Chinese wine market

Chinese wine market 2.0: how COVID-19 and politics have reshaped the landscape

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The Chinese wine market is expected to double in size in the coming decade, despite the major setback caused by the global pandemic. The total imports of bottled wine have seen a stable growth since 2006, from 2.25m nine-litre cases to 50.5m in 2019. Data from Vinexpo reveals the imported wine market in China has a long-term upward growth trend, in spite of the boom/bust tendencies as seen in the past.

The Chinese wine market by type forecast Chinese wine market
Source: IWSR, The Chinese wine market by type forecast (volume consumption)

To date, consumption of imported wine is concentrated in urban areas at the eastern seaboard. This region boasts the richest provinces and many of the largest cities.

However, the country’s still wine consumption is still lagging behind 2019 level, based on ISWR’s projection. This is a result of the negative perception of domestic wine, overstock and sluggish development in larger populated regions in recent years.

Yet, experts in the Chinese wine industry remain positive. CEO of IWSR, Mark Meek, predicts a more gradual rebound instead of a “V Shape” as seen after 2008, adding that China is still set to become the world’s second biggest wine market after the U.S. He pointed out that the global beverage industry will likely to return to pre-COVID level in 2024, as the disposable income and employment require a longer recovery.

To seize the opportunities, having a sound understanding of the implications of the latest market developments is of paramount importance.

The Chinese wine market Pre-COVID

China’s imported wine volume experienced the first drop of 8% (687.5 million litres) in 2018 since 2014, while value saw a slight increase of 2.21% (USD $2.85 billion). Research firm Wine Intelligence suggests that the market is shifting towards maturation, however opportunities are opening up, given the changes in the industry.

Australian wine success

France, Australia and Chile have been the unchanged top three importing countries of China. Australian wines succeeded in surpassing the French in 2019, making China the country’s largest export market, taking up close to 40% in sales value and third largest by sales volume. Its success is driven by the cost-effectiveness, accessible flavour profile and good penetration on the Chinese E-commerce platforms.

China’s top wine import countries 2018-2020, the Chinese wine market
Data source: Vino-Joy News, OIV; designed by Daxue Consulting: China’s top wine import countries 2018-2020, the Chinese wine market

Quality over quantity

The wine drinking habits in China have evolved over the last ten years, consumers are gaining more curiosity and knowledge in wine. While wine has played an important role in social occasions to elicit prestigious and hedonistic lifestyles, this category has succeeded in capturing new clientele: legal-drinking-age adults and women. Driven by the increase of the middleclass and westernized lifestyle, more consumers are willing to pay for a quality mid-range bottle.

Our research has also found that mid-aged consumers who have higher income and living standards are showing more interests in premium wine in China. Those aged between 20-39 are the actively searching premium wine information on Baidu.

Furthermore, the widening availabilities on E-commerce platforms and mobile apps have boosted this development. It is therefore no surprise to see a decrease in import volume in recent years, but paired with a slight increase in value.

China’s most loved varietal: Cabernet Sauvignon

Though the market is showing more interests in other wine categories than red wine in China, Cabernet Sauvignon still remains the most popular varietal. Red wine is associated with health benefits and cultural traditions, making it the most preferred wine style.

best-selling wine in Beijing region: mostly red and Cabernet Sauvignon Chinese wine market
Source: Tmall and JD.com, best-selling wine in Beijing region: mostly red and Cabernet Sauvignon

How COVID-19 and politics changed the Chinese wine market

With no exception, the Chinese wine market also experienced a significant drop (32%) of sales value during 2020. Even during lock-down, the little “drinking at home” did not make up the loss, while the west is seeing a surge of home consumption.

frequency of wine consumption between March 2019 – March 2020 Chinese wine market
Source: Wine Intelligence, frequency of wine consumption between March 2019 – March 2020

In the latest series of Vinexpo Shanghai’s online webinars, Shanghai-based wine expert and co-founder of Nimbility, Ian Ford, found a consolidation taking place in the Chinese imported wine market. The number of importers has decreased with 34% drop between 2018 and 2019. He expects this trend to continue across distributors, on-trade and retail players.

 total importers by country Chinese wine market
Data source: Vinexpo Shanghai Webinar Series 2020 (Nimbility); designed by Daxue Consulting; total importers by country

Moreover, recent political tensions between the U.S. and Australia are likely to create opportunities for other countries. In recent years, other new world wine brands in China are gaining considerable market share due to zero tariff agreement. This trend is set to continue for Chile and New Zealand and hence the future landscape will look far different than pre-COVID time.

E-commerce is the key success factor

The latest IWSR E-commerce Study predicts that the Chinese alcohol E-commerce market value will have a compound annual growth rate of 15.8% between 2019 and 2024. The pandemic has accelerated the expansion of this fast-growing channel. Baijiu and imported wine account over 80% of the online sales. In 2020, 20% of all wine sold were purchased through websites, which suggest a huge potential of this channel.

What’s more interesting, is the “new normal” of ordering wine online. China has fully embraced the potential of wine E-commerce, far more than any country in the world. In contrast, Baijiu only performed well at the high-end segment (e.g. Maotai, Luzhoulaojiao, Wuliangye), while the mid-and lower range is struggling.

Currently, the market is leaded by Tmall.com with a market share of 50%, followed by JD.com with nearly 25% of all online alcohol sales. Recent data shows that Tmall’s own alcoholic beverage store far outperformed the rest in 2020. Therefore, many brands have opted for partnership with these two giants due to their enormous reach of consumers and the advanced infrastructure. 

Tmall's best performing beverage stores Chinese wine market
Data source: Mojing Market Intelligence; designed by Daxue Consulting; Tmall’s best performing beverage stores

E-commerce will continue to be the key sales channel, due to its ability to carry a large number of SKUs, more detailed product information and with no limitation of shelve space. Along with the continual improvement and increasing usage of online payment mediums like Alipay and Wechat Pay, integrating online sales channel should be the norm.

The Chinese wine market is diversifying

Although the per capita wine consumption in China (<1.5l/per year) still lags far behind other comparable countries (Portugal: 51.9l/per year), leading industry professionals (ISWR, Nimbility, Sarment and Pudao Wines), believe there is still huge headroom for growth in the years ahead.

As Baijiu category continues to be vulnerable for consumers switching to wine, experts anticipate this development will drive wine category growth on a long-term.

Chinese wine market by type
Source: Vinexpo Shanghai Webinar Series 2020 (ISWR), Chinese wine market by type

The rise of female and legal-drinking-age consumers

The pandemic has a positive impact on the Chinese consumers in making more health-conscious choices and the young adults are signing up for wine courses. For the new generation, wine consumption is moving towards mainstream culture, beyond the social occasion with family, friends and business partners. The Chinese dining occasions will continue to be very fertile ground for growing imported wine sales, and the increased at-home consumption is a likely to stay post COVID-19.

Tommy Keeling, research director at IWSR also added that this category is likely to be the first choice by the females since beers are often too filling and cold, while Baijiu being too strong to enjoy. Reds are known for promoting cardiovascular health and their beauty properties. On the contrary, they are more reserved for chilled wines like sparkling and whites due to traditional medicine health perception of avoiding cold beverages or food.

On the other hand, the young Chinese Gen-Z adult consumers are more open to new experiences. Wine Intelligence found a gradual growing interest in other wine categories.

Champagne is becoming the most dynamic product

Though accounts for a very small share, Champagne continues to outperform other wine types in both its volume and growth rates. Euromonitor predicts that this category and other sparkling wine will see a particularly growth from 2021 onwards.

The fall of Australian wines

With the anti-dumping tariff (duties between 107.1% – 212.1%) became effective last November, Australia is likely to lose its leading position in the market. Wine expert Alberto Fernandez (General Manager of Asia-Pacific, Middle-East & Africa Familia Torres) and Fongyee Walker MW (China’s first Master of Wine) expect a continual growth of Chilean, Argentinean and Spanish wines, along with a comeback of the long-beloved Bordeaux and expensive wines.

Chinese imported wine market by country Chinese wine market
Source: IWSR (2020), Chinese imported wine market by country

Case study: Wines of Chile

Being China’s third largest wine importing country, it has seen a continuous growth of its average price per 9l case over the years. Chilean wines are considered one of the best on the market in terms of price-quality-ratio by the Chinese. Moreover, it enjoys a favourable geographic condition, which results in a larger production of environmental-friendly wines. With these two key characteristics, Chile is likely to win over a considerable part of the new wine drinkers.

Wines of Chile has a good understanding of the Chinese market

As there is no singular China market and consumer, foreign companies must adapt their strategies to succeed in this highly complex environment. According to Claudia Masueger, founder of CHEERS Wines, companies should have different approaches for different Chinese cities. “We have to have a certain assortment so that we can satisfy customers in third and fourth-tier cities or first-tier cities. When you look at Beijing and Shanghai, they are two different worlds. People would eat differently and drink differently so this is also an important part of it.”

With the tailored strategies to various regions in China, Chile has succeeded in capturing a part of the market.

Another key success factor is their Chinese-relevant marketing strategy. Wines of Chile understood the dynamics on (digital) marketing communications to the Chinese consumers. The brand is active on various platforms (e.g. Weibo, Douyin and WeChat) with highly engaging content.

Wines of Chile had launched two campaigns with great success. The Magical Mystery Wine Tour (2018) featured 20 Chinese wine KOLs and 40 different local producers to showcase and promote the unique identity of Chilean wine. The honeymoon campaign (2017) featured a Chinese couple’s honeymoon in different regions in Chile in 12 short episodes.

For professionals, Wines of Chile also organized many city-specific events over the years with high conversion rate, reaching 30+ cities over the past five years.

marketing campaigns on social media and special events for wine professionals Chinese wine market
Source: Wines of Chile, marketing campaigns on social media and special events for wine professionals

What western brands should know about the Chinese wine market post-COVID?

  • The pandemic has reshaped the industry in terms of players and distribution channels, as well as the consumer behaviours.
  • The Chinese wine market is still growing and is becoming more knowledgeable about wine, resulting in a more diversified market.
  • The Chinese dining occasion and in-home consumption will drive the market growth of imported wines
  • The females and legal-drinking-age adults will drive the wine consumption, together with the growing middle class.
  • The other wine categories than red wine will continue to grow, with Champagne being the most dynamic product.
  • Consolidation across the wine import industry is set to continue and will likely to take place across distribution, on-trade and retail segments.
  • Tariffs on American and Australian wines will open new opportunities to other new world wine countries, especially for Chilean and New Zealand wines.
  • Integrating E-commerce sales channels to the business is the key to success
  • Post-COVID, communications and brand building through digital platforms will become even more important with authenticity and storytelling being key.
  • Brands must have a tailored market strategy in place, to create high quality content relevant to capture the local market

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