09 October 2015
Rising consumer affluence, growing health awareness and increasing dynamism among domestic wine producers is driving analysts’ strong growth outlook for the Chinese wine sector.
Wine consumption in China has been steadily increasing, especially among professionals and young people. Red wine consumption has also increased among health conscious middle-aged people.
A growing thirst for premium wines reflects consumer up-trading in China and remains the key influence behind ever-increasing wine imports to plug the growing demand gap. The Chinese Government has been encouraging the consumption of alcoholic beverages with lower alcohol content, including wine.
- China is now thought to be among the top five wine-consuming countries in the world. As middle-class consumers enjoy higher incomes, they are developing increasingly sophisticated tastes. Wine is seen as a status symbol among the emerging middle class in China.
- Wine continues to be dominated by domestic brands, and although imports from major producing nations such as France have grown, they remain beyond reach in price for all but the most affluent of Chinese consumers. Wine consumers are trading up from low-cost domestic brands to higher quality domestic and foreign brands.
- Total wine sales reached 2,395.5 million litres in 2014. Total volume sales rose 3 percent - higher than that in 2013, which slightly declined. This is mainly because many wine companies adjusted their product portfolios to adapt to the market changes, though the economic downturn and the anti-extravagance campaigns dragged on market growth. (The campaign was a 2013 initiative aimed at eliminating corruption among government officials by banning lavish use of public funds.)
- Red wine remains the most popular still, light grape wine in China, representing 74 percent of the off-trade volume sales, thanks to its auspicious red colour. Mid-range still red wine, priced from CNY20 per litre to CNY59.99 per litre, dominated in 2014 and made up 79 percent of the total.
- Sparkling wine, the smallest in volume terms, saw the highest unit price in 2014 - about three times as much as still grape wines in China despite seeing a price decline of 11 percent. Sparkling wine saw volume growth of 62 percent. Sparkling wine consumption was heavily promoted for wedding ceremonies and parties, leading to its substantial growth. On the other hand, the majority of sparkling wine was imported, being cheaper than champagne yet with similar taste, attracting new consumers to wine.
- The average off-trade unit price of wine increased by 2 percent in 2014, driven by consumers’ trading up to mid- and high-end non-grape wine, such as rice wine. Since sales of high-end grape wine were dampened by the anti-extravagance campaign, grape wine producers had to adjust their pricing strategies to target general consumers, which made the price of grape wine more affordable.
- In terms of regional differences, sales of non-grape wine were mainly concentrated in Jiangsu and Zhejiang provinces. Compared to baijiu (grains based) and grape wine, non-grape wine (e.g. rice wine) had a narrow consumer base. The baijiu industry made significant adjustments to mid-end products due to negative influences of the anti-extravagance campaign. Domestic non-grape wine producers were eager to take up the market of baijiu when baijiu sales were in a downturn, but this proved unsuccessful.
- Restricted by the government’s anti-extravagance campaign, government officials have reduced their food and drinks consumption, dampening the performance of on-trade sales, especially of still red wine. As for off-trade sales, the overall performance was robust in 2014, mainly because more consumers tended to purchase red wine in off-trade channels for health benefits. More restaurants allowed consumers to bring their own drinks, which also promoted the development of off-trade channels.
- Attracted by the growing Chinese wine market, many foreign winemakers have entered the industry to target high-end consumer markets. In 2015, foreign winemakers account for approximately 14.8 percent of the total number of enterprises.
- The industry is growing quickly in China, with revenue increasing at an annualised rate of 4.3 percent over the past five years. Consumption trends are changing toward drinks with lower alcohol content, and wine is being accepted by an increasing number of people. At the same time, average per capita income has increased rapidly, resulting in greater purchasing power. There is a large potential for growth in domestic demand and industry development.
- The increasing number of Chinese people with medium-to-high incomes is an important driver for the rapid increase in China's wine demand as they are the major consumers of wine. The number of people in the medium-to-high income group increased by about 20 percent in the past five years. Rising income levels of the younger population have also stimulated demand in this segment as more young people pursue fashionable Western-influenced lifestyles.
- Per capita wine consumption is low in China, accounting for an estimated 3 percent of total alcohol consumption in 2010. Total wine consumption was eight million cases in China in 2009, ranking eighth in the world. However, per capita wine consumption was 1.7 liters in 2014, much lower compared with the global average of seven litres. This low per capita consumption indicates the large potential for market growth in the future.
- There is a rising awareness about wine in China and it is a relatively new concept for Chinese alcohol consumers. Traditionally, most Chinese drink Chinese distilled alcohol. Drinking trends and perceptions have been changing in recent years, and an increasing proportion of the Chinese population prefers beer and wine as they have lower alcohol contents. The Government, enterprises and the media have been promoting wine culture in the past decade, and wine awareness among Chinese consumers has increased, stimulating growth in per capita consumption.
- Brand image stimulates demand among customers with established preferences toward wine consumption. Wine consumers in China used to prefer purchasing domestic wine as more capital has been invested into brand promotion. Well-established brands include Changyu, Dynasty and Great Wall. However, this situation is changing rapidly as more imported wine brands are aggressively promoted like Penfolds.
- Strong growth is set to continue with wine sales forecast to reach 3,029 million litres by 2019.
Import and exports
- Attracted by the growing Chinese wine market, many foreign winemakers have entered the industry to target high-end consumer markets. In 2015, foreign winemakers accounted for about 14.8 percent of the total number of enterprises.
- Foreign enterprises from France, Germany, Spain, Italy, the United States, Australia and New Zealand will continue to increase their import volumes of wines. Imports are forecast to increase at an annualised 3.2 percent to US$1.8 billion in 2020, and account for 18.3 percent of domestic demand.
- The share of imported products in the domestic market has increased in the past five years, with import value accounting for about 17.4 percent of domestic demand in 2015, up from 13.8 percent in 2010. Lower import tariffs and allowances for consumption taxes reduced imported wine costs.
- Most imported products remain more expensive than domestic wines, despite the decline in import tariffs and the adjustment of consumption tax policies. In the past five years, the investment of foreign enterprises into market channel building and advertising was low. Foreign enterprises choose to sell wines through agents instead of paying fees to terminal channels. Most agents in China sell wines of many brands and do not invest funds to develop a single brand. As a result, awareness of most foreign brands has been relatively low.
- Overall, sales of imported wine slowed down in China in 2014. Specifically, development of imported wine from Australia and Chile was favourable, but overall performance of French wine remained in the doldrums and its leading position has been shaken. The sales growth of Chilean wines mainly resulted from duty-free concessions, which made their products more attractive. Australian wine became the new darling of the market because it is easier to understand its product classification. Conversely, French wine was more cluttered in the product classification. Its market performance was most severely affected by the anti-extravagance campaign in China in 2014, owing to its premium positioning.
Market entry and development
- Leading wine distributors of imported premium wine are foreign companies with extensive experience in China. They are frequently approached by overseas wine suppliers, including wineries from New Zealand, but are generally reluctant to take on additional labels unless they are supported by significant marketing and finance. Therefore, New Zealand exporters hoping to enter the market must ensure they have enough capital resources and marketing capabilities before approaching these distributors.
- Given the cost of large scale marketing in China, New Zealand wineries may choose to focus their promotions on a specific region, city or consumer group.
- It is important to have a deep understanding of the Chinese culture before entering the market, bearing in mind that there may be cultural differences between regions.
- Ways to introduce new products to market contacts include attendance at trade fairs, wine dinners, social media campaigns (Weibo and Wechat), inviting people to visit New Zealand on educational wine tours, and working with specialist journalists to receive exposure.
- Finding the right distribution partner in China is very important. Companies need to be very cautious about choosing partners. If a winery is looking for long term development in China, then finding a partner with wine education, marketing and branding capability is almost as important as sales capability. A Chinese partner should have marketing staff and professional sales people who are capable of delivering the right information about the brand, have wine knowledge and can articulate the unique selling proposition of the product.
- China is huge, so regional distribution could be considered. In terms of regional distribution, wineries should still look for the capabilities specified above for each regional distributor. However, you can never avoid cross-region sales of your products. If you have multi-distribution system in different regions of China, it is important to have a China manager who is on the ground to handle different distributors, and manage the overall marketing for different regions.
- In the past, working directly with an e-commerce platform has not been favored as they are typically focused on online sales and unable develop other channels like hotels and restaurants. However, bigger e-commerce companies are establishing their offline sales channels and are willing to directly import from New Zealand. New Zealand wineries could consider these new opportunities.
Business Monitor International (2015).
Food and Drink Report Q3, 2015. Euromonitor (2015).
Wine in China. IBIS World (2015).
Wine Production in China.