Chris Losh

Comment - Wine - The Perils of Scaling The Chinese Wall

By | 7 March 2013

The wine world is looking east for the next big market. China has caught everyone's eye, thanks to some mind-blowing numbers of late. But, scratch the surface and, Chris Losh warns, there are still many rivers to cross to get to the promised land.

At a recent briefing on the state of the global wine market, given by the Vinexpo team, one country stood out: China. It is already the fourth biggest importer of wine in the world, the fifth biggest consumer and, by 2016, it is expected to overtake the likes of Chile and Australia to become the sixth biggest producer as well.

How's this for a statistic, then: An estimated 200m Chinese consumers are exposed to wine on a regular basis.

At a time when traditional mature markets – particularly in Europe – are showing all the energy of a morphine-addled sloth, it’s understandable that the wine world, which has been short of good news, should look to a country that has seen its consumption triple over the last five years. 

Even within the BRIC quartet, China’s figures are impressive, with the International Wine and Spirit Record (IWSR) putting the country’s total consumption at 155m cases – way more than Brazil, Russia and India combined.

So, surely that makes China the engine for global wine growth?

Well, possibly. But the figures don’t quite tell the whole story.

For starters, the vast majority of China’s 155m-case consumption comprises domestically-produced wine. The IWSR reckons that, in 2011, only 27m cases were imported. And, while this is an enormous increase (500%) on five years previously, growth over the next five years is predicted to be around 60%.

Given that consumption in half of the world’s top-ten consuming countries (France, Italy, the UK, Argentina, Spain) is expected to fall over the same period, a double-digit increase in a big-volume market is heartening. But, producers need to approach with caution.

The fact that growth dipped below 8% in 2012 for the first time in several years might not exactly be a cause for the rending of garments or the gnashing of teeth. But, the ticking demographic time bomb caused by China’s 30-year, one-child policy could be. 

The country has a hugely unbalanced population that will see a shrinking number of young people looking after a large number of retirees as the century progresses.

Feng Wang, a senior fellow in foreign policy, global economy and development at the Brookings-Tsinghua Centre, estimates that the country will have 360m people over the age of 60 by 2030. "It will," he says, "be the first country to grow old before it grows rich." The impact of such a scenario on disposable incomes is obvious. 

And yet, for all the caveats, China’s pull is irresistible.

While much has been made of the news that China’s wealthy investors are starting to dominate the fine wine scene, there is clearly a growing middle class for whom affordable wine (not just premier cru Bordeaux) is a status symbol.

The domestically-produced wine market has (as you would expect) developed its base at the sub-CNY50 level (US$8), suggesting a broad base of interest.

"The domestically produced wine is absolutely not a threat to importers," says Antinori’s Asia Pacific export manager, Jacopo Pandolfini. "It helps to develop the wine knowledge and wine culture."

In other words, Dragon Seal and the like lay the foundations, allowing traditional producers to steam in behind them, to a receptive, broad-based market.

"Price is the first target for most Chinese importers," agrees Florian Blereau of Grands Chais de France. "They look for low prices to attack their respective markets with huge volumes, and to target the middle and upper-middle class, which represents 20% of the population."

Getting products into the market - at least, with the right people - is tough, however. There are only five importers who bring in over half a million cases, and there has been an awful lot of bandwagon-jumping by non-specialist importers, desperate to get a slice of the action.

"Importers are certainly very good at talking up what they can deliver," says Warren Adamson of New Zealand winery Craggy Range. "We usually halve what they promise, but even then the figures are still worth exploring."

The problem is that, with minimal influence from the supermarkets, and a retailing economy built almost entirely on small, local businesses, national distribution is all but impossible. And, in a country the size of China, the scale of the task is daunting. The local Great Wall brand was estimated by one wine producer to work with around 3,000 active wholesalers nationwide.

All of which might explain why the companies turning in big numbers in China have often done it, not by brand-building, but by supplying dozens of different exclusive labels to myriad importers all over the country.

The short-term profitability of this strategy is evident but, given the debatable level of commitment to the products of many of these importers operating on the ‘invisible market’, it’s also not without risk. And, most wine companies prefer to work with a single importer who is sympathetic to their brand’s ideals. 

Since the concept of 'guanxi' (essentially meaning respect and mutual favour-giving) is still central to business relationships, success is rarely instantaneous, and wineries must be patient and sympathetic to cultural differences.

"It’s by understanding the culture of French wine, and promoting it around their own guanxi that our best customers truly met success in China," says GCF’s Blereau.

The Spanish winery Torres has been carefully laying foundations since setting up its own import company 15 years ago, and believes it is well-placed to cash in on the boom in consumer engagement.

"China is still French-dominated," says GM Miguel Torres Maczassek. "But, it’s changing fast. The amount people know about wine is growing at an incredible pace, and the level of knowledge is impressive."

It’s this, rather than some of the more optimistic numbers being thrown around, that seems to be China’s main attraction; an opportunity to sell wines at between $8 and $20 to a consumer base that wants to understand them and spend money, rather than simply hop from promotion to promotion.

"China is still a small market overall, and it’s hard to be too precise," muses Concha y Toro’s corporate director for Asia, Cristian Lopez. "But, I don’t think anyone would say I was crazy if I suggested it could be as big [for importers] as the UK by 2020."

Expert analysis

Consumer Trends in the Wine Market in China

Marketers in the Wine market in China face a major challenge. Understanding market size and segmentation is valuable, but the keys to effective targeting is knowing just how valuable specific consumer groups are, and being able to quantify the impact of consumer trends. This report solves these problems by providing integrated survey-based data on consumer trends, consumer groups and market data which show exactly the size of consumer groups, how much of the Wine market in China they account for and which consumer trends drive their behaviour.

Sectors: Emerging markets – BRIC, Wine

Companies: Vinexpo, Concha y Toro

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