N2 - Austerity’s silver lining

Falling retail prices for traditional gifts – including wine – are giving Chinese consumers a particularly happy Mid-Autumn Festival

How much should a good quality everyday bottle of imported wine cost? In each country around the world, the answer is slightly different, depending on tax, regulation, market conditions, and the efficiency of the supply chain. In Germany, the answer is about 2-3 euros; in the UK, about £6; in the USA, about $10.

In China, until recently, the answer was around RMB 120-150 (£12-15, $19-24). Given the typical disposable income of an urban Chinese after tax, rent and utilities is around RMB 2000 per month (Source: National Bureau of Statistics of the People’s republic of China), adding a bottle of wine costing this much to the food shop was a big investment. No wonder wine purchasing was saved for high profile gifting occasions.

However recent store checks in mainstream supermarkets in China have revealed an extraordinary shift in pricing of imported wines. Yes, you can still buy a bottle of imported wine costing RMB 150; but now you can also buy one costing under RMB 30. It may not be the best wine you’ve ever tasted, but it does offer access to the wine category for a large segment of the consumer population.

In the run-up to the Mid-Autumn Festival which takes place 6th – 8th September), our retail sources have been telling us that the sub-RMB 100 imported wine is the only growth story in the category right now. Renewed government commitment to its austerity policies (see below) are keeping the luxury market (RMB 500+) market depressed, while the “premium” and gift-led RMB 150-300 sector is treading water as consumers wise up to some of the poor value products (and in some cases, outright fakes) which have been marketed to them in the past.

Falling prices are not confined to the wine category. Mooncakes are a widely-purchased gift for mid-autumn festival, and two years ago it was not unusual to see boxes retailing at more than RMB 200. Today you can find very similar mooncake gift boxes for under RMB 20 in the supermarket. Electronic gift cards with cash loaded on them are also a very popular gift. According to the China Daily, there’s been a huge increase in these gift cards being purchased with values of less than RMB 100, and a corresponding fall in values of RMB 200 and above.

Back in the wine category, falling prices are exciting not only the aspirant middle class, but the established imported wine drinking segment, who can suddenly find an acceptable choice of wines at very reasonable prices. “It is very exciting to see the prices for wine dropping, especially those sold online… I do care about the price and now I can try more wines”, said one high involved imported wine drinker in a recent interview with Wine Intelligence.

What does this mean for brand owners? While it’s not good news, in the short term at least, for the luxury wine brands which were making big money a couple of years ago, it may be better news for mainstream producers looking to develop big volume brands. With a critical mass of wines suddenly available at affordable prices, this may actually be the moment that the wine category starts to develop from its base as a gift-oriented elite sector into a more mainstream consumer product.