China goes ex growth – for now

After a tumultuous decade of growth, China’s wine market is gripped by an economic crisis years in the making, plus a short term coronavirus crisis that has decimated the on-premise. The shape of the wine market’s recovery will determine the themes of the next 10 years, some of which are already apparent

Ever since 2010, China has been a hot topic of conversation in the wine world. Wine Intelligence conducted its first tracking surveys of consumer behaviour and attitude that year, and ever since we have monitored the transformation and growth of the most exciting developing wine market on the planet.

Ten years on, the Chinese wine market is digesting two major crises. The most obvious is of course the fallout from the coronavirus pandemic, and its negative impact on the on-premise channel, which can be seen in our new China Wine Landscape report. The second crisis is the slowing of the Chinese economy after nearly three decades of unprecedented growth, which the impact of the virus has accelerated.

It is also the case that China’s wine consumers have become more thoughtful, educated and less likely to buy product that is overpriced and poor quality. Unfortunately, during the boom years, poor quality wines that were either outright fakes or close copies of well known products were widespread and fostered a general caution and lack of confidence among some consumers, particularly those who were relatively new to the category. It was also the case that legitimate, but ordinary, wines were cleverly packaged and promoted as luxury products, with astronomic prices, to those consumers who didn’t know any better.

Plenty of overpriced and counterfeit wines remain in the market, but their influence is waning thanks primarily to the extraordinary rise of the online sales channel for wine in China, which our new report shows is continuing – not surprisingly – as a result of coronavirus restrictions. Online retail has enabled consumers to shop around for good prices, and also kept retailers honest in terms of the quality and reliability of the products they sell. In such a competitive space, a series of negative WeChat reviews can seriously dent a retailer’s reputation.

The other big change over the past five years – also arguably fostered by the growth of e-commerce in wine – is the growing importance of high profile and mainstream brands in the market. Evidence from the China Wine Landscapes report suggests that the larger brands with a clear and distinctive quality and reliability message are making ground as the market matures and consumers become more quality conscious.

Which brings us to the future. Our conversations with the supply chain in China suggest that most players are expecting significant volume declines this year as the twin impacts of virus lockdowns and economic slowdowns take hold. E-commerce will continue to make advances, building on its fundamental attributes of convenience, price and quality transparency, and stickiness in terms of consumer relationship management. The on-premise wine trade will suffer the most, and the longest, as consumers show deep and lasting reluctance to go back to restaurants, particularly for the large celebrations that are often accompanied by expensive wine purchases. It will eventually come back, but most likely in the form of more casual dining experiences.

Amid all of this, a longer-term picture is emerging of wine in China over the next decade. In the past 10 years we have moved from a market for wine as a face-enhancing expensive gift (2010) to a more mainstream, educated and value-conscious market focused on affluent, educated professionals in urban areas. The next 10 years will see mainstream priced wines start to dominate as excess becomes unfashionable, while niche products such as organic wines, rosé, sweeter whites and sparkling wines will all grow, albeit from low bases. These and other specialty products can thrive in a world of online discovery and trend-seeking.

Fundamentally, then, the coronavirus and associated economic crisis has hastened changes that were already afoot in China’s relationship with wine. The market is no longer the wild gold rush sector it was once upon a time, and the aftermath of the current disruption will be a market that is less volatile, less high-end focused, and – possibly – a bit more predictable.

Author: Richard Halstead

Email: Richard@wineintelligence.com