Wine in China – how the market looks now

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China is the largest market for red wine and is soon to be one of the largest producers of wine in the world despite not even having a real word for “wine” in the language. The craze for what they call “red alcohol” is taking over and China, with all the pitfalls and complications that can only come in a market this size, is finally taking the place wine producers hoped it would.

Here’s a brief summary of what you need to know about the Chinese market:

Consumption:

1)     Size: China is the fifth largest consumer of wine in the world as well as the largest market in the world for red wine. Forecasts predict figures to grow by 34% in the next 5 years. IWSR predicts an increase of 205% in consumption over the period 2008 – 2017. In the Asia Pacific region (in which all markets forecast double digit growth over the next five years), China is the largest market and imported 30.9m cases of wine in 2013. Consumption was 172million 9 litre cases in 2012, a number that is expected to rise to 224million in 2017.

2)     Consumption Pro-capite: China lies in 36th position in terms of pro capita wine consumption with 1.5lt/p.a. whilst France tops the rankings with 50 litres p.a.

3)   Typology of wines: China has seen a rise in consumption of not only red wine, but also white and rose. Sales however increase at the same pace as red and so do not eat into the market share of red wines. 82% of red wine consumed in China is CHINESE wine. (Much of which is blended with bulk wine imported from other countries such as France, Australia, Spain, Chile, Italy and US). Any wine blended with a small proportion of domestic product can then be labeled as Chinese.

4)   Opportunities: There was a slight decrease in consumption in 2013 due to austerity measures imposed by the Chinese government that cut the amount of wine-gifting by government officials. This has lead to a decrease in imports over the first quarter of 2014 as importers look to clear their stocks of wine. Importers claim that although the market has changed, it still presents interesting opportunities for growth as younger consumers turn from beer to wine and consumption in so called ‘second tier’ cities grows.

5)   Technology: Consumers in China are increasingly turning to technology: advertising via mobile phone messaging is very efficient and cost effective, online wine shops are very popular and as recently as 5 years ago, 90% of sales were done in cash whereas nowadays, consumers tend to pay with credit card or wechat.

6)   Thirst for knowledge: In the past, the people who bought wine, weren’t the ones who drank it (they were used as gifts), nowadays, the wine buyers is the wine drinker and is someone who wants to understand more and more about how and where it was produced. However, Wine dinners to be less effective than only a few years ago and producers are now opting for very small private dinners with consumers. In China, the personal aspect is very important and if a person is liked, the products will in turn become popular. During these dinners, guests often use social media to share their experiences thus becoming ambassadors for that brand.

7)   Fake wine: White wines are perceived as being less subject to falsification scams which often hit the headlines and are a worry for prospective buyers. Christies auction house however maintains that false wines are an urban myth and says that out of the tens of thousands of bottles of wines auctioned each year, only a dozen or so present some element of concern. Most of the “fake” wines can be easily spotted and originate from Europe or other Asian countries but not China particularly as China does not have the supply of corks and capsules to be able to make a convincing fake.

Domestic Production:

8)   Economic problems: The numbers of “boutique wineries” in China has grown exponentially over the past decade due to the government’s pro-wine policies. In one region, the government offered tax rebates, preferential bank loans and made it easy to be allocated land. As many took advantage, the government is now bankrupt and the wineries are not able to survive on the market. Wineries that were assisted economically by the government (who was also their main client for wine sales). This is also compounded by the effect of the government’s policy to position Chinese wine in high price brackets before having the quality to match the price tag. The result was that many consumers turned to imported wines and lost their loyalty towards domestic products.

9)   Land laws in China prevent private ownership of land and permission to use the land is only granted for up to 30 years, after this, winery owners are unsure as to what will happen but are ready to take a bet.

10)         Education of enologists in China has increased significantly over the past years and the University of Beijing has a very good programme with many visiting lecturers. However on a like to like basis, at a price range of 50 euro, a bottle of wine from China is unlikely to be of the same standard as wine produced in other countries.

11)         Consumer perceptions of Chinese wines are changing and Simon Tam of Christies auctions hopes to host the first auction dedicated to Chinese wines in the next 5 – 8 years.

12)         The global economic crisis has made the Chinese wine market particularly problematic with the Chinese government imposing austerity measures reducing the amount of hospitality and gift giving by Chinese officials. The result is an enormous amount of containers of wine (predictions range from 10 – 40,000 containers or 50m cases) abandoned at Chinese customs as importers go out of business. No one is quite sure what then happens to this wine, obviously problems of storage affecting quality may come into play but there are also many local distributors that are purchasing some of this wine and then selling it at low prices. This can be an opportunity eliminating the bad importers and leaving the ‘professionals’ to survive.

Complicated? Of course but with this amount of thirsty consumers, there has to be room for everyone…

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