Talking points memo: wine in China
Our latest commentary on the fluctuating fortunes of wine in the Middle Kingdom
With ProWein less than 3 weeks away, marking the start of the international trade show season for 2014, Wine Intelligence’s China team thought it might be useful to send round the latest version of our talking points memo on the Chinese wine market. Clearly there are some questions about the prospects for wine in China to which there is no definitive answer, so feel free to blend this with your own thoughts and insights. For those seeking more evidence-based enlightenment, our China Vinitrac® survey launches in 2 weeks’ time. Contact Stephen Lacey on firstname.lastname@example.org for more details.
Q: Isn’t wine in China overhyped? Consumers don’t like the taste and most of the wine sold into the market ends up lying in warehouses or as an ornament on a shelf. Aren’t we headed for a giant bust?
A: Overhyped? Probably yes. Headed for a giant bust? Probably not. 2013 wasn’t the best advertisement for China as the wine market of the future. Lots of stock, some of it expensive French wines, couldn’t find a home thanks to the impact of the Chinese government crackdown on ostentatious spending and gifting by its own officials (see also below). Our view is that the supply chain needs at least another 12 months, i.e. a full cycle of festivals and Christmas, to reset itself from this shock. Elsewhere however there is increasing evidence of Chinese consumers drinking wine for their own pleasure (as opposed to at a business event where they have to), especially in the “Tier 2” cities of the interior. However if they’re spending their own money, it’s not surprising they are less keen on dropping RMB 500 (US$83, £50) or more on a bottle; sales appear to be growing most at around RMB 100 (US$16.50, £10).
Q: How much of an impact has the Chinese government austerity had?
A: All the data and anecdotal evidence coming out of China strongly suggests that demand for the top priced imported wines has dropped significantly in the past 12 months – in some cases by more than 20%. Few importers/distributors we have spoken to recently think that the sales will pick up in the short term. The extent of the distortion caused by government officials using public money is becoming apparent. In other sectors it is breathtaking: According to China Business News, government bookings accounted for 40% of all revenues at five star resort hotels in China in 2012. Since the austerity drive, government bookings have halved.
At its heart, China is a market undergoing an uneven, chaotic, and dislocating, transition from a production economy to a consumption economy. While spend on luxury goods has taken a body blow from austerity, it is still in growth (+2% last year, according to Bain & Co, compared with +7% in 2012). China is now the world’s second biggest consumer economy (passing Japan last year); according to the Economist, it is home to half of the world’s new shopping malls.
Q: What are the prospects for 2015 then? More of the same?
A: Wiser heads in the Chinese wine trade believe that 2013 will be seen as the start of a much-needed transition in the wine market towards a more sustainable, consumer-led platform. If China wine 1.0 was all about using expensive wines to show off to clients and colleagues; version 2.0 will be about how wine can fit in to the emerging upper middle class lifestyle in China’s teeming cities. The good news: the population who can afford imported wine is expanding rapidly, and will more than trebled by 2020. Chinese consumers are also fascinated by the complexity and heritage of wine, and the more tech-savvy and adventurous are becoming a big force in the wine tourism industry.