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Grand Met hopes to tap into Chinese spirits

TConfucius, who had a very strict view of the "virtuous, moral life", would not have approved. In his birthplace of Qufu, in Shandong province, bottles of Smirnoff vodka, Grand Reserve VSOP, and Old Gold whisky are now rolling off the production lines at Grand Metropolitan's first Chinese joint venture, which was officially opened this week.

But will Chinese yuppies develop a taste for for vodka? "The issue here is about developing a new category," Richard Watling, Asia managing director for the group's drinks arm, International Distillers and Vintners (IDV), said yesterday. "Vodka is a tiny category in China today. We think there is an opportunity to develop Smirnoff into the refreshment drinking area, that it is the younger consumers who are prepared to experiment, willing to pay a little bit of extra money for a high quality product that is mixable and a long drink. To that extent we are probably competing as much with premium local beers." In other words, vodka will not be pitched head to head against the national white spirit - bai jiu.

The Qufu production line is a $27m (pounds 17m) venture with the state-owned Qufu Distillery, producers of the successful Confucius Family Liquor. IDV has a two-thirds stake, and its Chinese partner holds the rest.

Advertising starts this week in Shanghai for Smirnoff, or Si Mei Luo (Thinking Beautiful Luo River) as it is known in Chinese, a wholly Chinese- made product. Grand Reserve, or Di Xuan (Emperor's Choice) brandy, is a new brand name to be pitched at the southern city of Guangzhou. Old Gold, or Ao Jin (Proud Gold), whisky is on sale in Peking, a brand name previously only used in Brazil, but a blend "crafted especially for the Chinese market".

Local production is IDV's preferred long-term strategy. So far, IDV's imports have been well under $100m a year, because its brands do not compete with premium status liquors.

But Grand Met's chairman, George Bull, yesterday said that, with imports accounting for less than 1 per cent of the total Chinese drinks market, IDV was aiming at the huge potential of the domestically produced market. At less than pounds 8 a bottle, the first three products are more affordable than imports, which are tariff rated at 70 per cent.