Australian wine depends on China – no issue about that. With a 33% increase in value of exports to mainland China and HK last financial year to $721 million, this region is pulling in one-third of all export income made by Australian wine. Furthermore, it’s the only part of the world where significant growth remains an immediate certainty, as much as anything related to China can be described in those terms. Euromonitor International predicts China’s five-year compound annual growth rate in wine consumption from 2015 to be 11.1%. Next highest is New Zealand, at 3.5%.
The question is, who is actually selling all this wine? It’s no small volume. Leaving aside Hong Kong, Australia’s fifth most valuable wine export market worth $114 million and representing 8 million litres of wine (around 890,000 dozen) – despite the reality that much of that wine ends up across the water – 12.2 million dozen bottles of Australian wine were imported directly into mainland China in 2016/2017. This number excludes imports as bulk wines.
Truly astonishing figures from Wine Australia show that the large Australian producers account for around just $190 million of the $607 million sold at FOB (free on board) to China. This number includes all the sales from Penfolds, Wolf Blass, Jacob’s Creek and YellowTail, the most significant and widely recognised Australian brands in China. Which leaves a difference of around $400 million. Treasury Wine Estates, owners of Penfolds and Wolf Blass, sold 3.5 million dozen into their Asian markets in 2016/2017. Assume around 2 million went into China and we’re still looking for sales of at least 10 million more cases.
How about the next tier, the medium-sized producers whose focus is steadily becoming more China-orientated? They account for a mere $45 million or so of sales. When you add the export value from the small wine producers, many of whom visit Shanghai as regularly as they do Sydney, you take into account about another $120 million, leaving a significant question around who, exactly, is selling another $250 million or so of wine (significantly more than all our largest producers combined)?
The answer lies with small non-levy paying export operations that do not grow or process wine. A large but possibly unknown proportion of these sales are conducted by Chinese citizens who have become one of the record number of 1997 exporters of Australian wine last financial year. Many are traders who visit cellar doors and buy wine to sell to their connections in China. Others are Chinese citizens seeking permanent residency in Australia under visa conditions that require significant levels of export, buying around $500,000 of wine annually over a three year-period to sell back in China. The wine is either traded as an established brand, or instead as a bespoke (OEM) brand. I have much experience of these wines, and as a rule they rarely flatter their country of origin. Many significant Australian wine producers are heavily focused on fulfilling this very particular need.
Sadly, however, it’s likely that some of the wines sold through these channels either mimic or faithfully copy the appearances of popular high-end Australian wines by the time they are eventually sold to their buyers. The mimicking does not usually extend to their taste and quality.
In my own experience, which includes dozens of this kind of visa applicant, most will cease their wine export activities once they celebrate the arrival of their permanent residency. Currently, given that it’s still a common dream amongst wealthy Chinese to seek Australian permanent residency, what generally happens is that new applicants take up the slack left by those who have successfully attained their visa.
Here’s the thing. The model for the sustainability of Australian wine has China front and centre. In itself, there’s nothing wrong with that. But when somewhere between a fifth and a quarter (my guess based on the numbers available) of the export wine business from Australia to China depends on the willingness of high net worth Chinese to seek permanent residency here, it suggests to me that the security represented by recent growth figures could easily be eroded as a result of social, economic or political change in China; in itself not an entirely unexpected possibility. That’s risk number one.
The critter labels that emerged to luminesce in the wake of YellowTail’s unimaginable success in the US continue to trash the aspirations of those who wish to sell high-end Australian wine in that country. There’s a real and present danger that the hundreds of warehouses full of ageing, fading and tiring sub-optimal Australian red wine in China, not to mention those borrowing the labels and images of their betters, could do the same in that market. That would be a tragedy and is risk number two.
I’m not sure what the answer is, but perhaps there’s something we can take from TWE’s approach in China, which is to focus on its biggest asset: Penfolds. The French taught us a similar lesson: focus on your best combinations of region and variety, which they’ve turned into an art form. Ask yourself how many combinations of French region and variety you can nominate. Whatever the answer, unless you’ve just completed WSET Level 3, it will be but a mere fraction of the possible number.
As the numbers reveal, the top Australian wines clearly represent just a small fraction of those being exported to China. But if we want to topple the French, these are the wines we should be building Wine Brand Australia upon. Just as the French have shown us themselves.
