Swiss consumer brands chase their China dream
In 2023, China emerged from the Covid-19 crisis and reopened its doors to business. Although consumers have been cautious about spending and sentiment remains sluggish, two Swiss companies are undeterred and aiming for growth in the world’s second-largest economy.
In August 2019, Aurèle Meyer found himself at the upscale whisky bar Jiuyin in Hangzhou, the home of Chinese e-commerce giant Alibaba. The CEO of Brauerei Locher, a Swiss family-owned drinks company, was on a tour of China, visiting business partners and potential distributors for its beer and whisky.
Covid-19 followed by the wars in Ukraine and Gaza have accelerated a structural trend in the works since Donald Trump came into office as President of the United States in 2017: that of redefining globalisation as we have experienced it over the past three decades. On the one hand Western countries weary of the negative effects of open trade policies are resorting to populist and more protectionist measures embracing among others an anti-China discourse. On the other what is referred to as the Global South, want another type of globalisation with their interests at the centre.
These shifts are affecting foreign policies, trade, investment and how global companies position themselves in an increasingly divided world against the backdrop of slowing growth in China.
These include Switzerland’s many multinational companies which benefit from sourcing raw materials from across the globe and sell worldwide. They are dependent on stable commodity prices, fluid supply chains and open markets.
In this series we look at how this geopolitical landscape is impacting Switzerland’s largest global companies. Topics covered include: how China still fares well for some niche high-end consumer goods, reshoring the pharmaceutical industry to Europe, can India be the next China and what a more inclusive globalisation could look like.
Over a drink with colleagues, Meyer had a light-bulb moment: get niche Swiss whisky into high-end bars and restaurants. Fast forward to today and Brauerei Locher’s Säntis Malt Whisky is the first and only Swiss whisky served across the Jiuyin hospitality group’s eight upmarket bars in the capital of Zhejiang province.
“Swiss products have a strong reputation in China especially in top-tier cities such as Shanghai and Beijing,” says Meyer. “However, Swiss beer and whisky still remain largely unknown. We wanted to change that.”
The independent brewery is one of many Swiss consumer companies – including premium chocolate maker Läderach – striving to capture a slice of the vast Chinese market.
‘Start of a new era’
Before the global pandemic, China’s attraction was clear: a population of 1.4 billion; annual economic growth averaging around 7.7% from 2010 to 2019 – compared with 1.7% for Switzerland; rising household incomes; a middle class that had grown from 7.4 million to 400 million in almost two decades and forecast by the Boston Consulting Group to reach 525 million in 2030.
But almost three years of stringent controls and lockdowns during the Covid-19 pandemic triggered a sea change in consumer behaviour and sentiment. After a brief spurt of revenge spending when the country re-opened at the end of 2022, there has been a noticeable divergence, with consumption of goods remaining lacklustre while spending on travel, tourism, and leisure has powered ahead.
“We have seen a shift from products to services with travel and foodservice showing strongest growth,” says Daniel Zipser, senior partner at consultancy group McKinsey who leads the firm’s consumer and retail work in Asia. “After years of restricted mobility, there’s renewed enthusiasm for travel and socialising in restaurants and bars.”
Against this backdrop, consumer-focused businesses with high-quality products and premium branding will be among the most successful, according to a McKinsey report released in November 2023 titled “China Consumption: Start of a New Era”. That’s good news for Swiss companies such as Läderach and Brauerei Locher that target affluent consumers with greater spending power. “Higher-income earners are still spending more, albeit to a lesser extent than in 2019,” says Zipser. “They are more careful in where and on what they spend.”
From Appenzell to Asia
China’s GDP expanded by 5.2% in 2023, the weakest pace since 1999, excluding the three pandemic years of 2020-2022, and growth is expected to slow further in 2024 to 4.6%, according to the International Monetary Fund. But the subdued outlook has not dampened the ambitions of Brauerei Locher. The company – which employs around 200 people – is run by the fifth generation of the Locher family and focuses primarily on beer and whisky. It took its first steps into the China market in 2019 – just before the global pandemic brought many consumer-facing businesses to a standstill.
With China now fully open, Meyer is picking up where he left off. The company’s products can be found across major cities from Beijing in the north to Guangzhou in the south. In Shanghai alone, Appenzeller Bier as well as Santis Malt Whisky, one if its landmark drinks, is available in more than 60 restaurants and whisky bars. In Beijing, its products are present in five-star hotels such as Regent, St. Regis, InterContinental Beijing Sanlitun, and Mandarin Oriental. Brauerei Locher products can also be found on the popular Chinese internet shopping platforms Taobao and Tmall.
The company started out by participating in consumer product expos to gauge Chinese appetite for its classic and specialty beers. “It was interesting to see which flavours were being picked up,” says Meyer. “For example, our non-alcoholic Bschorle with apple and pear juice is very popular there. Another product is our Säntis Malt ‘Edition Dreifaltigkeit’ whisky with peated malt. It is very heavy and strong and is really popular in China.”
Surprisingly, the company’s signature lager – the Quöllfrisch – did not take off in China. “There are already very good Belgian and American craft beers on the market in China that are setting the standard. We can show our high-quality Swiss beer with good ingredients such as Swiss Alps spring water.”
China is the world’s biggest beer market, with annual consumption at 42 million kilolitres in 2022, 22% of the world total, according to Japanese drinks group Kirin’s Global Beer Consumption Report. The United States was in second place with 20.4 million kilolitres. However, China doesn’t even rank in the top 35 when it comes to per capita consumption, leaving plenty of room for growth.
Even so, capturing a share of the Chinese beer market is challenging even for the major European brands such as AB InBev and Carlsberg, amid increasingly fierce competition from local players such as China Resources Holdings, which owns the Snow Beer brand, and Tsingtao Brewery.
“The preference for local elements (i.e., Cultural Pride) is strong in China, especially from Gen Z consumers. However, this doesn’t mean foreign brands are not attractive anymore,” says Michael Deng, lead partner of consumer products and retail sector at Deloitte Consulting China. “As long as foreign brands can ride on the trend of localization and/or co-branding with Chinese brands and have more China for China products, they can still be very successful in the China market.”
For small international players such as Brauerei Locher, building a brand in an already saturated market is tough. The company’s expansion strategy is therefore one of “slow but sustainable” growth.
“On the one hand, we have a long-term approach as a family-owned company. On the other hand, we don’t have a marketing budget of CHF10 million to develop a market,” says Meyer. “Our production capacities are also limited. As long as we still see growth potential in Switzerland, it doesn’t make sense to invest too many resources in foreign countries in one go.”
A bite of the Chinese chocolate market
Läderach is another Swiss company making a play for the Chinese market. Founded in 1962, the family-owned business specialises in luxury chocolate and employs 1,700 people worldwide. It began selling online in China in 2020 after receiving a growing number of requests from Chinese tourists who had tasted its chocolate in Switzerland and wanted to buy it back home. In 2021, in the depths of the Covid pandemic, Läderach opened its first retail store in Shanghai.
“Strategically, China is an important market for the group. It is among the three biggest markets for us including the United States and Switzerland,” says Danny Qi, general manager of Läderach China. Consumer preferences are fairly similar, he said. “Our best-selling product in Switzerland is FrischSchoggi or fresh chocolate… and consumers here responded almost the same to our product line, as they do in Switzerland.”
Läderach opened its sixteenth boutique in the country at the end of January. The megacities of Beijing and Shanghai remain the most important markets, but the company is also expanding into smaller cities such as Wuxi and Nanjing in the more affluent eastern part of the country and Chengdu, the capital of southwest Sichuan province. “Doubling the number of stores in China in the next five years is not impossible,” says Qi. Currently, Läderach has around 170 boutiques worldwide. “We have to open a store one-by-one in order to know whether our strategy is working,” he adds.
Although it’s the world’s second most-populous nation, China’s per capita consumption of chocolate still lags behind European countries. Data from Statista Market Insights show that the average annual consumption in China per head is 200 grams compared with 11.8 kilograms in Switzerland. According to Euromonitor International, the entire chocolate market in China is worth about €3.1 billion (CHF2.9 billion) a year. In contrast, annual sales in Switzerland reached nearly CHF1.79 billion (€1.93 billion) before the pandemic, according to the Association of Swiss Chocolate Manufacturers.
However, chocolate is becoming more popular in China, especially as a luxury gift. “It is a growing market, especially in the premium chocolate sector,” says Qi. “People in China are willing to pay more for good food. That’s where the opportunity is.”
Looking ahead, Läderach continues to face competition from other premium chocolate brands such as the Italian manufacturer Ferrero and Belgium-based Godiva Chocolatier. However, the company is also competing with other segments of the gifting business in China. This is especially evident during major shopping occasions such as Valentine’s Day, Mother’s Day and Chinese New Year.
Cloudy outlook
After an unexpectedly subdued 2023 following China’s post-pandemic reopening, foreign and domestic companies are watching closely for signs that the country’s economic recovery is gathering momentum.
“Cautious optimism is still very much present, with China’s economy steadily evolving towards being more consumption-driven,” says Mckinsey’s Zipser on the outlook for 2024. “While recovery may be slower than anticipated and low consumer sentiment could dampen growth rates in the coming months, the long-term prospects of the Chinese market remain robust.”
Other experts are more circumspect. “I personally believe the consumption recovery in 2024 will be dependent on the geopolitical relationship with the US, Chinese government stimulus policies, and consumer confidence,” says Deng from Deloitte Consulting China.
Even so, Meyer remains positive and is sticking with his mission for Brauerei Locher for the next decade. “In the end, it’s all about building a sustainable reputation with stable clients,” he says. “Our goal is to travel to China and stay in a hotel and dine at a restaurant where they serve our products. Then I will always be able to get a taste of home.”
Edited by Nerys Avery/vm
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