We report back first-hand with the latest on China’s ever-advancing landscape
China remains the main frontier in the wine industry’s quest to build new markets and attract another generation of consumers. Like frontiers throughout history, it is not for the faint of heart. Just getting around Shanghai at rush hour is a challenge which at times seems worthy of the early settlers crossing the American West, as we found out last week when we visited ProWine Shanghai to deliver a seminar on our latest thinking on the Chinese wine market.
The fundamentals of China’s wine market remain positive. After several years of modest growth, imported wine volumes are taking off again, according to the latest data published by China Customs. On current course and speed, import volumes will be up a phenomenal 40% this year compared with 2014, with Australia leading the way, and strong performances from Chile and South Africa. France, the perennial favourite in these parts, remains number one, but with a much reduced lead over the chasing pack.
Wine Intelligence’s market calibration data suggests that the consumer population of people who drink imported wine at least twice a year (which we think of as effectively the potential universe of quality wine drinkers) has expanded by roughly a factor of 2 over the past 3 years, and now stands at about 38 million individuals. These are mostly well off urban professionals, who remain the only people with enough economic heft to afford a bottle of something decent, which can often still run to CNY 200, the equivalent of £20 (€28, US$ 31) in the off trade.
Herein lies the major challenge for the next few years in China. Wine prices at retail have been falling ever since the Chinese government cracked down on the gifting culture among government officials (and those business-people who rely on their patronage). From being the hottest market on the planet for high end Bordeaux in 2012, the top end of the value pyramid has shrunk dramatically in recent years.
These price falls have started to open the market up to new consumers, and here the internet channel has proved a remarkably powerful catalyst. This is perhaps less surprising when you observe the sea of heads bent over smartphone screens in a packed Shanghai Metro train, and remember that China now has over 600 million members of WeChat, a wildly popular social media app (think Twitter meets Messenger meets Apple Pay) which now offers an ecommerce function that is way ahead of its Western counterparts.
Online wine retailers have developed more consumer-friendly offers, and tend to be trusted a lot more by consumers in terms of both price and authenticity, compared with the wood-panelled wine shops in swanky shopping malls, which have developed the reputation (largely deserved) for both rip-off prices and a fairly lax attitude to fakes.
Responsibility for the next phase of growth in the Chinese wine market now rests with the indigenous wine importation and distribution business. Margins remain too fat in many elements of the supply chain, leading to overpriced and poor quality wines appearing on wine lists in top restaurants, and gathering dust on shelves in wine shops, blocking any new entrant. The internet is running rings around bricks and mortar operators with a low cost, lower margin business model, which can still turn a profit despite the cost of delivery (which in low labour cost countries like China is a lot cheaper than in the West).
However the internet is not as good at recruiting new consumers to the category as the on-trade. If wine is going to fulfill its Chinese destiny, it needs some more visionary entrepreneurs to shake up the on trade in the way that retail is being shaken by the new online entrants.
For those in the wine business whose job it is to deliver the success that their corporate masters have promised shareholders, the message seems to be one of persistence, and optimism, in the face of inertia and low-level resistance to change. As with the challenge of negotiating Shanghai in the rush hour for an amazing dinner overlooking the iconic vista of the Bund: nothing worth having ever comes easy.
Author: Richard Halstead