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Imported Wine Surges In China, But U.S. Category Faces Challenges

August 8, 2018

China’s imported wine market soared last year, with shipments up 18% to $2.8 billion on a volume increase of 17% to almost 83 million cases, according to Impact Databank. French wines dominate the market, increasing by roughly 14% to 24 million cases last year. But second-ranked Australia is also rapidly expanding its presence, with volume up 33% to nearly 12 million cases, and a free trade agreement taking effect next year between China and Australia should further boost momentum.

Bordeaux’s shipments to China rose 13% to nearly 7 million cases last year. Still, effectively navigating the complex market remains daunting for many producers. “One challenge is establishing strong professional distribution,” says Allan Sichel, president of the Conseil Interprofessionel du Vin de Bordeaux (CIVB). “There are many small distributors and importers, all competing to establish a national position. There are also large distribution companies from other industries setting up wine departments. Bordeaux has mostly been focused on Beijing and cities along the eastern coast, but now we’re moving inland to the second- and third-tier cities.” Sichel adds that the CIVB is promoting its Simply Bordeaux collection in China, which features 100 accessibly priced Bordeaux wines selected by a local jury, in a bid to cater to Chinese palates.

Treasury Wine Estates (TWE), which counts China among its key markets, has expanded its offering in the French category recently, launching its Maison de Grand Esprit brand last fall, and adding the wines of Baron Philippe de Rothschild—including Mouton Cadet—in January. The Piat d’Or label, acquired from Diageo in 2015, has also contributed to TWE’s growth in French wine. But while its French offerings are on the rise, Australian icon Penfolds remains the company’s star brand in China. In recent weeks, Treasury announced that it will launch a new Penfolds Barossa Shiraz blended with baijiu in the market this fall, retailing at around $110.

Australia’s Accolade Wines also sees opportunity in China. The Carlyle Group acquired Accolade from fellow private equity group Champ for $770 million earlier this year, referencing its Asian growth potential. Accolade’s Australian brands include Hardys, Banrock Station, and Grant Burge among others.

Chilean wine is also a force in China, aided by a free trade agreement, with shipments up 24% to 8 million cases and 28% to $267 million last year. Concha y Toro leads the charge, comprising about 11% of Chilean imports by value. With Casillero del Diablo among its key labels, Concha y Toro’s China business—which accounts for 2.7% of total company sales—leapt by 29% last year.

Wines from the U.S. are trailing with a volume of about 1.1 million cases. In April, China raised tariffs on U.S. wines by 15% in retaliation for the Trump administration’s tariffs on steel and aluminum, bringing the total tariff and tax paid on a bottle of U.S. wine imported into China from 48.2% to 66%, according to the Wine Institute. Bobby Koch, president of the Wine Institute, said, “These tariffs put our products at a price disadvantage and we urge swift resolution of this issue before long-term disruptions are felt.”

“The worsening trade battle between the world’s two largest economies could have a big impact on U.S. wines’ development,” adds Yoshi Shibuya, CEO of Suntory-owned importer ASC Fine Wines. “The pricing of wines from the U.S. is not as competitive as that of their Australian or Chilean peers. It’s hard for U.S. wines to thrive already, and will be even more difficult given the increased tariff.”—Daniel Marsteller

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