Wine in China, what’s next?
China, a key player in the wine industry?
Already the world’s biggest consumer of spirits, China is likely to become by 2020 the world’s second largest wine market after the US. Leaving behind poor France and the UK!
But unlike some other “New World” wine countries, viticulture is not something new in China. It is commonly said that the beginning of winegrowing and winemaking in China dates back to the Han Dynasty, 206 BC — 220 AD.
Yet the real birth of the wine industry in China happened in the 18th century when European missionaries brought back grapes, and their winemaking expertise. After 1949 and the proclamation of People’s Republic of China by Mao, the Chinese government decided to promote wine in order to reduce the consumption of Baijiu. It aimed at reinforcing the food independence of the country — the grains would be used for food instead of alcohol — as well as promoting less alcoholic beverages than Baiju and other spirits.
The real “boom” of the Chinese wine industry nevertheless started in the early 2000’s, fuelled by the increasing influence and interest in the Western culture, plus the expansion of the Chinese middle class. The market and consumption habits have been evolving fast.
Growing in a wild environment with no landmark, the early Chinese market has been turbulent. Wine was first a symbol of social status and sophistication and the market was marked by a strong seasonal consumption.
Yet the habits are changing. Wine has become more and more popular, and is no longer reserved to an elite or dedicated to special occasions. The middle class is now consuming wine and Chinese consumers are drinking wine for pleasure. The crackdown on corruption, started in 2012, weakened the business of gift and contributed to a market standardisation. The Chinese wine market tends to be more driven by real consumption, even though the historical consumers’ preferences remain tough:
- Prestige, with a real preference for imported wines — France is leading the way — due to their status symbol and safeness perception
- Price, strongly identified as an indicator of quality as well as prestige
- Brand, with an undeniable sensitivity to advertising and packaging
Unsurprisingly knowledge about wine used to be very limited. Nevertheless, Chinese consumers are beginning to learn more and more about wine, spurred by the Millenials from urban centres. They are starting to drink wine because they like the taste of it and choose it regarding the flavour.
Let’s now have a quick look at wine production in the country! China is the 7th largest wine producer in the world (according to the OVI). The Ningxia region (see map below) produces the most famous Chinese wines.
Chinese wines still suffer from a bad quality image. Even though the Chinese are disappointed by the quality of local production and more confident in Western wines, domestic wines still account for 80% of the Chinese consumption!
Take a closer look: what does the Chinese market look like?
Regarding its 1.4 billion population, the percentage of Chinese wine drinkers is really low… But an increasing number of Chinese people are consuming wine more frequently and the growth of the middle class, with higher income and bigger purchasing power, contributes to the quick take-off of the Chinese wine consumption.
The craving of Chinese for imported wines is a fully fledged growth driver. Indeed, the number of Chinese consumers of imported wine has more than doubled since 2011. China is about to represent 70% of the world market growth in volume by 2020! And will soon become the second market after the US.
In addition, this young market is craving for more balance. The reign of foreign wines is undoubtedly undisputed: France is the champion, challenged by Australia which benefits from its geographical proximity, and Chile which offers low cost but medium to high quality wine. The price and quality of imported wines is erratic. Australia and Chile have signed an FTA agreement with China in order not to pay the custom duty, one of three taxes to import wine in China. Europe does not. After taxes, importers then retailers’ margins can be significant. Thus Imported wine quickly reach high prices, often not in correlation anymore with quality.
Since 2013 China is the biggest consumer for red wine overtaking France. Moreover, 95% of the Chinese vineyards is planted with red, mostly with Cabernet Sauvignon. Why so much faith in red wine? It is perceived as healthier thanks to the benefits of antioxidant phenolic compounds, and the attributes of the red colour are highly positive in the country: wealth, power and good luck.
China has been a tremendous lever for fine wines demand, driving premiumisation and speculation on wines such as Bordeaux or Burgundy for France. Resulting also in making those wines more attractive to counterfeiting. China is probably the top place for wine counterfeiting: 50% of wines over $35 would be fake.
From China with love
E-commerce has grown exponentially in China, the country being ahead of many developed countries thanks to huge marketplaces like Taobao and JD.com. Wine has not been left behind with online sales weighing more than 20% of the wine sales, compared to about 10% in France. Chinese consumers prefer e-commerce, mainly because it is cheaper and convenient, even though they worry more about fakes. Together with South Korea, China will be the n°1 player to watch in the next years regarding online wine sales.
With the strong Chinese market growth and extension, the premiumisation of wines will reach more and more quality wines, with impacts on access to these wines in their original market and in traditional wine-consuming countries.
Furthermore, after leading the way to a boom of wine counterfeiting, China will contribute to implement more secure traceability systems in the industry. By keeping track of the exchanges the blockchain appears to be one solution against counterfeiting.
As far as producing wine is concerned, China is still learning. But like in other industries, the country is learning fast with the best teachers. Global luxury and wine companies such as LVMH or Pernod Ricard have bet on the Chinese vineyards. Local winemakers and companies have called upon international oenologists and wine consultants. More and more Chinese students come to France and wine-producing countries to learn and train.
It is quite a challenge anyway due to climate conditions — winters are too cold and vines have to be buried to stay alive, summers are too wet — and collectivism legacy.
The future of wine in China will be explosive. Stay tuned!
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Sources:
- France Agrimer
- Agriulture and agri-food Canada
- Vinexpo Bordeaux and Vinexpo Hong-Kong
- Zheng, Q & Wang H. H. 2017, ‘Market Power in the Chinese Wine Industry’, Agribusiness, Vol. 33, no. 1, pp 30–42.
