Iconic Chinese brand still in low spirits

First quarter profit came in at 48.13 million yuan. In the second quarter, the company reported a 2.06 million yuan profit.

"I do believe that there is potential for baijiu in the Western markets," David Zhang, a food analyst at Mintel Group Ltd, a privately owned market research firm based in the UK, said. "But it is difficult to translate such trends into actual market performance.

"It could become a niche drink for trendy, young consumers in Western markets. But it could take years, or even a decade, for it to enter mainstream sector," he added,

This year, Swellfun's parent organization Diageo, which has brands such as Johnnie Walker, Smirnoff, Baileys, José Cuervo and Guinness, has seen a double-digit net sales growth of 26 percent in the Chinese mainland.

The classic Shuijingfang brand has helped drive revenue for this fiscal year, which jumped to 10.81 billion pounds ($17.18 billion) from 10.26 billion pounds in the previous 12 months.

"Shuijingfang has grown significantly through innovation," Diageo reported in its annual results.

"Our Chinese white spirits business regained profitability after last year's loss. This return to profitability, along with cost savings, resulted in an overall margin improvement for Asia Pacific of two percentage points," Diageo highlighted in the report.

The company's improved performance was in line with other Chinese white spirit producers that were hit after the austerity campaign was launched. "The rebound is only the result from a price slide in the past two years," Zhang, of Mintel, said.

During the peak years, Shuijingfang's "sales could reach 2 billion yuan a year and are now only at 400 million yuan", one former management figure revealed, while declining to be named. But its recovery reflects how the Chinese white spirits market has changed by developing less expensive baijiu brands. "The market reaction to consumer demands has been sooner than expected," Zhang said.

The figures appear to endorse his view. Mintel reported that retail sales volume of Chinese spirits topped 5.8 billion liters last year, a 2.2 percent increase compared to 2013.

The research company is predicting volume to increase to 5.87 billion liters this year and 7.7 billion liters in 2019.