Four years ago a Chinese couple newly arrived in Melbourne decided to become exporters of Australian wine to China. Andy, 50, and Kandy Xu, 40, could see that more and more of their fellow Chinese were drinking wine and believed it to be a growing market in their homeland. But their background wasn’t in wine. They were textile manufacturers.
Virtual branding
Australian wine brokers helped smooth the couple’s way into wine, steering them towards two wines to send to China to test the waters; one, an entry-level A$3.50 ($3.17) a bottle Cabernet from the general South East Australia region, and the other, a ‘medium’ level A$5.80 a bottle Barossa Valley Shiraz. They started with one-and-a-half containers of the entry-level wine and half a container of the more expensive wine. The test proved a success, with the entry-level wine “more welcomed”.
Today, their company – Kensington Wines – exports 12 containers of Australian wine into China under its own brand, selling them through two of their own Kensington Club shops in Xinqiao and Beiguo. “We hope to have five,” says Kandy Xu of her expansion plans. Another three containers are shipped and for sale through a chain of retail outlets under store own brands. Kensington Wines are mostly positioned at the cheaper, entry-level price point, a deliberate policy. “We want to make (wine) more closer to the consumers and make ordinary people afford it as well,” she says. Her main market is selling wine for wedding feasts. Kensington Wines is just one of hundreds (just how many is unknown) of virtual or own brand Australian wines now hitting the Chinese market. The names are new. There are no back stories to be told or back vintages to create a reputation. ‘South East Australia’ is a common appellation on labels and prices are whatever the exporter can command.
The Xus are serious about their new life in Australia as wine exporters (Kandy Xu is the inaugural president of the Chinese Wine Association of Australia), but some observers are concerned that there are many new,
Australia-based Chinese-born exporters to China operating with scant wine knowledge and little regard for Australia as a brand.
There are reports of some Australian wine in China selling for as low as A$20.00 a dozen. Adelaide Hills wine producer John Edwards, of The Lane Vineyard, says he spends a lot of time in China and runs into these wines all the time. “There’s an ocean of it up there.”
Opportunistic exporters selling buyer’s own wine brands (BOBs) in China are not unique to the Australian wine industry. South America and Europe have more than their share of such enterprising wine entrepreneurs. However,
Australia is seen to be encouraging growth in the trade through its immigration policies that offer business visas, in particular state sponsorships which extend the attractive promise of permanent residency.
In South Australia, the state-sponsored applicant must reside in that state and meet three requirements before being considered for permanent residency: they must employ one full time person for 12 months; export South Australian-produced goods; and inject a “significant” amount of capital into the state, being a minimum of A$500,000. In Victoria, a state-sponsored business owner visa applicant agrees to live and work in Victoria for at least two years. For a A$5m investment, applicants and their families are fast-tracked to permanent residency under the federal government’s Significant Investor Visa. So getting into the wine business can be a fast track to a residency visa.
Australia, with its strong economy, highly regarded tertiary education institutions, universal health care scheme, and clean environment, is viewed in China as a highly desirable place to live. In 2012-13 alone, more than 18,000 Chinese headed to settle Down Under. Only New Zealanders and Indians migrated in bigger numbers.
Almost every Australian wine producer has a story to tell of being approached by a Chinese businessman or woman wanting to buy wine.
“We did a container three years ago now,” says Bruce Tyrrell of Tyrrell’s Wines, an old family winery based in the Hunter Valley. He says the sale was for A$447,000. The company’s export manager simply walked to the ANZ Bank, where the Chinese customer was waiting with shopping bags containing A$556,000 in cash. “In cash! People said, ‘Aren’t you worried where the cash came from?’ I said, no, I was only worried where it was going. Don’t ask the question.”
The wine was for a group of Chinese men involved in restaurants and sporting clubs with some wine destined for corporate gift giving. It was sold with nothing to identify the wine came from Tyrrell’s.
Tyrrell estimates one-third of his business now comes from dealing with Chinese traders. “There’s some A$50.00-a-dozen stuff [wine], but there’s some A$500.00-a-dozen stuff too. We’re pragmatic about it. This is what the market wants.”
Chinese traders, according to Ross Brown of Brown Brothers in Victoria, often operate in what he calls a “grey channel”, selling wine to family and friends.
“You can’t see it in the marketplace,” he says. “I don’t think it has the potential to do much damage [to Australia’s reputation] because it’s not in the mainstream of distribution. It’s not competing on shelves or competing in a retail market. One only hopes the wine is good.”
Wine Australia statistics support Ross Brown’s optimism. The average value of Australian bottled exports to China is A$6.54 a litre, which is nearly 50% above the average. China is also the biggest market for Australian wine exports priced over A$7.50 a litre. “In fact, among the top 10 wine exporters to China, we are number one in terms of highest average value,” says Steve Guy, general manager of regulatory advice for Wine Australia. “So if someone was to say all these buyer’s own brands are damaging our reputation, it simply isn’t borne out by the facts.”
Even bulk wine exports, the source of angst among wine producers for their ability to be tampered with and stretched at the point of bottling in China, are in decline. When asked what Wine Australia makes of the explosion of new Australian wine labels in China, James Gosper, general manager of market development, answers with questions of his own. “It’s a very big grey area,” he says. “Traders are being encouraged by visa? Sure. The market encourages trade? Sure. New branding has been done for that market because the culture is different? Sure.” Why can’t some of the many buyer’s own brands, he asks, be serious brands in the making? “It’s a new market and brands are being invented for that market. “Why is that a bad thing?”
However, when it comes to Australian wine promotions in China, Wine Australia is only interested in the highest quality, specifically requesting no export labels, while the wines to be shown must have scored 90 points or more by a relevant third party.
It appears that, deep down, James Gosper has his concerns. “Where is the wine going? Who is consuming it?” he asks of the profusion of new brands. “My big fear with China is it’s a massive pipeline, bigger than we have ever seen before. We keep filling it.” The question is, he says, whether the pipeline is being depleted at the same rate as it’s being filled. “Very few people know where their wine is ultimately going. Very few see the end consumer taking the top off and drinking.” He suggests French winemakers, with the biggest wine market share in China, potentially have it worse.
Business migrants
The Chinese Wine Association of China, based in Melbourne, was formed in 2012. Its 100-odd members are mostly business visa migrants. Conservative estimates suggest the group ships around A$10m worth of Australian wine to China annually. Members are clearly thinking long term (24 have enrolled for Mandarin-language WSET Courses in Melbourne) but there are many others outside the group exporting only once.
Chinese Customs Bureau figures reveal that 288 importers made one-off sales of Australian wines in China in 2011 amounting to 689,466 cases. Maybe the wines were for a once-off gift giving (a common practice in China), or the wine business failed or maybe the importer, with a second base in Australia, had met the requirements for an Australian residency visa and didn’t need to continue trading? If it’s the latter, the question has to be asked: what quality were the wines?
“A lot of the fault sits with the Australian wine producer,” says Jeremy Oliver, a Melbourne-based writer and educator who is a regular visitor to China. Many, he adds, simply don’t want to know and don’t ask questions. “We don’t do our due diligence with the Chinese.”
Chinese traders pay up front and often order by the container load. More than likely the winemaker never sees them again. “They’re not interested in getting into the wine business,” says John Edwards of the traders who have approached him over the years looking for wine. “They’re not interested in the future of Brand Australia. “
Australian wineries undoubtedly understand it’s not a long-term brand-building exercise to sell unbranded wine, but the temptations are almost irresistible. With traditional export countries in Europe and North America in the doldrums, China is their fastest-growing market with 35m L of bottled wine sold annually.
Kandy Xu and her husband, now permanent residents, have big plans for their new business. They have expanded into exporting a South-East Australia Chardonnay and Riesling from the Limestone Coast, and after receiving feedback that their Cabernet Sauvignon was “too strong”, have moved to a soft Victorian Merlot, selling three to four containers this year. There are plans to move up in quality and price but only to around A$10.00 a bottle.
Mrs Xu is aware that there are traders out there who don’t share her new found passion for wine. “They want to establish a business to become (Australian) resident but they are less serious,” she says, adding that a friend once laughed at them once he found out their selling volume and profit margin, saying that he was able to sell 6,000 bottles per year at a better profit margin. “For a healthier and long-term wine- consuming market, we insist in our way.”
