Content library

Jun
2015

Luxury Wine October 2013

General market

The wine sector in China is highly valuable and growing relatively fast, in this business review we assess the current market situation and ask an expert on the subject, Francisco Hernandez the General Manager of China Wines and Spirits to provide his opinon.

Mintel recently estimated that China’s red wine consumption in 2012 (retail and non-retail) reached 842.4 Million litres, with an estimated value of 46.3 Billion RMB. It is expected that by 2017, consumption will reach 2.827 Billion litres valued at 93.8 Billion RMB, a CAGR of 15.2%. Contradicting this estimate is one from the Fortune Character, which forecasted the current Chinese wine consumption to already be over 100 Billion RMB.

China’s expending red wine market has attracted a greater number of well-known internationally renowned wine makers to China. Customs data shows that France, Italy, Spain, Australia, Chile and the US are the major exporters to China. For almost 10 years, the imports from these six countries have accounted for 90% of the red wine that China has imported. Shanghai has been the top-ranking city for wine imports for years, both in terms of volume and value.

lw1

Other than Shanghai, Shandong, Guangdong and Hebei are also China’s major provinces for wine imports.

2012 was a year of change for the Chinese wine market, which suffered from both the slowing economy and increased domestic regulation, the market faced unprecedented difficulties and challenges. Imported volume and value has slowed to varying degrees, import volume increased by only 8% and import value growth was roughly around 10%.

Question to Francisco Hernandez

The luxury sector in China has slowed considerably in the past 12 months, how has the wine category been affected, and do you have any examples of ‘how the change has been seen by you?’

“Traditionally lots of great wines were used as ‘gifts’ to friends, and were appreciated very often during dinners together. One important part of these dinners no longer exists and the wine consumed has therefore decreased. But, because Chinese always like to celebrate friendship and share great moments together drinking with family and friends, consumption is still reasonably good.”

Popular origins

France

French wine is the mainstream for Chinese wine consumers, and has been ranked the top origin since 2005. China’s new rich have fallen in love wine from five wineries in Bordeaux. And particularly since 2008 when the Chinese started expanded their consumption of some of the top wines to almost all occasions including daily consumption, business meetings and holiday celebrations. Its reputation and high price made consumers feel the decision to choose French wine was the correct one.

Italy

Italian wine is also a favourite of Chinese consumers, especially those of Piedmont and Tuscany being the most famous Italian regions and the import volume has been hovering at 5th or 6th place. Many Chinese consumers like to compare Italian and French wines.

Australia

Australian wine, as a representative of New World is considered good value for money and has sold well in recent years. Most Australian product is suitable for the Chinese consumer both in terms of palate and price. There is a belief that Australia only makes high quality wine, and that Australia produces a great deal of top wine that is as good as that from France’s finest wineries.

Over the past few years, as a result of the popularity of red wine for consumption and investment, the price of French wine in China has skyrocketed, and as a result the increasingly mature consumers began to focus on the relative cheap Australian wine.

Question to Francisco Hernandez

Over the past few years, the interest amongst Chinese consumers has grown in wine. The main focus has been red wine from France, so has this changed in the past 12 months, and are people looking for wines from elsewhere in the world, and if so, which countries and also are there specific grape variants they prefer?

“The interest for French wines is still the top choice, and we are seeing customers discovering much deeper some appellations such as Crozes Hermitage in the Rhone valley, or in Bordeaux right bank Fronsac for example.”

“We see the demand increasing for wines coming from South Africa, Spain and Portugal. Less known grapes like Pinotage, Tempranillo, Verdejo or Touriga Nacional are now requested.”

Trends

Deeply rooted in the hearts of Chinese consumers, wine from Bordeaux is still leading the market. But it is anticipated that over the next few years the market in China will enter its next stage of development during which, wine from other areas of France will also be considered by Chinese buyers. More recently, the popularity of Burgundy is growing, and data shows that the Chinese’ preference for wine has begun to expending from France to other old world countries like Italy and Spain or new world countries like Australia and Chile.

Question to Francisco Hernandez

White wine gains very little interest from Chinese consumers, why is this, and are things beginning to change, as the taste buds of consumers become more developed?

“The traditional idea that just red wines are ‘wines’ has changed, and with the rich diversity of food that you have in China, white wines can also pair lots of Chinese dishes that in the past some people were afraid to drink wine with.”

“Another reason is that Chinese can enjoy more and more good white wines is that they have been transported and stored carefully since they left the winery.”

Retailers

The rapid development of the sector is attracting many enterprises to enter the wine retail market, but in reality, few of them are big and branded dealers. Most are small teams and agents for less well known foreign wine brands. However, the few relatively large companies have monopolized all the high-end wine businesses in China, and have the obvious advantage in terms of market competition. As a result, the average life for most small wine dealerships are less than three years, generally the survivors of this period will have a more mature business model and stable product supply.

High-end wine dealers often take the first tier cities or capital cities of each province as their core, and radiate to the surrounding developed second and third tier cities, especially in cities like Wenzhou, Shenyang, Taiyuan.

Investment

According to a survey of 618 consumers carried out by Fortune Character magazine, that indicated the Chinese HNWI have strong interest in the wine sector, 52% expressing a willingness to invest in wine or vineyards. An increasing number of Chinese HNWI go abroad to invest in wine businesses, and 12% in this group said they were willing to spending 3 Million to 15 Million RMB on this especially those whose assets over one hundred Million RMB.

The challenge for any investment of this type made by the Chinese is their lack of experience in this area, and managers who could operate such a business for them. An overseas investment of this type has many challenges for which few are currently prepared.


Top