If you are a winemaker that is looking to expand your export market, you would have been living under a rock if the land of rice and tea and more recently wine, have not crossed your mind.
Since the economic reforms of the 1980’s, wine consumption in China has grown dramatically. Despite only having a per capita consumption (per person/per year) of 1.5L (compared to a whopping 50L of the delightfully intoxicated French), with a population that is fast approaching 1.4 billion, China is ranked as the 5th largest consumer of wine. Not to be outnumbered by their thirst for wine, China is also the 5th largest producer of wine in the world, seeing an average 60% increase in production every five years.
CURRENT WINE SITUATION
In terms of wine preference, red is pretty much leading the race, with white wine consumption trailing considerably. The colour red itself is of great significance, being associated with prosperity, happiness and celebrations (compared to white usually reserved for mourning and funerals). There is also a significant correlation between the tannins found in red wines and those found in the number one beverage in China, tea. As a very health conscious nation, the health benefits associated with red wine also play an important role.
Current consumption methods of wine is quite appalling to any Western wine drinker. You think adding ice to a glass of wine is a major faux pas…consider this…wine in China is consumed in a ‘shooter’ like fashion, with the whole glass being consumed in one go after a toast. White wines served with Coca-Cola and red wines with Sprite are also common sites. Wine by the glass is still very much reserved for upmarket restaurants only. At the moment, there are two main market segments. The top wine segment consisting of very expensive red wines that are very popular amongst the rich and famous. On the other end, the lower entry level market is growing in popularity and consists of more easy-drinking, lower quality, cheaper wines. As far as the division between bulk and packaged wines for export to China goes, the figures for 2006-2011 are displayed in Figure 1. Packaged wine exports saw an immense increase of 1206%, compared to the 74% decrease in bulk wine exports. This is an indication of the maturing tastes of the Chinese consumer.
In terms of distribution, your importer could distribute your wine via a couple of channels (Figure 2). Most popular would be ‘on trade’ (wine is sold and consumed on the same premises) and ‘off trade’ locations.
So, the biggest question remains: should you or should you not export to China? What follows below are three lists consisting of factors that make exporting to China a good idea, a bad idea or an ugly idea.
The heck to the NO list…
- French wine accounts for 50% of the wine imported into China. This is followed by countries such as Australia, Spain, Chile, Italy and the USA. South Africa will have to do considerable work to rank amongst these countries.
- The Chinese culture is well-known for their ability to copy…anything…and wine is no exception. Counterfeits of your wine is a very real threat to your brand and your reputation.
- Trademark squatters are individuals who register well-known foreign brands. Upon entering the country with your brand that have already been registered, you have some options (all of which will burn a considerable hole in your wallet): buy back your trademark, rebrand to create a new trademark or negotiate for the right to use your own trademark. Unfortunately, a ‘first to file, wins’ attitude exists in China, making this a challenge.
- It is still very expensive to export to China. Think 14% customs tariff, 17% VAT and 10% consumption tax. There are current trade agreements taking place between South Africa and China, but these are still very much under construction.
- China is enforcing a much stricter inspection policy. Wine arriving in China will now be scrutinised for three major parameters: alcohol, sugar and metal concentrations. Wines have to have an alcohol content of within 0.5% as printed on the label. The sugar content has to correlate with the type of wine your importer has registered your wine as (dry, sweet etc.) and thee main metal concentrations have to be within specification: copper (< 1 mg/L), manganese (<2 mg/L) and iron (<8 mg/L). If it is rejected on the basis of one of these analysis, the wine will either be destroyed or sent back at your expense, so test everything before it leaves the country.
- General challenges of exporting to China include a lack of transparency, unreliable information, the handful of giants that control the local wine industry, consumer and cultural differences, as well as the added logistical challenges of distribution.
- The local production could address the growing demand for wine. Take into consideration that the local workforce consists of over 80 million. The arable land covers more than 1.4 million kilometres. China is a country with a large number of modern business leaders, no shortage of technological knowledge and ability, as well as massive capital inputs.
The MAYBE this is a good idea list…
- Red wine consumption outnumbers that of white wine by 85% versus 15%, respectively. Because female wine consumption is on the increase, this ratio could shift in favour of white wines and present possible new target markets.
- Wine in China is very much a French affair. Wine is synonymous with France for most consumers. Changing this perception will be challenging.
- Trademark squatters is a real threat. Make sure legislation is on your side.
- The local Chinese wine production is still accounting for 80% of wine consumption in China.
- With the austerity program in place, lavish spending is being decreased.
- There will be a natural cooling down period in consumption. The growth percentage of 143.3% from 2008 to 2012 is predicted to decrease to a more moderate 33.8% from now till 2017. This is still a hefty number considering the population size.
- Growth will more likely happen in the middle and lower class wine sectors.
- Because the Chinese wine consumer is such a newbie to the world of wine, considerable education will be required.
- The increased volume and value of Chinese wine imports will also experience a natural cooling down period.
The YES, let’s do this list…
- China is a growing country, not just with regards to population size: the wine industry, per capita consumption and wine sales are all on the increase.
- Only one in every five bottles of wine consumed, is imported.
- The Chinese consumer is becoming more mature in their tastes and preferences. This means that they are spending more money and even moving into the sparkling, white and rosé wine sectors.
- The Chinese government has launched an austerity program in order to cut down on lavish spending (including those fancy, very expensive bottles of red wines served at banquets). This has forced importers and distributors in search for other markets to explore.
- The total worldwide wine consumption is growing and this future growth is going to be driven by Asian and American markets.
- Imports to China are still growing in volume and value.
- The most important role-player in the Chinese wine industry is THE CHINESE WINE CONSUMER. They are open and enthusiastic and with an ever-increasing love for the Western culture, including wine. The modern Chinese consumer is earning more money, buying more and willing to spend money on better quality goods. These consumers are becoming more aware of wine and the associated health benefits, especially compared to traditional and local high alcohol drinks. Because they are travelling abroad more often, they are experiencing wines in a more global manner and would like to be able to have similar experiences in their home country once they return. They are interested in the Western lifestyle and luxury and this is what wine represents; it is seen as a symbol of: an urban lifestyle, sophistication and social status.
- China is well-known for their so-called trademark squatters and counterfeited wines, but changes in Chinese legislation and government intervention have started addressing these issues.
So you have decided to export to China…now what?
The Chinese prefer smooth, medium-bodied red wines that are fruity and not too acidic. Popular cultivars include Cabernet Sauvignon and Merlot. In summer months, with the warmer weather, Chardonnay and Sauvignon blanc become more popular.
CHINESE WINE CONSUMER
The modern Chinese wine consumer lives in the city and are young coming from wealthy families. Fifty percent of consumers are 25-44 years old and educated. They see wine as a product of culture and luxury and a sign of popularity and reputation. Wealthy female consumers are on the increase and they are more willing to pay for their favourite items. So if you can cater for the female tastes, you will grow your sales. The Chinese are a face saving nation. You have to make them feel comfortable with their (lack of) wine knowledge and their choice of wine. Use your packaging wisely to tell of the origin of the wine and as an indication of the price. Focus on the individual consumer and the younger generation.
Ideally, your Chinese importer and distributor should be China-based, preferably in one of the larger cities and specialise in wine distribution. You require a distributor with the necessary qualifications in order to import and sell wine. Trust is an important factor in order to successfully conduct business in China. these relationships take time to establish and ideally you should be introduced or recommended by a mutual acquaintance. Your distributor should sell a good product for a specific market, have a good network in place and be dynamic. Keep in mind that your distributor will require assistance from both entities involved in the exporting and importing of your wine.
- You will have to educate the importer and consumers about your country, your wine, your brand and your story.
- Present different wines in different price categories to avoid product conflict for your distributor.
- Visit China. Often. You will require hands-on, pro-active marketing on ground level.
- Make an effort to understand the cultural differences. To build dynamic, long-lasting business relationships require respect, patience, trust, communication and an idea of social etiquette.
- Make all your marketing material available in Chinese, including websites. Have lots of pictures and information on your history and family.
- To enter the market, stick to red wine, cork closures and classic French packaging.
- Keep in mind that we have some major selling points as a South African brand: two indigenous cultivars, Chenin blanc and Pinotage, as well as the winelands as a major tourist destination. Think Brand South Africa. Some institutions that could help, include: The Department of Trade and Industry 9TDI), Trade and Investment South Africa (TISA), Department of Tourism, Wesgro and WOSA.
- Register your trademark and do an online search of registered trademarks in existence in the Chinese market.
- Analyse your wine before it leaves the country.
- Keep in mind that the Asian marker means more than just China, think Hong Kong, Vietnam etc.
- We have wines with big, bold aromas and flavours, perfect for going up against the spicy cuisine of the Chinese. Keep this in mind when planning promotional/marketing dinners and/or events.
- A handy website filled with people who have been there, done that and got the T-shirt: www.grapewallofchina.com
These are only a number of factors to take into consideration when making the decision of whether to dip a toe in the Chinese wine market or to make a splash.