By the numbers, Australia has been a stunning success these past half-dozen years. It once badly trailed leader France but steadily gained ground and has topped its European competitor by value, $553m to $487m, for the first eight months of 2019. And it is just a step or two behind on volume, too, with 82m litres to France's 96m.
How did Australia become so successful in China?
Australia makes soft fruity wines from well-known varieties that newcomers tend to enjoy, but also more refined styles that appeal to aficionados. It has a free trade deal with China. And a good reputation for food safety. It attracts waves of students and tourists from China who get a taste of the local wines. And it pours resources into wine promotion.
But it’s also important to know exactly where all that wine is coming from and a closer look at the numbers shows two factors account for the much of the country's success.
One is Penfolds, and its corporate parent company Treasury Wine Estates (TWE), which has a large slice of Australia’s market share here.
How large? That’s a tough one.
Carolyn Coon, TWE global director of corporate affairs, says the company doesn’t generally give numbers by country. Wine Australia didn’t respond to a request for the information.
But sources with knowledge of the data suggest TWE has a market share between 30% to 40% by value and 10% to 15% by volume. Taking the mid-point on volume, it means one in every eight Australian wine bottles in China is from TWE. If TWE is taken out of the Australian equation, value per bottle drops from $6.70 to $5.00, on par with France.
The second factor concerns Chinese investment in Australian wine businesses—which is sometimes done as part of securing Australian citizenship.
There is much debate as to the degree that such business are going concerns, but their presence is significant. For example, last October ABC News cited Barossa Grape and Wine Association CEO James March as stating “between 5% and 10% of the vineyards and wineries in his region were now owned by people from China,” often in partnership with existing landowners.
Alberto Fernandez, managing partner of Torres China, which handles Australian brands like Bass Phillip, Vasse Felix, Tyrrell’s and De Bortoli, got a sense of this during a visit to Australia in March.
“Many Chinese have bought wine production facilities, cellars and brands,” he says. “There is a WeChat group of Chinese living in South Australia working with wine that has 300 members already.”
Estimates from a half-dozen trade people well-versed in China's wine scene suggest these wineries are responsible for between 15% and 30% of the bottles sent to China.
At the very least, it seems safe to say that one third to one half of Australia’s imports in China by volume and half by value are accounted for by TWE or Chinese-backed properties. Add other major brands like YellowTail, and the wave of OEM (‘original equipment manufacture’, or private label) wines from Australia, and there is a more modest share than many imagine for the rest of Australia's producers.
“We are definitely seeing growing interest in smaller labels among consumers in first-tier cities,” says Campbell Thompson of importer The Wine Republic, which carries brands like Tim Adams and Oakridge. “But wineries that are either large-listed companies or Chinese-owned do have a big advantage in the broader market, that is, across the 100-plus cities that have more than one million people and are not first-tier.”
That doesn’t mean these wineries lack opportunities Some, such as Vicente Muedra of Sommelier International, says he is doing well with producers such as Pike & Joyce from Adelaide Hills and Gaelic Cemetery from Clare Valley. Others are less enthusiastic, saying they have spent years building brands but have seen far less growth than the likes of TWE. So, while the surface story is one of wild success, for a vast number of wineries, including those who are new to the market and yet to see if those exciting first few orders turn into sales and more purchases, there is still a very strong element of Wild East to the market.
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