit, that typically can sell for twice as much more.
The concept of tea-flavored alcoholic drinks isn’t new to China, and cocktails featuring tea as one of their ingredients have been around for more than a decade now. But I’m unaware of anyone who has actually tried to distill an actual liquor from tea leaves up until now, which will give Tang a unique edge as it pursues the premium market.
Some are saying that Bacardi could face an uphill battle due to the ongoing anti-extravagance campaign now taking place throughout China. That campaign has seen government bodies and big state-run firms ordered to pare back their spending on lavish items like expensive gifts and banquets. The campaign has dealt a big blow to premium baijiu brands like Moutai (Shanghai: 600519), which used to be favorites at such lavish affairs.
The relatively small size of the first batch of Tang almost certainly reflects Bacardi’s concerns about potential impact from the frugality campaign. This particular drink was probably in development before that campaign began, meaning company officials were depending at least partly on demand from government-related organizations.
But frankly speaking, the kinds of people who host those big banquets are much more interested in impressing their guests with famous names like Moutai, and unknown names like Tang would have been unlikely to have much appeal. Instead, Bacardi should focus squarely on the younger crowd of affluent yuppies who like to try new and trendy things, and often eschew baijiu as stodgy and old fashioned. Those younger people won’t be affected by the frugality campaign, and could prove a strong and lucrative audience for Tang if Bacardi sends some slick marketing in their direction.
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