Blog Feature

Wine in China
A Boom in Global Exports

Image of Wine in China

Wayne Batwin is the President of PRIME Market Access International, a management consulting firm. He has more than 34 years of experience in international food and agriculture research and policy, marketing, and market development. Batwin recently retired from the Foreign Agriculture Service of USDA, where from 2006 to 2010 he was the Director of Agricultural Trade Office at the U.S. Consulate in Shanghai, China.

The Chinese market is going through fundamental changes at the consumer level. People are optimistic about their futures and have more income, and they’re looking for new ways to spend. Entertaining and drinking with friends is part of Chinese social culture, and as a result, there’s been a recent boom of growth in the wine market in China. Wine is widely considered good for health in comparison to traditional spirits, which have much higher alcohol content. Furthermore, red is a lucky color in China, so the consumption of red wine has a leg up over Chinese liquors.

The domestic grape wine industry in China is only 20 years old. For the most part, the domestic industry is making low quality, low cost wines. They’re still learning how to make a range of wine qualities given the climate and soil they have for growing grapes.  This knowledge will take more time to acquire. Therefore, with consumer demand up, the import market for high quality wines has been expanding rapidly.

The overall market for wine has grown at about 20% per year in the last ten years, and the import market has grown even faster. When I arrived in China in 2006, the market size was around 53 million dollars for imported wine from all sources. In 2012 – just six short years later – the market had risen to $1.6 billion. In terms of the market breakdown, domestically produced wine controls about 70% of the total wine business, and imports make up about 30%.

American Wineries: Getting Your Foot in the Door

American wine producers currently have about a 4% market share of the import market, which is not very high in contrast to the French, who have a 52% market share. This is because they’ve spent over a decade investing in the Chinese wine market and promoting their wine culture and wine producing regions. As a result, when most Chinese think about imported wines, the first country that comes to mind is France. The U.S. is simply not on most people’s radar. In fact, most people aren’t aware that the U.S. makes wine and exports it to China.

At the same time, exports to China from the U.S. have been steadily increasing because the market is expanding quickly. In 2012, the value of our exports were almost at $80 million. We’re seeing a contradiction here- our exports keep going up, but our market share is still small. The market is growing so fast that even though our exports are increasing, we’re still losing market share because we’re not growing as fast as the market is.

For U.S. companies, the China wine market is often a very complex place. Distribution options are opaque.  Many wineries have had negative experiences with China over the years, like only sending one small shipment never to hear from the distributor again, or shipping some wine and never getting paid. These horror stories have reverberated across the industry, and there’s a reluctance to proceed without an established local partner or well considered plan.

Having said all that, the opportunities for U.S. companies are still great. Chinese like working with Americans, and as they become more educated about our wines, they become ever more enthusiastic about selling them.  Our job is to let it be known that we have wine available for export and that we’re interested in helping them develop the market. However, be conscious that it’s a long term endeavor. You’re not going to see immediate returns, and Chinese buying patterns can seem small in the beginning. But if you’re willing to develop the market and find the right distributor, it’s worth the investment in time, effort, and building the ever-important business relationship.

Luxury Wines

The luxury goods market in China has grown very quickly. In 2008, McKinsey estimated that the luxury goods market was about 8 billion dollars. The projected market size for 2015 is 27 billion dollars, and at that point China will become the number one market globally for luxury goods. A range of luxury goods are available in China today: consumable products like food, liquor and wine, furniture and housewares, clothing, and art.

In terms of wine, the super expensive wines were in increasing demand prior to the global recession. Favorites were famous labels from French Bordeaux and Burgundy. Chinese wine collectors were willing to pay very high prices, which peaked in 2009-2010. Since then, more rational pricing has been seen.

Keep in mind that the Chinese wine market is still immature. Until recently, there was a false impression that if you want the best wines, you had to spend thousands of dollars a bottle, which is simply not true. There’s a certain amount of training and education that needs to take place for individuals interested in wine. The headlines on these very expensive products captured people’s imaginations, but in the long run it, I believe we will see an increasing market for a range of different priced wines of different qualities.

UC Davis is hosting the annual Wine Executive Program March 23-27, 2014. Register now to learn more about winemaking, wine marketing, and the global wine market. Contact Managing Director of Executive Education, Wendy Beecham, for more details.

Commands

Twitter Feed

Loading tweets...

Spotlight Story

Andrew Barkett Finds Innovative Ways to Fuel Entrepreneurship
Named First-ever Chief Technology Officer for Republican National Committee

Image of Andrew Barkett Finds Innovative Ways to Fuel Entrepreneurship

UPDATE: Andrew Barkett is leaving his post as senior engineer at Facebook to bring his decade of experience in Silicon Valley to become the first-ever chief technology officer for the Republican National Committee.The June 4 announcement has stirred a whirlwind of media coverage, including the Huffington Post and Washington Post.Bark

Spotlight Story

MBA Student Consultants Make an IMPACT
Projects Put Business Needs Front and Center

Image of MBA Student Consultants Make an IMPACT

Agilent Technologies’ Electronic Measurement Group is a $3.6 billion business that over the past decade has seen a dramatic shift in its customer base from U.S., and Western European customers to predominantly Asia-based customers. Today, the majority of the division’s revenues are generated outside of the U.S., with an increasing concentration in China.

Spotlight Story

UC Davis Part-Time MBA in Top 8%, Full-Time MBA in Top 9%
U.S. News & World Report’s latest rankings: This marks the 19th consecutive year our MBA program has been ranked among the best in the nation.

Image of  UC Davis Part-Time MBA in Top 8%, Full-Time MBA in Top 9%

(Davis, CA) — The UC Davis Graduate School of Management’s full-time MBA program has been ranked among the top six percent of AACSB International-accredited programs nationwide, according to U.S. News & World Report’s latest graduate business school rankings released today.

Spotlight Story

Mark Otero MBA 07 Builds Sacramento’s Coolest Company
The secret of social gaming mogul Mark Otero’s success is taking things to the extreme

Image of Mark Otero MBA 07 Builds Sacramento’s Coolest Company

The secret of Midtown Sacramento’s Facebook gaming mogul Mark Otero’s success is taking things to the extreme.