Talking to some people about the China wine market, you’d think it was game over. With China Customs reporting a mere 15% increase in the number of cases imported between January and March 2012 compared to the same period last year, many are wondering if the market is slowing. However, these figures don’t tell the full story.
The China Wine Market: Past Corrections and Future Growth
The China wine market has faced corrections before. About three years ago, there was an excess of wine in warehouses, stores, and restaurants, leading to a temporary oversupply. It took less than a year to correct that. Today, while supply lines are fuller than usual—like a maze of crazy plumbing—let’s not underestimate China’s ability to manage and adjust.
Every day, more Chinese people are becoming wine drinkers, and there are still a significant number who have yet to adopt wine but certainly will. Incredibly, wine only accounts for 3% of the alcohol consumed in China, compared to a global average of 18%. Most Chinese haven’t heard of it yet. Per capita wine consumption in China stands at a trifling 0.7 l/year, compared to 3.5 l/year globally and around 30 l/year in Australia. There’s plenty of room for growth here!
China: A Giant Waiting to Drink More Wine
While China is currently the world’s fifth-largest wine consumer, it’s the burgeoning middle class that’s increasingly turning to imported wine. While estimates of its size vary, around 300 million people are currently considered middle class. This number is expected to rise to 430 million by 2015. Much of this shift is happening in second- and third-tier cities, where again, there’s significant room for growth.
The affluence of the Chinese market is evident in an increased value per case of imported wine, which rose by more than 10% from the first quarter of 2011. This increase, combined with the rise in volume, has made the imported wine market 28% more valuable than it was twelve months ago. Given all the attention surrounding a supposed ‘slowdown’, these figures still present an impressive story.
The Slowdown: A Temporary Blip?
Campbell Thompson, head of major importer The Wine Republic, acknowledges that while he has observed a slowdown, the figures for the first quarter of 2012 may have been affected by an early Chinese New Year. Some wine may have been exported earlier than usual to be available during this crucial holiday period.
Too Many Wine Importers?
One issue currently facing the market is the unsustainable number of wine importers in China. Many have been brought into the country by Chinese citizens seeking permanent residency in countries like Australia or by individuals trying to sell wine to high-end networks within Chinese business and government circles. This has resulted in a massive volume of wine that ends up in China’s “black hole” for wine, as some have described it. Although these wines are usually fully paid for, no one knows where they go, how they are stored or transported, or who eventually drinks them.
A few years ago, there were around 800 registered wine importers in China. By 2011, that number had swelled to 4,000, and today it’s considerably higher. Miguel Torres, the Spanish wine producer and one of the leading importers of wine into China, estimates that the market share of imported wine by foreign suppliers has fallen from around 50% a decade ago to around 15% today. This shift reflects both the explosion of Chinese participants in the wine industry and the inevitable trend that the Chinese wine market will soon be controlled by domestic players.
The Rise of Domestic Players
Once companies like COFCO, which has expressed interest in using its supply lines for both wine and food, get serious about their wine distribution plans, this trend will likely accelerate.
The Issue of Fake Wine
Another concern is the rising issue of counterfeit wine. Anecdotal evidence suggests that this problem is worsening rather than improving. For example, while Chateau Lafite produces around 200,000 bottles each year, unconfirmed reports suggest that nearly 600,000 bottles of the wine were traded in China in 2011.
The Chinese government is reportedly establishing new protocols and offices to implement a more detailed process for wine authentication. This will be a much-needed move, particularly for brands like Henschke, whose wines were replicated (at least on the outside) at the TopWine China show in Beijing, under a fake ‘Hill of Glory’ label. Perhaps the less-informed Chinese customer would have eventually noticed the spelling mistakes of ‘Australia’ in the otherwise expensively produced brochure!
Conclusion: The Market Is Far From Dead
Having just returned from Vinexpo in Hong Kong and TopWine, I can confidently report to Australian wine producers concerned about the China market: It’s as alive as ever. The market has just grown too quickly for its own good, and like many of us, it’s now taking a breather. It’s a situation that’s not uncommon and, in most cases, something that can be recovered from in time. The future of China’s wine market still holds enormous promise.
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