| China's Wine Industry Development and Import Analysis (Part 2) |
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China's wine imports growing fast
Wine imports to the Chinese market mainly consist of original bottled wine, foreign wine bottled in China (foreign wine, foreign brands, Chinese bottlers) and white labelled, mixed wines by Chinese brands (foreign wine mixed with local wine, Chinese brands). At present, imported bottled wine has about 5% wine market share in China, and is mainly distributed in high end markets such as star-grade hotels and luxury clubs. The distributors are mainly foreign owned or JV sales companies and small Chinese traders or distributors. Including those white labelled wines mixed by Chinese producers, imported wine has a total wine market share of 10% in China.
Imports continued to increase. According to customs statistics, in the 1st quarter of 2007, Tianjin Port imported 6.7 million L wine from Australia, while it was only 9,000 L on pcp. The Port also imported 5.2 million L wine from Chile, up 69 times on pcp. During the first half of this year, Ningbo Port imported 770 kiloliter wine, valued at US$2.36 million, up 1.9 times and 2.4 times on pcp respectively, maintaining a double import growth rate for 8 consecutive months. Guangdong Province customs, one of the largest wine import customs in China, recorded 218 million L wine imports in the first two months of 2007, valued at US$7.5 million, up 1.4 times and 1.7 times on pcp.
Many foreign producers are optimistic about the Chinese market, and eager to gain access through a variety of channels. Currently, foreign wine products in China are mainly from France, Spain, Italy, Germany, United States, Chile, Argentina, Australia, New Zealand and South Africa. French wine enjoys reputable status in China, while other countries such as Australia, Italy, Germany and United States also gain excellent brand impressions among Chinese consumers.
In May 2007, five Romanian brewing companies held a wine tasting fair in the Romanian Embassy in China, and many wine industry representatives, including a large number of liquor distributors, had attended the fair. And In June 2007, wine exports by Uruguay arrived in China for the first time. As wine products from traditional and emerging producer countries exhibit different characteristics, it would create broader opportunities for foreign wine products in China.
Prices of famous chateau wines have been on the way up. Since January 2007, wine prices of the top 5 chateaus, Lafite, Latour, Margaux, Haut Brion and Mouton Rothschild, along with other famous chateaus, have all changed from the previously stable situation to monthly upward adjustments, some of which even adjusted every 20 days or so. The reasons for such phenomenon are mainly due to marketing campaigns by major Chinese distributors and hot demand from high end Chinese consumers. Although prices for famous chateau wines are expensive, there are still a lot of consumers. As sales volume goes up, the market frequently experiences supply shortages, vintages from certain famous chateaus even don't have a single bottle available.
On the other hand, prices for imported bulk wines have been going the opposite direction of bottled wines. Bulk wines from Chile, Argentina, Australia, Italy and Bulgaria have been entering the Chinese market through various channels. Their prices have gone down from US$1050 / kiloliter in previous years to current US$900, or even US$800 or lower in certain regions. |
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Reasons for the substantial growth of wine imports
Importing bulk wine can reduce production costs. The lower grape output in 2005, caused by bad weather, and booming domestic demand, have led to an increase in bulk wine imports. As grape price in China remained high, wine producers may reduce their costs by importing bulk wines. The gradually lower wine import duties have also contributed to high imports. From January 1, 2005, bottled wine import tariff has reduced from 43% to 14%, and bulk wine import tariff has reduced from 43% to 20%. From July 1, 2006, the new Consumption Tax Management Regulation (draft) for the wine market came into effect, and now imported wine consumption tax can offset by consumption tax credits from the importing process, further reducing the cost. As a result of lower import cost, the competitiveness of imported wines has strengthened in the Chinese market. Coupled with the attractive margin from high end wine products, wine import volume to China has substantially lifted.
Many foreign wine producers are still unfamiliar with the Chinese business models and market models, thus still exploring the possible ways and cooperation methods. Although there are many foreign wine brands in China, few can be really remembered by Chinese consumers. A major reason for this phenomenon is that there haven't been many active and high profile marketing campaigns by foreign wine brands. With the weakness in price, the lack of marketing is even more fatal.
Although Chinese wine companies are still behind their foreign counterparts in terms of brewing technologies, they have successfully captured the Chinese market by distribution channels, brands and capital. Most channels have been bought out by Chinese wine companies. In terms of brands, foreign brands have had a relatively short history in China, and haven't invested heavily in brand promotions to raise consumer awareness. In terms of capital investment, large foreign companies have not yet entered the Chinese market, and those resources scarce smaller wine companies cannot compete with Chinese state-owned companies.
Foreign wine companies also need to recognise the fact that China is still an emerging wine consumption market, whose consumers have not yet possessed wine quality examining skills. Therefore wine brand recognition and distribution channels currently determine sales success in the market, which means imported wines will be hard to grow sales in mainstream distribution channels. Albeit the higher quality, foreign wines currently have to enter the market via high end consumer groups. Among the white collar and gold collar urban consumers in China, only 1-2% understands wine tasting, while the figure is 10% in Hong Kong and even 40-50% in developed countries. Only when more people get to understand wine tasting, the strengths of imported wines can become apparent, thus better market shares. The problem is, it will take some time for Chinese people to understand the wine culture, while Chinese wine producers can utilise this time lag to catch up with foreign wine product qualities.
China's wine industry development trend
In the last three years, the average premium wine sales growth reached 50% per year, and chateau wine sales exceeded 100% growth annually. The world famous The Wine Report forecast that the wine consumption structure in China by 2010 will consist of 50% premium wine, 40% middle market and 10% cheap market. The profit margin in the premium market of China could be as high as 30-50%.
Wine culture is a romantic, fashionable and personalised culture, and its consumer groups are mainly high to medium income urban classes. At present, China has not yet formed a good wine culture and wine drinking atmosphere. But as the global consumption habit concerns the originality of wines, it has pointed a direction for developing premium wine products.
Source: www.21food.cn
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