China: approaching the wine market
But where are wines sold?” I was asked recently by Anaël Payrou, managing director of Cellier des Demoiselles at the Chengdu Wine Fair. Many producers are keen to attract Chinese buyers yet they seem to be baffled by Chinese distribution channels. Some wines arrive at warehouses in the Free Trade Zones in Shanghai, Shenzhen, Ningbo and Xiamen only to be snapped up after just a couple of phone calls and hand shakes, leaving the same warehouses at breakneck speed.
Producers, promotion organisations, governments and Chinese market players all agree the Chinese market is booming. Now a highly-coveted destination, it means newcomers have to be more rigorous in their approach.
The Chinese have a heightened sense of business. Any wine exporter in the world will tell you about the ceremonial business dinners, often attended by Party members or VIPs. This is what the Chinese call “Mian zi” (face).
To promote a better understanding of wine distribution in China, we interviewed people representing the different tiers: an importer, a distributor and a consumer.
1/ Importer: Sun Hui, sales director at Lifeng Wines
Wine imports have doubled on average over the last three years. Who is benefiting from this growth? What kind of executive is investing in the wine trade?
Most wine importers are of Chinese origin (95%). They begin by setting up a local network. Foreign firms are still few and far between even though they pioneered imports at the end of the 1990s (ASC Fine Wines, French Wine Paradox, DT Asia…). At the time, most wines were sold in multiple retail outlets, some in parallel networks. There were few Chinese wine consumers because of the popularity of local spirits, and the choice of wines available was very restricted. Also, wine was an acquired taste that took time to appreciate.
Similarly, import taxes were not conducive to imports of foreign foodstuffs, discouraging companies from investing in the sector. Wine was only accessible to the more affluent consumers, and even then only occasionally. Drinking habits have changed considerably over the last five years. The emergence of the middle classes has been a real boon and has sparked new needs, including wine drinking.
To be honest, though, most importers did not become rich overnight by trading in wine. They made their fortunes either in industry or in the property market (in the 1980s and 90s). Also, the major players relied on their existing network that they had built up during their years of prosperity. They have excellent connections with leading state officials. The government is undoubtedly the largest consumer of wine to date. Every year, private firms spend vast amounts of money on improving their relations with local government. Wine has become commonplace in business. The great growths of Bordeaux are offered as gifts to leading officials.
Similarly, local government organises its own banquets and buys large quantities of wine. Who are the suppliers? Probably the same major players who gave them wine as gifts! Their factories are extremely attractive economic powerhouses for the government because they create jobs and wealth for cities. Part of the Chinese economy relies on the growth of these industries, allowing certain local infrastructures to be funded. Consequently, leading officials have a vested interest in supporting them, hence, the affluence of wine executives.
There are two main sales periods every year that must not be missed: the Moon Festival (usually in September) and the Chinese New Year. All Chinese firms and administrations close so the Chinese can have a week off with their families, an occasion nobody wants to miss. Factories with thousands of employees give presents or “Hong Bao” (a red envelope containing money). Some firms import as many as 15,000 or 30,000 bottles of wine annually just to give their employees presents. There is no resale.
Obviously, the Chinese wine market is about more than relations with local government, and cities such as Shanghai, Beijing, Canton and Shenzhen give fairly free rein to competition. A lot of medium-sized importers work with small producers and are expanding well in on-trade channels.
2/ Distributor: Mr Wang, sales director at Shenzhen Xin Jiu Hui
How are distribution networks structured in China?
Firstly, there are increasingly fewer middlemen in the marketplace which makes it easier to control prices in provinces located a long distance from the ports. Some distributors used to sell entry-level wines at exorbitant prices and importers failed to create distributor loyalty. As soon as consumers became aware of the real prices of wines, local distributors immediately switched brands to confuse consumers again. Business models have now changed. Some importers are losing turnover to distributors who have started importing. Also, the franchise system emerged two years ago and is expanding apace. In some towns, there are as many as ten wine shops in a single street.
Lastly, specialist logistics platforms for wine are gradually being established through the Free Trade Zones. This is providing producers with a faster route to market by making bonded inventories available. A few major groups have already set up their own sales offices in China.
3/ Logistics: managing director of Shanghai Carry Way
As a logistics co-ordinator you help importers with customs clearance. Have you noticed an increase in the average prices of imported wines?
I can remember starting out in logistics with a large company in Shanghai where my task was to follow up customs clearance for our importer clients. Entry-level wines accounted for roughly 80% of all imported wines. Because of very high taxes, our clients were always on the look out for the cheapest wines they could find. We have a close relationship with them and give them as much advice as we can. Obviously average prices have risen and buyers are increasingly quality-driven. They want real brands. There are four buying cues for an importer: the wine has to have a story, brands (range consistency), value for money and a proactive wine producer.
4/ Consumer: Mr Xu, real estate project manager in Shanghai
Why do the Chinese like wine so much?
Actually, I think there are three real reasons why the Chinese drink wine: culture, rising income and health. Wine is cultural and the Chinese like Culture with a capital C. There are many similarities with tea. We use the same words to describe tea: we talk about terroir, colour, aroma, finesse, balance… And we savour it in exactly the same way as wine.
China is becoming more open-minded and consumers are more affluent than before. We partake of more foreign food and drink. We drink French wine, German beer, Scotch whisky, we eat Swiss chocolate, Spanish ham… We simply want the best! The government recently rolled out a campaign on the hazards of drinking spirits. Traditionally, we drink a lot of Baijiu (a rice-based spirit with an ABV of 50°) with food, but drinking it daily is bound to cause health problems, so gradually, Baijiu is being replaced by wine.
Also, we regularly read articles about the health benefits of wine. It reduces the risk of cardio-vascular disease. Two years ago, I made my parents drink a glass of wine at least every other day. I told them it was good for their heart. Now they enjoy it. Personally, I drink two glasses of wine a day. Obviously, not everyone drinks as much but I think that in five years time one in two Chinese people will have wine in their cellar.
Which wines do you drink most?
I am actually always on the look out for new wines. I enjoy wines from different countries, though I do have a penchant for France. I like the value for money in the Languedoc, the finesse of the great Bordeaux growths (the affordable ones), the freshness of Alsace whites… Amongst New World countries, I like Chilean Carmenère and New Zealand Sauvignon Blanc. At the moment, I am drinking a Saint Chinian Roquebrun appellation wine - Les Fiefs d’Aupenac 2006 - that I find excellent.
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