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China’s Enormous Potential Aggressively Pursued By Global Wine Exporters

July 28, 2011

Long considered the promised land for wine exporters, China’s wine market is now expanding beyond metropolises like Beijing and Shanghai and into the country’s second- and third-tier cities.Total wine imports into China, including bulk, rose by 67% to 31.8 million cases last year. Bottled imports jumped 61% to 16.2 million cases in the same period, according to Impact Databank.

France, benefiting from Chinese consumers’ love affair with Bordeaux, comprises nearly half the imported wine market in China. But the U.S. saw its shipments to China rise by 27% to $45 million last year, and it’s now among the leaders. The Wine Institute is in the midst of a “Discover California Wines” marketing push in the Chinese market—focusing on Shanghai but also covering cities like Chengdu, Guangzhou and Shenzhen. Constellation, which has been participating in the Wine Institute’s activities through its Robert Mondavi brand among others, is currently setting up a new office in Hong Kong to target Asian markets. Constellation CEO Rob Sands is expected to name a top executive to lead the Asian business in the coming weeks.

Australia, which accounts for roughly one-quarter of China’s wine imports, also has been making a charge with brands like Treasury Wine Estates’ Penfolds and Pernod Ricard’s Jacob’s Creek. “Jacob’s Creek is in continued rapid growth and is the clear leader in the bottled-in-Australia category, which is growing by more than 23% year on year,” says Edouard Beaslay, global marketing and communications director for Pernod’s Premium Wine Brands unit. Italy, Spain and Chile also have sizeable market share and are capitalizing on China’s broadening consumer interest in wine.

“The growth in demand in second- and third-tier cities is the biggest change for China’s wine market from just a few years ago,” says Don St. Pierre, Jr., CEO of ASC Fine Wines, a subsidiary of Suntory and one of China’s leading wine importers. “In the second-tier markets, imported wine used to be sold only in hotels and international hypermarkets. Now, demand is more broad-based, with more and more local retail outlets participating.” That surge in demand has led ASC to nearly triple its number of offices across the country (now at 23 locations) in just the past three years. The company is the exclusive importer for Treasury Wine Estates brands including Beringer, Penfolds and Wolf Blass, as well as DBR (Lafite) from Bordeaux, Champagnes Ayala and Bollinger and California’s Caymus, among many others.

China’s imported wine marketers are aware that, in a country without an ingrained wine culture, progress will depend in part on prying consumers away from beer and premium white spirits. “The challenge in Asia is to understand we’re not just competing in the wine category,” says Treasury Wine Estates CEO David Dearie. “We compete against other luxury brands in the marketplace, so we have to make sure we position our brands accordingly.”

The price distinction between imported wine and domestic labels such as Changyu, Great Wall and Dynasty has traditionally been clear, with imports retailing at around three times more than domestics, which typically sell for around $5 a 1-liter bottle. But that has begun to change: the top domestic producers recently have released around 40 new labels, all in the $12 to $15 range. Driven by heavy above-the-line advertising, the new offerings have gained traction. But St. Pierre maintains that the domestic wines’ quality hasn’t kept up with their rising prices. “Domestic price hikes have had the effect of making imports look more reasonable in the short-term,” he says. “But consumers will eventually demand better quality of the higher-priced domestic wines.”

Some multinational wine companies are starting to take advantage of China’s cheap land prices for domestic production of their own. Moët Hennessy is preparing to produce sparkling wine in China under its internationally sourced Chandon brand via a new joint venture with agricultural firm Ningxia Nongken in China’s Northwest. Pernod Ricard too is producing wine in the northwest region. (For a full report on China’s dynamic drinks market, see Impact’s upcoming August 1&15 issue.)

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