by Consilience

A recent slow down in the economy seems to decrease the eagerness of Chinese consumers’ luxury expenses. However, China seems to remain the number one new market destination for luxury brands of cars, jewelery, bags, clothes and drinks.

In terms of drinks anyone who visited the region, or has at least gone to a neighboring Chinese restaurant, would understand that the drinking culture has spanned for centuries around grain based drinks, or simply tea. One of the most popular centuries-old grain based alcoholic drink is Baijiu and it is reminiscent of vodka. Baijiu still seems to be the most popular and affordable alcoholic beverage in China. Wine on the other hand is a new phenomenon that emerged just a decade ago and is gathering momentum for the last five years. Thus, when we consider the growing market for import products in China, wine arises as one of the most significant ones.

Currently China is the worlds second largest wine market and biggest consumer of red wine. The per capita expenditure on wine (red, white, rose, sparkling) in China is $ 4, while it reaches $ 74.1 in Hong Kong and $ 198.1 in France[1]. In terms of volume, Chinese red wine consumption per capita is below 2 liters while French consumption is above 50 liters with Hong Kong reaching approximately 10 liters per capita.Even though the Chinese market indicates lower per capita consumption, the country’s big population accounts for a huge volume of consumption on a national scale (Figure 1).The low per capita consumption is a strong indicator of the opportunity that exists.

In Chinese consumers’ eyes wine is seen as a luxury good, a fashionable good for consumption, since people treat wine as a way of demonstrating their financial prosperity financial amongst others. In addition, people are willing to pay more for foreign wine in comparison to local ones.

However, this was halted by the government crack down or anti-extravaganza measures as the French spirits and liqueurs group Rémy Cointreau named and it was visible on the 2013 and 2014 figures. But this unexpected development, when added up on market transparency on profit margins became more accessible to younger generations in their mid and late twenties and other non-elite social classes which began to appreciate wine. As internet retail is more popular amongst younger buyers, the market share of online retail wine platforms increased.

For instance even though Chateau Brehat wines of Bordeaux, lost over half of their price tag, moderate profit margins in the market remained in place with prospects for future profit. These developments present chances of growth for other wine importers with price tags below $20 US dollars such as Australia, New Zealand, South Africa or Chile. Furthermore it presents an opportunity for growth for locally produced Chinese wines. Figure 2 justifies the observations made, indicating an increasing import volume from Australia and Chile while French imports decrease.

China has been developing a name for the best amongst regions of production. Ningxia region is the most well-known for its quality wine. Evidently, the Bordeaux region of France takes the lead in popularity. In China, Ningxia and the closer regions of Xinjiang, Gansu etc., hold over half of the Chinese wine market. As the market will expand/broaden for other exporter countries, Chinese wine producers will experience a strong growth as well. Because, unlike French wine, Chinese wine targets middle and lower segments, with price tags significantly lower than $20 US dollars.

All the developments mentioned above create a strong base of opportunity to which the markets size with more than 20 cities of over 5 million population and a growing number of middle class consumers serve as catalysts.

When wine to be exported to China, from well known destinations such as Bordeaux or Tuscany it is important to be available in the shelves of mainstream retailers. However, if the product is produced in a non-European country, it is important to engage directly with middle and lower income consumers instead of wineries or wine restaurants. The impact of engagement in the market seems to be more successful and with bigger return in the long run.

For local producers, great opportunity lies there. And with a country which has the culture of cultivating grapes for hundreds of years there is no doubt that after exploring local markets it will come to the point of being a significant actor on the global market. Destinations of big wine consuming states like the US and Germany will also be some of the first markets to be penetrated by Chinese wine. Summing up, the future of Chinese wine in the global market will heavily rely on the ability of producers to increase the quality of the wine produced while targeting medium and lower segments of the market.

For more comprehensive insights please get in touch regarding:
Special Report Series: Wine in China: insights on a burgeoning industry in an e/m commerce context

[1]                Euromonitor, 2015

Keywords – Wine choice, wine culture, wine knowledge, mobile and e-commerce, internet users, China Wine Market