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High-End Wines Face New Challenges In China

August 13, 2013

Even after years of strong growth, China’s wine market, already the fifth-largest worldwide at nearly 200 million cases, continues to be seen as the ultimate land of opportunity for global wine players. After roughly tripling in both volume and per-capita consumption between 2000 and 2010, the market accelerated in 2010-2011, with bottled imports surging 65% by volume and nearly doubling by value.

In 2012, a key source of all this growth took a hit when senior Chinese officials issued a directive to reduce intra-governmental entertaining—specifically the consumption of “expensive alcohol.” Wine imports to China still rose last year—up 9% by volume to 44 million cases, according to Impact Databank—but the ongoing decline in government consumption, combined with slowing macroeconomic progress, has winemakers scrambling to service lower price points in what historically has been a prestige-driven market.

“The challenges we’re facing related to government consumption are real, but we’re also seeing increasing interest in wine from consumers throughout the country,” says Don St. Pierre, Jr., chairman of leading importer ASC Fine Wines, which is owned by Suntory Ltd. “The issue is that the groundswell at the consumer level isn’t happening fast enough to offset the loss of value from the government part of the business. At some point, we expect government consumption to pick up again, although maybe not to its previous level.”

Led by Bordeaux—which alone accounts for 6 million cases—France continues to dominate China’s imported wine market with a roughly 50% share of bottled imports. But last year France’s export value growth to China slowed to just 3% from 107% in 2011, and sales have continued to slump this year, down 9% to $280 million year-to-date through May, according to Chinese government figures.

“This has been a challenging year,” says Jérémy Dagot, marketing manager for China and Japan at pan-French producer Les Grands Chais de France (GCF). “Consumers are looking for lower price points, which isn’t France’s strength in the Chinese market.” Earlier this summer, GCF and other European producers feared the Chinese market was about to get even tougher, owing to a trade dispute—originally over Chinese solar panel exports—that resulted in China threatening to hike duties on E.U. wines. In recent weeks, however, reports have indicated that the E.U. and China are now in talks toward an amicable solution.

While French imports have struggled this year—and other E.U. nations like Spain and Italy have also seen value lag well behind volume recently—New World countries have had better success in premiumizing their mix. Bottled U.S. wine exports to China surged 22% to $65 million last year, while volume was up 4%, and Australia posted volume and value growth of 4% and 7% respectively.

“At the moment, what’s moving is the ‘lower’ end of the import market, wines around CNY200 ($32),” says David Lucas, ASC’s vice president of marketing and supplier relations. “But some categories are premiumizing quite well, the U.S. being one. Similarly, Australia’s volumes are relatively stable, but the prices are coming through.”

For a full report on China’s wine, spirits and beer markets, see the August 1&15 issue of Impact.

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