Chinese wine market trends in 2022
Most of the Chinese winter season has begun with the passage of the first wave of cold winds. However, the harsh winter has been even worse for those involved in the wine industry.
Due to the pandemic, and other factors, only two of China’s 13 listed wine companies reported sales growth in the first half of the year. The wine import market was also disappointing. The 2020 statistical analysis of wine and spirits imports from January to June was released by the Wine and Spirits Importers and Exporters Branch of the China Chamber of Commerce of Food and Animal By-products.
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It shows that wine imports into China have fallen by more than 30% in terms of sales volume and value. The market is expected to continue this downward trend, although figures have not yet been released for the second half of the year.
China’s wine import market has grown at a compound annual growth rate of 14% over the 2010-2019 period. Given the current state of the market, industry professionals can’t help but wonder if there will be another cold winter.
There is a lot of dialectical philosophy in Chinese. The Chinese word for crisis, weiji, comes from the components of the words “danger” and “opportunity” in Chinese. Clearly, the Chinese language suggests that every crisis is a new opportunity to be seized. After taking stock of the situation at the end of a difficult year, we try to keep this optimism in mind by looking ahead and exploring potential new opportunities for the Chinese wine industry.
Consumer spending rebounds
We have plenty of reasons to be optimistic about 2022, based on recent macro trends.
First, China was one of the first countries to embark on the path of economic recovery, thanks to strict measures taken by the Chinese government to stop the spread of disease. The Chinese economy largely returned to normal in the third quarter of 2020.
That the entire year will see economic growth is a given. China will probably be the only major economy in the world to experience positive growth for the year. The Chinese proverb says that small streams rise when the main current is strong. This is great news for the future economic growth of the consumer wine market and the overall strength of the Chinese economy.
However, consumer spending has declined in the previous three quarters of the fiscal year. The National Bureau of Statistics reported that the overall consumer spending of Chinese citizens declined by 3.5% over the past year. This figure falls further to 6.6 percent after removing price factors.
All levels of local government have made it a priority to help the retail sector get back to normal. Officials in each region are working together to develop and implement new policies to increase consumer spending. To encourage spending in the local market, the Shenzhen Liquor Association distributed vouchers worth RMB 50 million in May 2021.
The pandemic is expected to be contained by the end of this year. Business travel, exhibitions, and trade will resume as normal after the vaccine is released. Demand for wine will likely rebound on its own.
Shaking up market patterns
In the long run, Australia, France, and Chile occupy the top five places in the list of major wine sources for Chinese consumers. Thanks to its aggressiveness, Australia became the top exporter to China in May last year. Data from Wine Australia shows that Australian wines accounted for 37% of the total market in June 2012. That’s more than 12 percentage points higher than France, which was second.
The future of Australian wine exports to China is uncertain. China’s Ministry of Commerce opened an investigation into the alleged dumping of Australian wine imports in August 2021. In November 2021, it ruled that dumping was indeed taking place. Anti-dumping duties of up to 212% were also imposed. There have been rumors that the Chinese Ministry of Commerce may launch an investigation into European wine imports in the future. This will increase uncertainty about the wine import market within the year.
Wines from Georgia and Chile have experienced rapid popularity in China thanks to a free trade agreement. The popularity of Chilean wines has increased further, taking third place on the list of China’s top wine sources. Georgia, although a smaller country, has emerged as a major player in the Chinese market. China is currently the third largest export market for Georgian wine products.
There are still some unknowns in the race for China’s market share: Argentina, South Africa, and some wine regions like Israel all want to be part of the growing Chinese market. Next year will see a shift in the market for wine imports into China.
Is spring really coming to wine industry players?
According to Eddie McDougall (founder and CEO of The Flying Winemaker), there are still opportunities for Australian wines in the mainland China markets, despite the challenges of anti-dumping measures and the Covid-19 pandemic.
Mr. McDougall was the guest speaker today at Power Hour, a series of conferences organized in Macau by the Australian Chamber of Commerce. He also shared the story of his company.
Rose has gained popularity in the Asian market in recent years, he said. He said China is also slowly adopting it at the “Power Hour 19” session, which was held at the Astor Ballroom of the St. Regis Macau.
He added, “People are now drinking with their eyes and not just their mouths.”
McDougall told the audience that before mainland China imposed an anti-dumping (AD) duty, which is temporary, on Australian wine in late 2020, followed by five-year AD duties from March 2021. He also said that the lowering of import duties as a result of the 2015 China-Australia Free Trade Agreement had resulted in strong demand for Australian wine in the mainland market.
Mainland China was the most popular destination for Australian bottled wines in 2020 in terms of value and was second in terms of volume, according to the award-winning winemaker who was born in Australia and Hong Kong.
However, everything has changed in the five years since the anti-dumping duties were put in place. This is due to the deterioration of bilateral relations between the two countries. Official statistics show that the volume of Australian wine exported to China fell by 93% and 97% respectively in 2021. This represents a 30% decline in wine export revenue.
Despite these setbacks, there is still a demand for Australian wine from consumers in mainland China because of its quality. McDougall said there has been a significant increase in Australian wine exports to Hong Kong following the introduction of AD tariffs by China. There has also been an increase in the smuggling of Australian wine from Hong Kong to Shenzhen, which is adjacent to Shenzhen.
Australian winemakers have other options to get their wine on the shelves in mainland China. McDougall said Australian winemakers can have their wine shipped to the mainland in large containers, before being packaged in smaller bottles, because of the exemption from anti-dumping duties on sparkling, fortified wines.
He illustrated that the Victorian government had invested in a bottling plant in Shanghai to enable winemakers in the southeastern Australian state to repackage their products for sale in mainland China.
Australian winemakers may also be able to move some of their production to another country. McDougall used the example of his own company, The Flying Winemaker. He said his brand is still visible in mainland China because his wines are made in New Zealand.
Penfolds are still a favorite among Chinese wine drinkers, but they will not be available in China.
Treasury Wine Estates wants to satisfy the Chinese demand for Penfolds wine. They grow grapes in France for the famous brand, as high import duties prevent Penfolds from reaching China.
Beijing’s tariffs, which can be as high as 200 percent on Australian wine, have prompted the winemaker to turn away from China and increase sales in other markets, including the United States and Asian countries such as Hong Kong, Singapore and South Korea.
Treasury Wine chief Tim Ford said demand for Penfolds in China remains strong. That has prompted the company to look for new ways to offer luxury wine.
He said that “right now, the demand is certainly greater than the supply of Penfolds in this market, there’s no question about that,” and that only a small number of Penfolds are transiting to Chin
He said efforts to revive the company’s business will likely result in Chinese connoisseurs no longer drinking Penfolds made with Australian grapes. There are plans to launch a line of French Penfolds in August. Bordeaux will produce the wine.
It’s a strategy the company tried in the U.S., where it planted grapes in a South Australian vineyard to begin production in the country’s largest economy.
“It will take us several years to build up our luxury wine portfolios outside of France or America to really meet that demand over time. We see this as a long-term journey to rebuild our market in China,” Ford said.
The $7.6 billion winemaker’s strategy of expanding sales into other markets is paying off. Net sales revenue for Asia ex-China jumped 119% in the first half of fiscal 2022, compared to last year.
French wine exports reach a new record in 2021
According to the Federation of Wine and Spirits Exporters of France, France’s wine exports hit a record high of €15.5 billion. Chinese exports increased by 56%.
In 2021, champagne, wine and cognac exports will reach a new record. The French Federation of Wine and Spirits Exporters published data on February 15. It revealed that French wine exports exceeded 15.5 billion euros in 2021. This is an increase of 28% over the previous year.
This is a strong rebound in French wine exports to all countries. More than 25% of all French wine exports go to the United States, which is the largest export destination for French spirits and wines. This country has been re-established as the largest importer of French wines.
Total exports of French spirits and wines to America increased by 34% in 2021 to 4.1 billion euros. The main reason for the acceleration in exports is said to be the suspension of U.S. taxes from March 2021 on French wine.
In addition, concerns about Brexit have been dispelled. French alcohol exports have not been affected by the UK’s withdrawal from the EU as of January 1, 2021. Total sales last year were good with a record €1.6 billion, an increase of 20%.
Exports of French wines to Asia jumped 56%, reaching 1.26 billion euros in the Chinese market. Exports to South Korea increased by 60% and Singapore saw a significant increase.
Global consumption has had a positive impact on the entire French wine industry. With exports exceeding 3.5 billion euros, Champagne once again made a splash. Next came Bordeaux (2.3 billion euros), Burgundy (1.27 billion), Rhone Valley wines (524 million) and Provence (313 million).
Spirits continue to be a popular choice. In fact, cognac hit a record high (3.6 billion euros) in 2021 thanks to big brands like Remy Cointreau, Pernod Ricard and LVMH.
He specifically mentioned that Chinese wine knows its grape varieties better than other types of wine, and has produced more single product launches based on Cabernet Franc and Merlot instead of recurring Cabernet Sauvignon-based blends.
Ragg said winemakers were more adventurous in trying new production methods, resulting in higher quality Chinese wines.
Ian Dai, a small-scale winemaker, focused on finding the best terroirs rather than making a profit. He also experimented with different methods, such as Grace Vineyard’s traditional method of producing sparkling wine or Yves Roduit’s Canticle To the Land, which was aged in Yunnan clay vessels.
Domaine des Aromes, Silver Heights and other wineries are now embracing biodynamic and natural winemaking.
American wine critic James Suckling is also responsible for compiling the lists of China’s top 10 and 100 wines since 2020. This is a testament to the growing importance of Chinese wine. Recently, the famous critic awarded AoYun 2018 its first 98-point rating for a Chinese wine.
Chinese wine brands are well positioned to capture market share due to changing consumer demographics and diversified wine positioning.
The key takeaway for industry players is the fact that domestic wine brands are slowly winning the hearts of Chinese consumers. This suggests that it may be more difficult to promote foreign fine wines in China.
“We believe we can capitalize on opportunities in the global markets we serve by leveraging our unique strengths – our brand, our people and our assets – with great confidence.”
Last year, the winemaker said it was preparing to raise prices due to inflationary pressures. That signaled once again that further price increases were possible.
The company said in its ASX trading update that logistics and supply chain costs will remain high in the second half of 2022. Price increases will be applied to certain brands in the portfolio to partially mitigate the effects.
Treasury Wines has maintained a fully paid interim dividend at 15 cents per share.
Here’s why Chinese consumers prefer domestic wine to imports
China is a market where wineries selling wine to China may have a problem. Chinese consumers are not drinking enough imported wines and are more likely to buy Chinese wines.
China is a market where wineries selling wines to China may have a problem. Chinese consumers are not drinking enough imported wines and are more likely to buy Chinese wines.
Unlike in the past, when imported wine dominated the wine market, the Chinese New Year shopping season showed that domestic wines are gaining ground with rapid growth in late 2021, thanks to “Guochao,” which is a consumer preference for domestic brands, designs and culture.
Legacy Peak, a family-owned winery located in China’s top wine region, Ningxia, recorded strong sales during the Chinese New Year. Vino Joy News spoke with the winery, which said its wine sales increased 118 percent from last December to January. This is a significant increase over the same period last year. Online sales performance was particularly encouraging, with a jump of 838%.
Kanaan Winery, which is one of the top wineries in Ningxia, also recorded strong sales. Wang Fang, founder of Kanaan Winery, informed Vino Joy News that Kanaan sold about 20,000 bottles of wine before the Chinese New Year. This is a 40% increase over the last CNY.
It is encouraged by the growth of e-commerce, private customers and export markets.
Chinese media claim that Xige Estate, the largest winery in Ningxia, has achieved RMB 200 million ($32 million) in wine sales in 2021. This figure is more than double that of the previous year. The winery sold all 1.2 million bottles of its inaugural 2017 vintage.
Unlike in the past, when consumers imported fine wines as gifts or for pleasure, consumers now have a variety of factors influencing their preferences for wine selection.
Growth is driven by stricter import regulations, high quality tariffs on certain countries of origin, and changing consumer incentives to favor quality domestic products.
Guochao” boosts domestic wine market
The growing preference of young consumers for moderate consumption and the rise of the “she economy” in China are driving the growth and quality of domestic low-alcohol or non-alcoholic wines to replace traditional strong drinks such as baijiu and huangjiu.
Another important trend contributing to the production of domestic wines is “Guochao”, or “national tide”, which can be roughly translated as “China chic”, where young consumers choose domestic products steeped in Chinese culture and traditions.
Guolian Securities released an investment strategy paper that states that China’s economic growth has greatly facilitated the country’s consumer sector and “cultural self-confidence.” The rapid growth of domestic brands is due to the fact that Chinese consumers recognize and appreciate domestic products.
According to a report jointly released by Baidu and People.cn Research Institute, the main consumers of domestic brands are millennials born between 1980 and 1995 and the young Generation Z born between 1995 and 2010.
These young people are different from older generations who are more attached to Western brands. They have grown up watching China’s economic growth, wealth and culture, and have a stronger sense of their nation and traditional culture. Domestic brands are improving their product quality, marketing strategies and research to appeal more to young consumers.
The Chinese sportswear brand Li-Ning was established in 1989. It is one of the most famous examples. After three unprofitable years in 2011, Li-Ning saw a 20 percent revenue growth in 2018 after incorporating elements of traditional Chinese culture into its products at New York Fashion Week 2018.
The McKinsey & Company report noted that “Guochao” is becoming a trend in many other industries besides fashion. It is one of the key trends that will shape the next decade in China.
Wine is no exception. Chinese wineries are doing a better job of incorporating Chinese culture and philosophy into their packaging, design and winemaking.
Chinese wine is growing in popularity due to its international recognition and reputation.
Wine Advocate, an American wine publication, recently published the first edition of the Top 10 Chinese wines. It gave Chinese wine a score of 95.
Edward Ragg MW, the publication’s Chinese wine critic, praised the 2022 quality of Chinese wine as “the highest ever” in his report.
Local wineries make their voices heard
Over the past decade, a few Chinese wineries have begun to emerge. They are mainly located in the northwestern regions of China. These winemakers are passionate about wine and believe in their winemaking methods. They prefer to live in areas with difficult living conditions and poor natural environments. Many see wine growing as a way out of poverty. Local governments often offer their support. The Ningxia government, for example, has provided temporary support to local winemakers in the areas of technology training, nursery imports and road rehabilitation.
These small domestic wineries were able to gain industry recognition after years of hard work and meticulous operation. They have also won a number of international awards. These domestic wineries remain in a position of high recognition but low sales, despite their limited production and sales capacities.
The expansion of the Chinese cultural market has led to a renewed interest in domestic products, and Chinese consumers are increasingly proud of their local products. Chinese people have a greater cultural awareness, which has led to a greater appreciation and exploration of China’s rich culture and traditions. This is an excellent opportunity for consumer brands to take advantage of the cultural phenomenon and adapt their product development and marketing campaigns accordingly. They are enjoying considerable success in the market.
This trend is also being used by some wine brands to attract consumers by incorporating elements of Chinese culture into their packaging or promotional events. Chateau Mouton Rotschild in France has released a 2018 vintage label designed by Xu Bing, a Chinese artist. The new label stylizes the name of the Mouton Rothschild winery using traditional Chinese writing concepts. The response from the Chinese market has been huge, despite the fact that it was considered a spectacle by Chinese consumers.
Chinese wineries will have a better chance of capturing a larger market share, as Chinese consumers are more likely to support domestic brands.
Rapid development of online business
China is the undisputed leader in e-commerce. E-commerce represents a daunting and overwhelming race for many merchants. However, it also offers great opportunities for rapid progress. Although e-commerce is growing at an alarming rate in the wine industry, data shows that only 10% of the market is reached.
Companies have responded to a pandemic around the world, and many have completed their digital transformation as consumers began shopping online. Due to the strict measures taken by many countries at the beginning of the pandemic, hundreds of millions of Chinese were forced to shop online. As a result, the e-commerce sector has boomed. Over the past year, many consumers have become accustomed to shopping online. This trend will undoubtedly contribute to the acceleration and growth of online wine sales in the future.
E-commerce has had a problem with the sale of substandard or counterfeit wines since its inception. This is because online shopping does not allow consumers to spot these problems before purchase. However, this may change as the Chinese government has begun to take stricter measures to protect online shoppers.
In December, the Supreme People’s Court issued a ruling titled “Legal Resolution of the Supreme People’s Court on Hearing Civil Cases on Food Safety Issues” (1). This ruling states that if there is a food safety issue, the online retailer should take full responsibility. Several livestream celebrities have been convicted of selling or distributing counterfeit products even before this ruling.
While this sanction is mostly cosmetic, the government’s commitment to cracking down on online sales fraud will remain at the forefront of its mind. It is possible to predict that online wine sales will enter a new phase of rapid growth if more safeguards are put in place to protect the rights of consumers when shopping online.
The end market is sinking
In recent years, many mainstream brands have made China’s second and third tier cities their focus. The development of e-commerce and improved logistics systems have exponentially increased the visibility of products in these markets. Consumers in second- and third-tier cities are less stressed because they have lower housing costs, healthier incomes and more time to buy the products they love.
These second and third tier residents make the most of all available shopping channels and are more open to trying new or trendier products. This group still appreciates a refined, elegant and fashionable lifestyle, even if they have not yet developed a wine-drinking routine. This segment of the population is getting richer and wine has become very attractive to them.
Tmall, China’s largest e-commerce platform, has data that shows that the wine buying power of second and third tier cities is a force to be reckoned with. The units per transaction of consumers in these cities exceed the rates seen in the top tier cities.
These markets have experienced explosive growth because many Chinese wine sellers have spent years cultivating their business in first-tier cities. These markets have been hosting wine tastings and other educational activities organized by small and medium-sized retailers for many years. Wine Australia organizes annual promotional tours that include wine tastings and other activities to spread wine information throughout China. Many of these events are held in second-tier cities and, based on recent sales figures, are expected to be very successful.
Trends in the purchasing power of the younger generation
Compared to other mature markets, Chinese wine drinkers are generally younger than those in other countries. According to CBNdata data, the increase in wine consumption by those born between 1990 and 1999 was the largest. This demographic group also experienced the highest growth in wine sales during the year. TOEwine, another major national wine organization, reports that 77% of its audience is under 39.
Younger consumers have strong buying power, which is having a visible impact on the industry as a whole.
In March, Tmall held a promotional event for liquor and other beverages. In just two days, 120,000 bottles of wine were sold for an average of RMB 87/bottle. These were mainly Cabernet Sauvignon and white wines from popular product lines.
Tmall also has some interesting statistics on wine sales. Small volume bottles (187 ml), sell at about 2,000 bottles per month, while full size bottles (750 ml), sell at only 200 bottles per month.
These statistics reveal some of the broader consumption activities of young people: Many are just beginning to learn about wine and many have limited budgets. For such novices, white wines and Cabernet Sauvignons are easy to enjoy. Unlike those who drank alcohol at large gatherings and business conventions in the 1970s and 1980s, younger consumers tend to drink alone. Smaller volumes of wine are more convenient and can be enjoyed without worrying about damaged corks or lids. Many growing wine brands are creating products to meet the needs of this younger generation.
The way vendors communicate with customers is changing due to the rise in popularity of social media and young consumers. Wine is often seen as an old-fashioned product. However, many brands continue to experiment with new ways to reach younger consumers. These include getting celebrities to sign on social networks, hosting live events, and conducting social network marketing campaigns. This younger generation will continue to influence innovation in the industry as their buying power and influence increases.
The stock prices of baijiu companies have reached record highs due to the industry’s difficulties. In fact, the market value of the leading brand Moutai Liquor has already surpassed that of Toyota in Japan and Coca-Cola in the United States. The Chinese baijiu market is estimated to be worth more than RMB 500 billion. The wine industry, on the other hand, is only worth 100 billion RMB. It is obvious that the wine industry has a lot of potential. China’s opening up to international markets suggests a bright future for the Chinese wine market.