Making Sense of China’s Wine Market

THE second annual installment of the “Beijing Salon” wine exhibition and forum was held in November 2012. Sponsored by leading wine magazine La Revue du vin de France （RVF）， the event saw winemakers from China and France treat visitors to wine tastings and master classes. Visitors gained a fuller appreciation of the story behind the wines on display thanks to guest speakers’ explanation of the methodology behind wine tasting and food pairing and the science of viticulture.

As China’s imported wine market continues to grow， events like the “Beijing Salon” are crucial to ensuring Chinese consumers make informed decisions on wine purchasing and investment.

China’s Wine Market Potential

At the “Beijing Salon” wine exhibition and forum， China Today met with Jean-Luc Thunevin， chief winemaker at Chateau Valandraud in the Saint-émilion wine-producing region of Bordeaux， France. Thunevin was an early champion of the “garage wine” movement， in which small-batch vintages， or microchateau， are produced in a way that eschews traditional considerations of French terroir – land conditions – in order to make bolder， “bigger，” fruitier wines. “Vins de garage” fetch high prices at auction， in part thanks to the high ratings given to them by highly influential wine critic Robert Parker.

“I have been in the Chinese market for 12 years. I visit China every year. When I first started coming the Chinese market was still in its infancy – consumers preferred either the cheapest wines or top-notch ones， such as Chateau Lafite Rothschild. The market has matured as consumers have become more rational. They have become familiar with a greater variety of wines outside the toptier First Growths，” said Mr. Thunevin.

Mr. Thunevin has a long-established cooperative relationship with a Chinese wine importer. Today， his Chateau Valandraud wines are enjoying popularity among China’s growing cohort of wine enthusiasts.

Since China entered the WTO， tariffs on imported wines have been lowered. Since January 2005， the import duty on bottled wine has been reduced from 43 percent to 14 percent and on bulk wine from 43 percent to 20 percent. The annual volume of imported wine in China has increased from 114，600 kiloliters in 2006 to 283，400 kiloliters in 2010.

But China’s wine market has far greater potential. In 2010， the world’s per-capita consumption of wine was about seven liters. The figure for the U.S. was 45 liters and 38 liters for Argentina. In contrast， the average Chinese national consumed less than 0.5 liters. According to the Chinese government’s 12th Fiveyear Plan projections for the wine industry， wine consumption is set to increase alongside rising incomes and a developing knowledge of wine culture.

“Over the past few years， the market share of imported wine has grown fast. Greater numbers of ordinary people have started to purchase imported wine. And it’s not just at the top end； ‘budget’ wine sales have also seen strong growth，” said Zhuang Wuying， CEO of Vinotache International， a French， Italian and New World wines importer and distributor in China.

The increasing prevalence of imported wine has meant tougher times for local brands. Although leading Chinese winemakers like Changyu and Great Wall have continued to prosper， competition has grown fiercer as consumers have branched out to sample more prestigious， internationally recognized wines.

The Financial Times’ China Confidential estimates that imported wines account for fully one third of the wine market in big Chinese cities. Importing has become a highly profitable activity and wine distributors are making healthy profits.

From the Vineyard to the Chinese Market

It has proven difficult for overseas wine producers to enter the Chinese market without the help of Chinese importers and distributors， who generally own established sales channels and distribution networks.

Ms. Chen is a wine specialist in the Procurement Department of the VATS Group， a Chinese liquor and wine sales company. VATS has been in China’s liquor and wine market for about 20 years and established several hundred chain stores. It has a strong sales network that serves consumers across the country.

Ms. Chen elaborated on the procurement process for wines to be sold in China. She gave the example of her company’s procuring of a Spanish wine to show the international nature of the wine trade. Years ago， Spanish wine was mainly exported to the U.S. However， the financial crisis of 2008 led to shrinking consumption in the U.S. market. Spanish wine producers subsequently refocused their attention on China. A Canadian wine retailer that had formed a cooperative partnership with the VATS Group introduced a wine named Spanish Sons from the Fari？a family to Ms. Chen. Before making the buying decision， Ms. Chen and her colleagues had to conduct thorough research on the wine and assess its market potential through examining its quality， annual production volume and international sales thus far. They had to factor in importing costs， which include tariffs， exchange rate fluctuations and transportation costs. In the end they decided to go ahead with the wine， and Spanish Sons has proven a hit among Chinese consumers.

Such an assessment process is routine whenever the decision to import a new foreign wine is made. Sometimes this even involves international travel to inspect vineyards and growing conditions. Importers such as Ms. Chen are increasingly turning to international publications such as Wine Spectator for the latest information.

After introducing a new wine， companies still need to engage in aggressive marketing campaigns to achieve stable market share. But the size of the Chinese market ensures the process is profitable if the wine is of high quality. “In general， we import about 10，000 bottles for sale on a trial basis. If that turns out well， we then consider obtaining the exclusive selling rights in China，” Ms. Chen said.

For New World wines from the U.S.， Australia and South American countries， the cooperative model Chinese companies have adopted is quite different. New World vineyards are generally much bigger than those in “old world” Europe. This allows for a high production volume at relatively low cost. “Economies of Scale” is important for New World producers； they must have high sales volumes to turn a decent profit. When purchasing from the “New World，” Ms. Chen and her team first calculate market capacity and promotion and sales costs， and only then make the decision on whether to import samples to China.

The Chinese market offers the opportunity to realize a large sales volume， and sellers like VATS and Vinot？che International are instrumental in ensuring New World wines enjoy a big presence on China’s store shelves.

Joint Efforts

Foreign wine producers and Chinese wine importers share common views on the emerging Chinese wine market. The consensus is that the industry has grown rapidly， but that the country as a whole lacks wine drinking culture and knowledge. Many consumers know little about the wine they drink. When choosing a bottle they often rely on gossip， appealing labels or， if the aim is to show off， merely pick out the most expensive brand available.

Philippe Faure-Brac was voted the World’s Best Sommelier in 1992. Since then he has devoted his career to training up apprentices， and also runs a successful Parisian bistro. On a recent visit to China， Faure-Brac commented that wine in France has a long history and occupies a unique place in French culture. In China， he said， wine is a relatively new product. Time is still needed to cultivate the market.

“I consider it the responsibility of industry insiders to popularize knowledge of wine and help consumers to make smart drinking and investment choices，” said Zhuang Wuying of Vinot？che International.

“When promoting a wine to consumers， we conduct tastings and teach them how to recognize the subtle differences in taste between that wine and others in its class，” Zhuang said. “The market is flooded with imported brands； it is difficult to build up brand recognition. Only quality wines from great vintages will make an impression on astute investors these days.”

Ms. Han， a marketing specialist at Beijing’s La Bin Fine Wines， said that as the wine market continues to develop， regulation on imports needs to be tightened. “We would like to see the government set up a rating system for wines. In this way， it will be easier for consumers to understand the difference between grape varieties， growing regions and other factors that influence quality，” she said. Ms. Han also pointed out that the lack of standard Chinese translations on imported wine labels has made it difficult for consumers to choose wine and for professionals to establish market profiles.

Over the past few years， Chinese and foreign experts have worked together to develop China’s wine market. La Revue du Vin de France’s “Beijing Salon” is a great example of industry heavyweights coming together， communicating， and enhancing consumers’ understanding of wine culture.

Wine has great potential in China， but for the market to fully mature， greater numbers of passionate wine professionals still need to be trained up. Thanks to events like the “Beijing Salon，” this is underway.