Comment - Wine - China's Wine Wave and Spirits' Lessons
With recent claims that China has become the world’s biggest consumer of red wine, Chris Losh considers what wine producers can learn from the current travails facing international spirits companies in the country.
The last few months have seen a lot of talk on these pages about the ‘China crisis’, with Diageo, Pernod Ricard and, particularly, Remy Cointreau, all blaming an underperforming Chinese market for disappointing figures.
So, are the many foreign wineries who have invested countless man hours and much of their marketing budget in the country over the last five years going to get a similarly nasty reality check?
I’d say that, while the boom times of the last five years might be over, wholesale implosion is unlikely.
The spirits companies have been disproportionately affected by the clamp-down on gift-giving, banquets and ostentatious consumption, ushered in by the Chinese premier just over a year ago; an anti-extravagance call to action that has seen the bottom fall out of ultra-premium Cognac market in the country.
Wine, clearly, is not going to be unaffected by such a giant example of social engineering. But, it’s less damaged than its spirits brethren.
Granted, Treasury Wine Estates has pinned at least some of the blame for its recent profit warning on the anti-extravagance measures in China. And the last en primeur campaign in the country was lukewarm at best.
But, you could argue that the latter is as much a product of the indifferent quality of the 2012 vintage and unrealistic pricing by the chateau owners as of political interference from Beijing. Meanwhile, Treasury’s woes run a lot deeper (and more globally) than a drop in demand for Grange by Chinese Government officials.
Not that bad news has been confined to the pinnacles of the wine world; the marshy lowlands have seen some fairly soggy figures, too, with a pesticide scandal shaking Chinese consumers’ faith in the cheaper, domestically-produced wines.
According to the International Wine and Spirits Record (IWSR), domestic sales last year shrank for the first time in over a decade – and shares in the (government-controlled) Changyu Pioneer Wine Co have halved in value over the last 12 months.
Significantly, bulk imports (which are seen as more reliable by consumers) remain strong – although, with the Chinese Government last year launching investigations into European wineries ‘dumping’ cheap wine into the country, it’s not inconceivable that cheaper imported wine might get caught up in international politics.
China is currently engaged in a lengthy spat with the European Union over tariffs on solar panels, so this is probably more about retaliation than a claim of any substance, but it does (like the anti-extravagance putsch) highlight the volatile – and politicised - nature of the Chinese market.
So, shrinking at the top, shrinking at the bottom, and susceptible to government interference at any time, the market is not looking as good as it did a couple of years ago.
But, in spite of this, it’s far from being a busted flush – and indeed there are reasons for optimism.
In the same week that Patrick Piana headed out the door at Remy Cointreau's Remy Martin Cognac division, the Bordeaux negociant Sichel were trumpeting sales growth in China of 30%.
And, perhaps just as significant as the Bordelais’ double-digit growth was their analysis of what was driving it.
“The wine market in China has matured massively over the past two years or so,” said export director, Charles Sichel. “Historically, there were two categories of wines: very low entry level and then the top Grands Crus Classés. We could never sell anything in between and this was because the wines were difficult to understand.
“Now, people are realising that there aren’t just the First Growths, but an awful lot more wines that are affordable [and] aspirational. At Sichel, we’re having more and more success now with non-classified wines that offer excellent value for money.”
Add together scepticism for the locally-produced products, growing consumer knowledge and the crackdown on ostentation and it’s perhaps no surprise that there’s big growth in the mid-price area.
Companies might, as a spokesman at Les Grands Chais de France described it, be having to “work twice as hard [in China] in 2013 to achieve the same goal as 2012”, but growth is clearly still possible.
And if, as Sichel claims, the concept of value for money (as opposed to acquiring kudos) is the current purchase-driver, then this augurs well for producers from across Europe and the New World who may not have a bankable appellation behind them, but are well-run.
Concha y Toro, for instance, has not endured the same share-price woes as Treasury, despite a growing presence in China.
Away from the politics, there are real signs that the Chinese market is starting to find its feet. And, provided it can remain free of health-scandals and more draconian government interference, predictions of solid single-figure growth for the rest of this decade seem likely.
Rather than fretting about things which it can’t control, such as Chinese government policy, the wine trade might be better advised to improve the things that it can.
China’s new consumer society has, more than anywhere else in the world, been built on online shopping. Brand-hopping is rife, making it exceptionally hard to build consumer loyalty. That situation will only get worse.
Vinexpo estimates that almost half of Chinese wine consumers will use the internet to buy wine by 2020 – the highest in the world.
Wineries who wish to make the most of the market will need to be not just good, impeccably free of scandal and correctly priced, but also practised in social and digital media.
Wine, historically, has not engaged well in either of these areas, which could mean that it fails to make the most of a solid start.
If I was a producer of XO Cognac, I could probably live with that.
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