After a decade of remarkable growth, the Chinese wine market is experiencing what might be called The Great Correction. A government austerity campaign unleashed 18 months ago severely slashed luxury goods spending by officials, and thus a good share of the wine market. That market already seemed inflated given eye-popping annual import growth that often topped 50% and that many warned was far ahead of actual sales. The result is that distributors have largely shifted their focus to regular consumers, who are armed with smart phones, increasingly knowledgeable about wine, and frugal compared to government buyers – at a time when many warehouses are creaking with stock. This might be the best thing to happen to the wine market, especially if you think its future depends on a healthy consumer class.
As the nation’s capital, Beijing felt the full impact of the austerity program as luxury goods spending by officials dropped off a cliff. That removed a key source of income for distributors in a market considered a bit lower than other ‘first-tier’ cities -- Guangzhou, Shenzhen and Shanghai -- in terms of entrepreneurship, sophistication and scale. They must now appeal to consumers who not only prefer beer and the local spirit baijiu but also seek lower wine prices. In a parallel development, those distributors who are unwilling to give up their steep margins are also in search of cheaper wine, so they can pursue bigger markups. Import statistics from the past year suggest these trends are true for China in general. Of the top four wine countries, the two with the highest value-per-bottle – France and Australia – have lost share while Chile and Spain, the two with the lowest, have gained it.
This is not to say Beijing lacks a dynamic wine market. Brick and mortar options range from mom ‘n’ pop shops and chains like 7-Eleven to hypermarkets like Wal-Mart and its Chinese doppelgänger Wu-Mart. There are retailers backed by key distributors, like Pudao (Summergate) and Everwines (Torres), independent wine shop chains like Cheers and single-country options like Chilean specialists La Cava. Foreign foods shops like April Gourmet and Jenny Lou’s stock hundreds of imported wines. Add the growth of online retail, a nonstop stream of tastings led by visiting winemakers, and increasingly interesting portfolios at bars and restaurants, and wine fans do not thirst for choice.
While the market presents difficulties, it is becoming more competitive and more consumer-friendly.
Damien Shee
Torres China. General manager for North China at Torres, one of the biggest importers and distributors in the country, established in 1997.
Torres now carries more than 400 wines from 14 countries, including brands like Chapoutier, Henschke, Salentein, Kleine Zalze, Baron Philippe de Rothschild and, of course, Torres. It also runs – with Rothschild’s – the retail brand Everwines, which includes online sales and shops in 10 cities.
What’s the impact of the austerity program?
Wines were normally consumed and presented as gifts during corporate (state-owned enterprise) and government entertaining. This disappeared. It impacted our on-trade channels, especially in the Chinese restaurant segment, but fortunately we had established retail and direct sales networks through [our shops] Everwines and other retail channels, and we see growth there.
What distinguishes the Beijing wine scene?
Corporate and government entertainment was very strong compared to other cities. Currently, the BYO [bring your own bottle] concept is growing tremendously in Beijing and this will have a huge impact on the traditional on-trade channel.
What advice would you give someone new to the market?
It’s not an easy market. Consumers are gaining knowledge. Investment in marketing is a must. The product must be quality-driven and have great value. Last but not least, get ready to ganbei [drink “bottoms up”] and venture out of the capital city, because the secondary markets are booming.
Patricio de la Fuente-Saez
Managing director of Links Concept, established in 2000 and focused mostly on importing from family-owned wineries.
Clients include Louis Latour, Torbreck, Wente, Antinori and Louis Roederer. Links has offices in six cities in China and a strong portfolio of spirits as well as a strong network for sourcing rare wines.
What is the state of Beijing’s wine market?
Business is definitely not growing and the summer has been particularly quiet, with a double-digit decrease in sales compared to last year. We see a large drop in sales of premium wines and more demand for cheaper wines. I think Beijing will definitely see a bigger impact from the [government austerity] measures because it’s the capital and it’s more conservative than Shanghai. Shanghai has more bars and restaurants, and a slightly bigger-spending expat population, so it has more to fall back on.
What’s your advice for producers seeking to enter the market?
Come to China with an open mind and be patient. Instead of being optimistic, be realistic, and remember that wine shipments to China do not equal depletions. In other words, don’t assume that because imports are high that sales are high, too. Watch your payments carefully and do not be too generous with credit terms. There are lots of wine companies here that quickly went from boom to bust because of growing sales and shrinking receivables.
And please don’t try to convince Chinese customers that your wine is good because it is slightly sweet or has a red label or uses a golden dragon as a symbol or has the number eight on it. People in China want the same as the rest of the world: good wine for a good price.
Weiley Lu
Owner of The Loop, which stocks wines from more than a half-dozen small distributors and sells them to private and on-trade customers.
Lu is also Beijing rep for Tinta Fina, a Shanghai-based importer that handles 20 Spanish, Portuguese and French brands and is especially strong in the fortified sector via close work with Gonzales Byass.
What trends do you see in Beijing?
People are more willing to buy sparkling than a year ago, more willing to pop a bottle of bubbly during a celebration than to open another bottle of red. Consumers are also asking for wines from other regions, such as Spain from the Old World, and Argentina and Chile from the New World.
The on-trade market has decreased as it is common for people to bring their own bottles to restaurants because corkage fees have been made illegal in Beijing due to several lawsuits. There is a lot of discussion and worry in the trade about this situation and I think it will grow as an issue.
Do you see a shift toward consumers?
Yes, and many Chinese are anxious to know about ‘wine’ now that it is not only enjoyed by the wealthy at luxury events. Many young people see knowing something about wine as fashionable, and see drinking it occasionally with friends as classy. Most purchases are for reasonably priced bottles -- around rmb70 ($11.50) to rmb150.
Helene Ponty
Director of international development for Bordeaux-based Ponty winery.
Ponty has handled importing, marketing and sales of six of the family’s labels in Beijing and throughout China since 2012. She is regularly involved in industry groups, trade fairs and consumer events.
How is the Beijing wine market different?
I believe wine culture in Beijing is less developed than in other big cities such as Shanghai, Guangzhou and Shenzhen, or even Chengdu. When I do a wine tour with Sopexa in Beijing, I usually am the only one or one of two French exhibitors. In Shanghai and Guangzhou there are many of us.
What trends do you see here?
Since the spring of 2014, I feel like the market is slowly getting back on its feet, but has shifted a lot. The demand is now high for cheap wines. I have had discussions with well-established distributors in the north who told me they are specifically looking for French wine at rmb30 ($4.88), which is unfortunately very difficult if not impossible to offer considering the Euro exchange rate and import taxes.
One unexpected consequence is in regards to fake wines. I used to see a lot of fake Bordeaux/French wines in Beijing because people wanted to sell a French wine, with a name that could not be tracked on the Internet, for obscene margins. After the government crackdown, I expected this to stop, and people to start buying real, regularly priced wines. However, distributors who were used to having those obscene margins were not willing to give them up. So it seems that the trend is now to still do fake wines, but to be able to offer really cheap French wines.
What’s your advice for producers seeking to enter the market?
You need to be very patient. It took me more than 18 months to get a good enough understanding of the market. Ask your potential distributor or importer what channels they specialise in, and go look at those places, or ask other people in the industry about those channels. If they specialise in government customers, they are probably in a difficult situation. If they sell to KTVs [karaokes], the quality of your wine might not be their main concern, but they will want a good packaging and a good Chinese name.
Mariano Larrain Hurtado
Owner of Chile-focused importer and distributor La Cava de Laoma.
The company targets both on-trade as well as consumers via a wine shop in central Beijing that stocks brands such as O. Fournier, Maquis and Calcu. Hurtado has recently started to expand his portfolio to include non-Chilean wines.
Who are your clients in Beijing?
My clients generally fall into three categories: foreigners who are looking for good value but who won’t buy expensive wines; Chinese who buy more expensive wines as gifts but who are usually one-time visitors and are decreasing in numbers; and an interesting type who is eager to learn more about wine but doesn’t have high purchasing power. The last category is growing and requires the most attention. It is also the most rewarding because I can be part of the process of teaching about Chilean fine wines.
Where do you see the market heading?
I might start selling cheaper wines to put more focus on the real consumer, the one that is starting to drink wine but can’t afford an expensive bottle. If people buy that first bottle, hopefully they will try something better and they can start to learn about Chilean wines.
What advice would you give someone new to the market?
I would ask if they are sure they want to come to Beijing? This is a challenging place. They might want to try a market further south.
