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China’s Wine Market In Transition: Australia Shines As France, U.S. Decline

August 27, 2019

Wine volumes in China slipped last year, but international marketers continue to see it as a long-term growth opportunity. China’s free trade agreements with Australia and Chile have benefited producers from those two countries as they compete with longtime top player France. Meanwhile, U.S. wines have faced headwinds in China owing to the trade war between the two countries.

Last year, imported wine volume in China was down 8.3% to 76.4 million cases, according to Impact Databank—marking the first decrease since 2014—as imports accounted for 38.2% of the total Chinese wine market. By value, however, imported wine grew 2.1% to $2.85 billion, indicating that consumers continue to trade up.

France, the largest imported wine segment, fell 21% to 19.3 million cases and 3.1% to $1.1 billion last year. Reds from Bordeaux have traditionally been the calling card of Chinese wine drinkers, but Bordeaux volumes were down last year. While France still accounts for 37% of the import market by value, Australia, the number-two import player, rose 5.4% to $723 million in 2018. Chile (+1%), Italy (+4.9%), and Spain (+3.2%) were also on the rise in value terms. The U.S. posted a 5.2% decline to $75.5 million.

“Imported wine continued to slide in the first four months of this year, signaling that the wine market is becoming more challenging than expected,” notes Yoshi Shibuya, CEO of Suntory-owned ASC Fine Wines, one of China’s major import firms. According to the China Association for Import and Export of Wines and Spirits (CAWS), Australia overtook France as the top supplier during the first four months of 2019. While Australia and Chile enjoy FTAs with China, established in 2015 and 2005, respectively, French wines bear a 14% import tax.

Tom King, managing director for North Asia at Treasury Wine Estates (TWE), is focused on building TWE’s luxury and prestige brands. “People under 30 with disposable income are getting into wine appreciation,” he says. “Methods of consumption are also evolving. While traditional gifting or formal banquets and dinners are still very much a part of the culture, consumers are purchasing wine for personal reward and more immediate consumption.” King adds that the expanding number of purchasing channels in China—including mobile shopping apps and increasing retail and bar sales—have boosted Australian wine. TWE has targeted the market with launches like Penfolds Lot 518, a fortified Barossa Shiraz enhanced with baijiu, which retails at CNY798 ($116) a 700-ml.

As wines from Chile and Australia thrive, U.S. wines rank sixth, at less than 1.5 million cases. Hindering progress have been three recent tariff increases on American wine imports to China: a 15% levy in April 2018, a further 10% hike in September 2018, and another 15% increase this past June.

Still, Bill McMorran, vice president and general manager, Asia, for E. & J. Gallo, is confident that American wines can overcome the trade war. One of Gallo’s priorities is penetrating the market through e-commerce platforms, the fastest-rising sector for wine sales. “E-commerce continues to thrive,” McMorran says. “Word of mouth from friends and family (including those on social media platforms) remains the most powerful source of wine information.” Last year, Gallo signed a three-year strategic partnership with e-commerce giant Alibaba. McMorran notes that while imported wine volume in 2018 declined, value remains stable. “Consumers are reining in consumption frequency for informal occasions but trade up to higher-priced premium wines,” he says.—Mary Keefe

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