COFCO is a major player in Chinas imported wine market

COFCO is a major player in China's imported wine market

China Foods has blamed a slowing Chinese wine market for its decision to sell COFCO Wines & Spirits, one of the largest alcohol importers in the country and the owner of the domestic brand, Great Wall.

The company, which will sell the unit along with other assets to a subsidiary of its state-owned parent COFCO Corp, said yesterday the Chinese wine industry has become increasingly competitive over the past five years, dragging down performance. According to the group, its wine sales have fallen by an average of 11% per year since 2011.

Demand for wine in China has slowed over the past few years, following the period from 2006 to 2011 when the average annual increase was 19% for production output and 24% for sales. In the five years since, output has declined on average, while sales CAGR fell to 5%, according to China Foods.

In a note to the Hong Kong stock exchange yesterday, China Foods said the transaction value of the asset sale is HKD5.1bn (US$650m), which includes HKD3.7bn in debts to be paid by the buyer. No date has been set for the completion of the deal. The other assets in the sale are non-beverage related.

China Foods appeared pessimistic over the short-term future of the Chinese wine market, saying "great uncertainties" lay ahead. It said growth is expected to remain slow over the next three to five years, and warned that imported wine sales have also dropped after strong performances prior to 2011.

According to the company, which cited official customs data, imported wine volumes from 2011 to 2016 dropped to a CAGR of 15% compared to 64% from 2006 to 2011. Sales CAGR in the same periods fell to 12% from 75%.

The company blamed baijiu's double-digit annual growth rate for putting pressure on domestic wine margins.

COFCO is a major player in China's imported wine market, handling a number of brands including Australian Vintage and Santa Rita Estates. In June, South African multi-category operator DGB signed a distribution deal with COFCO.

Meanwhile, China Foods said its soft drinks venture with The Coca-Cola Co is its "strongest performing business in terms of profitability". COFCO Coca-Cola Beverages, which is 35% owned by Coca-Cola, recorded an EBITDA CAGR of 5.6% from 2011 to 2016.

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Expert analysis

Wine Market in China to 2021 - Market Size, Development, and Forecasts

Wine Market in China to 2021 - Market Size, Development, and Forecasts

The report Wine Market in China to 2021 - Market Size, Development, and Forecasts offers the most up-to-date industry data on the actual market situation, and future outlook for wines in China. The re...read more