China Loves Wine & International Entrepreneurs Love China

China Loves Wine & International Entrepreneurs Love China

Until recently Chinese wine consumption was limited to some domestic wines that no one bothered to export and a small number of swanky French reds drunk by elites in first-tier cities such as Shanghai.

Things are rapidly changing, and some New World wine producers now count China as one of their main export markets. Although Chinese wine drinkers remain a small minority of the population, in such a huge market even a small change in tastes is having a big effect on international wine trades. So how are the world’s wine makers responding to China’s new interest in wine?

Wine drinking isn’t a totally alien concept in China, where viticulture has taken place since at least the late 19th century and the end of the Qing dynasty. Rates of wine consumption in the general population remain low: around 1% of Chinese people are thought to indulge, compared to around 6% globally.

But China’s market is so huge that even the smallest trend tends to have a large distortion effect on international supply and demand.

The PRC is now second only to the US as Australia’s largest export market. In fact the International Organisation for Vine and Wine attributed last year’s upturn in the global wine market to China’s domestic demand for wine.

What’s been most significant is the move away from a focus on ‘trophy’ wines from well respected French regions such as Bordeaux and Burgundy, drunk by a metropolitan elite.

With the crackdown on corruption, this market slowed in 2012-14 as it became less socially acceptable to be seen indulging in pricey imports of all kinds, particularly if you were a high ranking government official.

At the same time, a middle market is now emerging for mid-range bottles from a broader array of wine producing regions. It seems to be another sign of the Chinese consumer’s interest in broadening their horizons and demonstrating sophistication, expressed as a trend for trying exotic imported goods and habits such as wine appreciation.

Vintners react

There’s considerable optimism from many wine producers that Chinese demand for wine is going to continue to expand. Robert Foye, MD of Treasury Wine Estates, Australia’s largest winemaker, hope to make their Wolf Blass label China’s top imported wine by 2020. “We believe the love for wine has just begun in China,” he says.

Wine makers across the world are responding to China’s burgeoning demand for wine. This includes some countries that are fairly new to serious wine making and exporting.

Brazil, not traditionally known as a serious wine producer, counts China as its main export market for wine (the UK is its second largest market). Australia now exports more wine to China than to the seasoned drinkers of the UK.

Portugal’s revised approach

Not every wine maker has found China to be an easy market to crack. Portuguese premium wines have had a tough time muscling in against rival winemakers from France, and in particular the respected regions of Burgundy and Bordeaux.

These French regions are known in the Chinese market and are already well established when it comes to exporting to first tier cities. Portugal’s premium wines didn’t fare so well in first tier cities such as Shanghai and Beijing, despite having sold successfully in other parts of Asia.

Their lower tier brands were also unable to compete with China’s domestic wines. The Portuguese wine industry has had better success with a revised strategy that focused on selling medium priced wines to second tier cities. This probably reflects them capturing the new middle class wine drinkers rather than pursuing a smaller elite, and represents a strategy that could yield better long-term growth.

Portuguese wine exporters have identified particular wine buying habits from its Chinese customers.

There’s a trend for buying mid-range red wines in bulk as gifts for business associates, and there’s also a seasonal rise in demand for wine for drinking at home around the mid-Autumn festival. Portuguese wine makers have also noticed that a market has recently emerged for white and sparkling wines in Shanghai, where previously there was very little demand for non-red wines. As a rule, Chinese consumers favor red wine – which they perceive as having health benefits.

Domestically, Chinese wine producers are also stepping up to meet the new demand. Chinese vineyards represent around 10% of the globe’s vineyards by land volume, second only to Spain in area. Domestic wines fulfil about half of domestic demand, usually at the bottom end of the market. There’s been little attempt to export these wines until very recently but this seems to be changing.

Whilst China may not yet be widely respected internationally as a wine producer, it isn’t unimaginable that it might eventually be taken far more seriously. Several New World countries (such as South Africa and Chile) have improved their reputations dramatically and are now taken seriously by wine drinkers.

This process of repositioning may have begun: Chinese wine has had some modest recognition in international wine awards the IWC, and the UK’s Waitrose supermarket has recently started stocking a Chinese red wine.

International expertise has helped: Remy Cointreau has been involved for several decades now in improving domestic winemaking standards and equipment.

Chinese investors have also been making international acquisitions in viticulture. Over 100 vineyards from the Bordeaux region have been bought by Chinese investors, with a view to importing direct to China.

Although China is struggling with its economic outlook, it seems as if this taste for wine is unlikely to go away. China’s demand for wine is likely to cause some distortion in the global wine industry, but there are still many questions to be answered.

Will Chinese consumers move away from their preference for red wine and expand to a broader range of styles? It will also be interesting to see how the rest of the world reacts to Chin’s own domestically-produced wines and if China will be taken more seriously as a wine producing nation.

The global wine industry is constantly adapting to changing world tastes in wine but vineyards can’t be set up overnight. If demand rises faster than the supply the immediate effect of China’s changing tastes are likely to be a rise in prices. That’s great news if you’re a winemaker, but it may frustrate wine drinkers across the globe.

Written by Antonio
Antonio is part of the Digital Marketing Team at TranslateMedia

Related posts