Lessons from China: The prospects for wine during the re-opening phase- Wine Intelligence

Chinese wine consumers remain cautious, leading to predictions of a 30% decline in the value of the Chinese wine market in 2020

Back in mid-March, we spoke with two wine experts about the Chinese wine market and what the immediate impacts were there of the pandemic. At the time, the spread of the virus was only just starting in Europe whilst many Chinese cities were already in full lockdown. As countries in Europe and beyond now begin to slowly lift restrictions, those in China can help us understand what the new ‘normal’ might look like in our markets.

For this article, we talked to three wine market experts based in China:

Professor Ma from the College of Horticulture of China Agricultural University in Beijing
Alberto Fernandez, General Manager of Asia-Pacific, Middle-East & Africa for Familia Torres based in Shanghai
Mr. Zhang, Distributor / Retailer from Xi’an

WI: How has the situation changed in recent weeks?

Professor Ma: Before the outbreak, wine consumption has grown significantly over the past 20 years, particularly of imported wine. Throughout this time-period, there was an increase in the number of wine importers in the market; however, this increase has slowed, and even dropped over the past few years because of increased competition. Some smaller importers were at risk of surviving, and now because of the outbreak, this competition is even stronger, causing even more importers to cease trading.

Chinese wine consumers have responded differently to Covid-19 compared with consumers in established wine markets such as the US and Europe. Wine plays a more social/ business promoting and celebrating role in China. It is not yet essential for daily life. I read in the US and Europe, wine sales increased as people’s time at home increased [during lockdown]. It’s a different story for Chinese consumers. Right now, we do not have that mental availability for wine. If people are looking to alcohol to de-stress, many of them will first think about Baijiu or beer. In addition, lockdown in China was stricter than that in the US or Europe, which also limited the physical availability of wine – for instance, people could not go out and purchase a bottle of wine as they’d like to and non-essential stores (e.g liquor stores) were closed during lockdown.

Alberto Fernandez (AF): Since the last time we spoke two months ago, China is slowly opening up. Domestic travel is now allowed and social venues such as restaurants are allowed to operate. By June, weddings and banquets will return – both key to wine consumption. One change I see is that consumers are not spending during the week as they used to do, but instead have become more weekend spenders. Up to 70% of residents are worried about their future and that is showing in more careful spending.

Foreign travellers are also banned, which has a big impact on hotels and restaurants that were a hub for international meetings and events. In fact, many of the best hotels and restaurants remain closed because of this lack of events. Just a month ago, Hakkasan restaurant in Shangai announced a permanent closure and let go more than 80 workers.

Mr. Zhang (MZ): As wine for Chinese consumers is often associated with food and Chinese food culture is mainly based on gathering, wine sales are often closely related to gathering and dining with others. Therefore, this explains why wine sales have declined sharply over these past two to three months. All the wine stores and wine companies I know are struggling. April seems to be going a bit better than March, but overall the turnover is far worse than previous years.

WI: What will be the impact on the wine market in China for the rest of 2020?

PM: Within the trade, many have expressed concern about the wine market this year. The outbreak has hit the global economy hard, and it’s difficult to say what will happen with China’s GDP growth this year as well. With incomes being cut and the economic outlook looking grim, many trade members wonder if many consumers will resume their previous wine consumption pattern. Traditionally, most wine is consumed in the on-trade, but even after lockdown has ended, sales have not picked up in restaurants and other on-trade venues. Economic factors may continue to impact wine sales for an extended period after the outbreak in China. Apart from concerns on the sales end, wine supply is also a huge concern as many wine-supplying regions are still in lockdown.

AF: In a market with permanent overstock, companies are now not investing in purchasing wine, so imports have dropped significantly. We saw a decline in March of 50% and it will be even lower in April. I predict the wine market in 2020 will drop by at least 30% in value. Spend on alcohol is affected as some Chinese consumers are worried that consumption weakens their immune system.

MZ: The Covid-19 outbreak has dramatically changed Chinese consumers’ lifestyles. For example, people who normally don’t do online shopping have turned to shopping online; people who don’t cook have started making home-cooked meals. I suppose the frequency for social gathering has decreased by more than 50%, so it is not surprising to see all beverages sales (not just wine) going into decline by at least 40%. Some consumers have also consumed less alcohol as they believe this helps them stay healthy during a period where wellbeing is extremely important.

WI: Have consumers changed their consumption patterns? How will the market change going forward?

PM: There have definitely been some changes in consumption patterns. Many people don’t do social gatherings anymore. Most consumers avoid dining out, which means less wine is consumed. However, I think this is just a temporary thing. Chinese people love these social occasions, meaning eventually, as the situation gets better, consumers will start dining out again with friends and family. So yes, there’s been some changes, but I wouldn’t say the drop is permanent.

Although wine sales are expected to decline significantly, there have been some positive developments online. As the saying goes, every crisis brings opportunities. Some trade fairs, tastings and wine classes are now taking place online. This may convert into more online sales than before. One example would be Lady Penguin. As an online wine retailer and key opinion leader, Lady Penguin has sold quite a large amount of wine in the past few months.

Another positive development is that we see wine promotions on more online platforms. Besides the traditional WeChat channel, I now see promotions on popular video platforms such as TikTok and Kwaishou. We may see wine promotions on less conventional platforms bringing in new wine consumers.

AF: Direct to consumer communities like Lady Penguin are doing well. However, online sales are still very much linked to social gatherings as people usually bulk buy wine for social events.

MZ: During a period like this, wine is less frequently on people’s minds as it has not yet become an essential part of many Chinese consumers’ lives. For now, Chinese consumers are focusing their spending on essential products just to get by. I do think this trend may continue for some time even though the situation has got a bit better – people still don’t know what’s going to come next.

I predict wine sales are going to decline by at least 40% in 2020. Frankly, the only plan I have is to stay alive. This could mean that I need to keep the shops closed or lay off some staff. Chinese consumers love social gatherings and I do hope the number of gatherings will increase again as things get better. April figures are a little better the previous few months, but overall, I expect my turnover to be around 60%, if not 50%, of last year’s figure.

The Wine Intelligence China Covid-19 Impact Report will be published at the end of May, which will detail how consumers’ social, shopping, drinking and wine lives have been impacted by Covid-19. For more information about the report, please register your interest here.

Author: Juan Park