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Sea Change: China’s Wine Market Upswing Hobbled By Government Austerity Drive

August 19, 2014

Perhaps the biggest story in the global wine industry so far this year was the news that the U.S. overtook France in 2013 to become the world’s largest wine market—but a close second would have to be the sudden and significant drop in wine consumption in China, linked to a new policy against intra-governmental entertaining. Prior to 2013, China’s wine segment hadn’t declined in more than a decade, and from 2009-2012 it added nearly 40 million nine-liter cases on average annual growth of 8%. Last year, however, as the government’s anti-extravagance campaign took a toll on high-end gift-giving and entertaining, the market contracted 5.6% to 187 million cases, according to Impact Databank, and took an even harsher hit on the value side. While domestic wines bore the brunt of the volume decline, imports also slipped—surrendering nearly 2 million cases—after more than doubling to 44 million cases from 2009-2012.

The stark change in China’s wine sector over the past year is exemplified by the steep downturn in the Bordeaux segment—long regarded as a benchmark by Chinese consumers. Bordeaux grew from about 100,000 cases in China in 2005 to more than 1.5 million in 2009, then soared to just under 6 million cases in 2012. That meteoric upswing came to an abrupt end last year, as the category—whose luxury tier has been driven by governmental consumption—lost nearly 1 million cases of volume.

Overall, China’s imported wine volume rose 28% in 2011 and 8% in 2012, before falling by 4% in 2013, according to Impact Databank. From January to May of this year, volume declined 8% and value fell 10%, according to China Customs.

“The anti-extravagance and anti-corruption policies have had a dramatic impact on both the value and volume of imported wines,” says John Watkins, CEO of Suntory-owned importer ASC Fine Wines. “We forecast for the near-to-medium term that government-related spending on wine for entertainment and gifting will remain at the current low levels.” This view marks a change from the same time last year, when many observers expected upscale drinks patterns in government channels to eventually show at least a partial return to the robust consumption of the past.

While the end of government-led growth has caused headaches, leading importers say a ‘real,’ consumer-driven wine category is now emerging. Currently, the RMB100-RMB200 price point ($16-$32) is showing the most growth for imports, with sales in that range expanding by 19% last year. Entry- to mid-level Bordeaux, Chilean wines and non-Champagne sparklers like Cava and Prosecco are among the segments driving gains. Meanwhile, new channels are also opening, among them the thriving e-commerce sector. Paced by major platforms like T-Mall, online wine sales leapt more than 70% in China last year to RMB913 million ($148m).

The emergence of a growing wine market of ordinary consumers has some of the global category’s biggest players laying plans for the future in China. Among them is Constellation Brands, which aligned with local distributor VATS Liquor in March. “We see China’s wine market doubling over the next five years,” says Chris Fehrnstrom, CMO of Constellation’s Wine & Spirits division.

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

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