Dialogue with Ainhua Ainhua, Managing Director of Diageo China: China will continue to be the main growth force in the Asia-Pacific market

21st Century Business Herald reporter Ye Bihua Shanghai reported that from November 5 to 10, the world-renowned spirits group Diageo unveiled a full range of products at the 4th China International Import Expo (hereinafter referred to as the "Expo"), and for the first time presented the world's first best products on the official new product release platform of the Expo.

For spirits brands, China is undoubtedly one of the most exciting markets in the world right now, and Diageo has witnessed the great resilience of the Chinese economy and consumers, and also hopes to continue to capture new opportunities in the development pattern of the Chinese market.

The group's 2021 financial report shows that Diageo's net sales have increased by 16% over the past year to achieve revenue of £12.7 billion, while net sales in the Greater China business increased by 38%, from 2% to 5%, continuing to show strong growth. Among them, the sales of liquor and Scotch whisky increased by 53% and 21% respectively, becoming the two major engines driving the recovery of performance in Greater China.

In May this year, Diageo established a regional logistics center in Shenzhen and carried out strategic cooperation with the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone in the fields of international trade, international logistics and market circulation, consumption and other fields, to radiate the Group's Asia-Pacific market and global duty-free channel business and strengthen supply chain services.

In September, Diageo announced the establishment of an R&D center in Shanghai, which is expected to be put under construction this year and officially opened in mid-2022. Then, Diageo's first malt whisky distillery in China (Eryuan Whisky Distillery) officially broke ground in Yunnan on November 2, with a planned investment of 500 million yuan. The start of this project also marks that Diageo's development in China and even the Asia-Pacific market will enter a new stage.

"China is the world's largest wine market, accounting for about 25% of the global wine market value, so for Diageo, the Chinese market has a lot of room for growth." On November 7, Mark Edwards, Managing Director of Diageo China, said in an exclusive interview with 21st Century Business Herald that diageo will continue to increase its local market layout in the future, and continue to support the growth of existing businesses through continuous investment and innovation in China.

(Reporter of this newspaper and Ai Enhua)

The following is a transcript of the interview:

"21st Century": Diageo has participated in the Expo many times in the past, and I would like to ask what is the difference between this year and before? What products and highlights do you bring?

Ai Enhua: We have been participating in the Expo for several years, and this year is different from previous editions, we previously participated in the exhibition in cooperation with the British government, the booth was located in the British Pavilion, and this year we had an independent booth for the first time, which not only showed the products in a more vivid form, but also took this opportunity to convey Diageo's series of commitments and determination to deepen china.

We see that China is unswervingly opening up its market to the outside world and promoting a high level of opening up, and we strongly feel China's determination to promote common global development. Under the new development pattern, the interconnection and effectiveness of China and the world economy will be further enhanced, and Diageo, as one of the first foreign wine groups to enter the Chinese market, invest and harvest rapid development, is full of confidence in the current Chinese market and is very excited to participate in China's future development.

We also observed that the overall momentum of the Expo has not diminished, and we have seen China's determination to interconnect with the world economy and develop together with the world through the Expo.

21st Century: This year Diageo announced several major investments in China, including the establishment of a regional logistics center in Shenzhen, an R&D center in Shanghai, and a whisky distillery in Yunnan. How does Diageo view the Chinese market and what impact will these investment projects have on the Group's development in China in the future?

Ainhua: Diageo has mainstream categories such as whisky, rum, vodka, gin, tequila and so on, and has been meeting the needs of Chinese consumers for a variety of occasions and through a diversified and high-quality product portfolio , from liquor to Scotch whisky to high-end beer. By holding Shuijingfang, we are also directly involved in the development of The Liquor Category in China. Under this positive trend, Diageo will adhere to the commitment and determination to deepen the Long-term Deep Ploughing in the Chinese Market, actively improve its business strategy, increase its market layout and innovation, and strengthen our influence in the Chinese Market through continuous investment and innovation.

Based on this commitment, it is crucial to further narrow the distance between Chinese consumers and create products that meet consumer needs. We have set up a research and development center in Shanghai, committed to better excavating and insight into the needs of local Chinese consumers from all aspects, not only from the taste of wine, liquor blending, flavor to meet the preferences of Chinese consumers to develop new products, but also in packaging, materials, design will make achievements. Although the R&D center is located in Shanghai, it will radiate the entire Asia-Pacific market. We believe that China will continue to play a pivotal role in the future growth of the Asia-Pacific market.

21st Century: How to combine the needs of Chinese consumers with the production of Eryuan Whisky Distillery?

Ainhua: Our insights into Chinese consumers will be fed back not only to eryuan whisky distilleries, but also to Diageo's wineries that are operating in Scotland, Ireland and elsewhere, as will Diageo's other future innovations in China. Innovation in the Chinese market will be a long-term process.

Diageo has a full range of spirits, of which the whisky category ranks first in China in terms of market value, and there are more than 40 malt whisky distilleries in Scotland, producing 45% of the world's Scotch whisky, making it the world's largest Scotch whisky producer. But we also want to be able to do more, so this year we invested $75 million (about 500 million yuan) in Yunnan to build the Diageo Eryuan Whisky Distillery, which is expected to start construction in early 2022.

Diageo's expectations for Eryuan Whisky Distillery are reflected in two aspects: on the one hand, we want to create Chinese-origin whiskies to serve Chinese consumers; on the other hand, we hope to eventually make Chinese-origin whiskies into world-class whiskies, just as widely recognized as Scottish, Japanese and American whiskies are now.

We are committed to creating truly world-class, Chinese-origin whisky products through Eryuan Whisky Distillery, hoping to make eryuan whisky products become high-quality brands in Yunnan, bloom on the world stage, and be on par with classic whiskies from other countries around the world.

21st Century: How has Diageo responded to the challenges posed by the pandemic in the past two years? What measures have been taken to ensure that performance continues to grow steadily? At present, the epidemic still brings many restrictions on travel retail channels, what are our countermeasures?

Ainhua: In the last year or two, the pandemic has challenged everyone. In the face of the epidemic, we must first ensure the safety of our employees, and then contribute to society. In the aftermath of the pandemic, we provided transportation support to our employees to keep them safe.

For example, we have launched a global plan to support the recovery of small catering and bar stores, and also launched the "Raising the Bar Revival Bar" project (also known as "Revitalization Bar") in China, planning to invest 14 million yuan to provide epidemic prevention items, material support and promotion assistance to more than 1,000 restaurants and bar stores in Shanghai, Beijing, Guangzhou, Shenzhen, Chengdu and Xiamen. Assist the offline stores in the catering and bar industry to recover as soon as possible after the epidemic.

For Diageo, restrictions on global travel have had an impact on tax-free channels. However, we have seen that the tourism industry in some markets such as Europe and North America has begun to restart, so the tax-free channel has also begun to show signs of recovery.

In the Chinese market, both society and the government are actively working hard to respond to the epidemic, and have achieved good results, so that Diageo's market performance has also rebounded rapidly. In fiscal 2021, Diageo's net sales in Greater China increased by 38%. In the next fiscal year, the momentum of growth remained very strong.

Specifically, when it comes to China's duty-free retail, this aspect still faces challenges because China's outbound tourism has not really recovered. But at the same time, we are also finding that more and more opportunities are emerging. For example, the tourism demand in Dali, Shangri-La, Lijiang and other places in Yunnan is growing rapidly. China's tax-free policy for outlying islands in Hainan presents a very good opportunity: 100 million tourists come to Hainan every year, and there is an opportunity to spend in local hotels, bars and restaurants.

Hainan has become a window for Diageo to communicate with consumers across the country, promoting the development of Diageo's major categories and major brands. Because we see many growth potentials and opportunities in Hainan, Diageo participated in the first China International Consumer Goods Fair this year and will continue to participate in 2022. Recently, Diageo has also just unveiled the world's first innovative immersive flagship store located in Shenzhen Duty Free Haikou Mission Hills Duty Free City.

"21st Century": As the only international spirits company in the world that owns both liquor and foreign liquor, in the context of liquor occupying the vast majority of China's market share, how should Diageo's different types of foreign liquor enter the Chinese market? After the epidemic, what are the new characteristics and trends of China's alcohol consumption and what is the market prospect?

Ainhua: China is a dynamic, rapidly changing market, and Chinese consumers are not only open and tolerant of new trends, but even create on top of them, which I think is very interesting. As the only international brand involved in the field of Chinese liquor, Diageo is very honored to participate in the local development of this category and believes that there is a huge room for development in the future.

Speaking of the development of our foreign wine category in the Chinese market, in the past few years, the consumption habits and concepts in the Chinese market have undergone tremendous changes. On the one hand, the consumer groups and consumption occasions in the Chinese market have gradually moved from spending more than 10 years ago with young people, bars and high-end nightclubs to a wider range of groups and application scenarios. More and more Chinese consumers are interested in foreign wines, especially whisky – more people want to understand, discover, appreciate and taste this category, which is behind the trend of people gradually pursuing a high quality of life and becoming more and more mature in consumption concepts.

Chinese consumers are expecting more diverse options. There are so many varieties of whiskies that consumers expect to try out, and the choice of diversity is exciting. In addition to a wide range of premium single malt whiskies, we also have different whisky brands, including the world-renowned whisky brands Johnnie Ginja, Legavirin, Teeska, and Highland brand Sugden, providing Chinese consumers with a very good choice. In the future, with the construction of the Diageo Eryuan Whisky Distillery, consumers will also be able to taste the whisky products originating in China. In addition, the scene of whisky drinking is also expanding, and many occasions such as family drinking, whisky with Chinese food and gifts are being developed.

"21st Century": Now that China is strongly advocating a dual-carbon strategy, what measures does Diageo have in terms of carbon reduction and emission reduction to help China achieve its sustainable development goals?

Ainhua: Diageo's Global Sustainable Development Goals will prioritize active low-carbon innovations to influence the changes needed to shape and develop future low-carbon solutions. Our 2030 carbon emissions targets include: net zero emissions; a 50% reduction in carbon emissions from our supply chain; and 100% renewable energy in our own operations.

At the same time, I would like to introduce the sustainable action plan "Social Vision 2030: The Spirit of Progress" issued by Diageo. The plan is Diageo's 10-year action plan to help create a more inclusive and sustainable world. As you mentioned, the Diageo Eryuan Whisky Distillery, on the one hand, the program will guide the design and development of the distillery, apply renewable and clean technologies to the construction of the distillery, ensure that the distillery is carbon neutral, water regenerative and zero waste, and take proactive measures to protect the natural environment and biodiversity here.

In terms of product packaging, as part of the Ten Year Action Plan, we aim to make all packaging materials 100% recyclable, which applies to all imported products as well as locally produced products. There is also how to recycle water resources in the operation of production sites. Therefore, we are actually practicing the concept of sustainable development through all aspects of our efforts, from the use of energy, from the use of packaging, to the recycling of water resources, and the treatment of wastewater.

For more information, please download the 21 Finance APP