China’s Wine Market Is Growing

China’s Wine Market Is Growing
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The Chinese like to drink wine. China’s millionaires, of which there are beau coup, don’t think twice about dropping $300 on a bottle of wine. And, since China’s economy looks like it’s emerging from its recent doldrums, wine consumption is on the upswing. Not only is per capita consumption rising, but the way the Chinese drink wine is changing.

The prevalent misconception that the Chinese don’t drink wine at home is no longer even remotely true. It may have been ten or fifteen years ago, but not now. The denizens of China’s largest cities, like Shanghai, frequently host social gathering in their homes and serve wine. Another myth is that since China’s culture is patriarchal, all decisions are made by men and they choose to drink red wines. Admittedly, reds still prevail in China, but more delicate wines are growing in popularity. The reason? China’s professional white-collar women have embraced women’s liberation. Sophisticated and educated women in China’s metropolitan areas have cast off the patriarchal chains and no longer bow to their men. White and sparkling wines are becoming the order of the day.

Another big change is that China’s wineries have the potential to produce good quality wines. They’re not great yet, but they are getting there despite their problems. The problem is growing top-quality grapes. In the Ningxia, Shanxi and Xinjiang regions, the summers provide perfect conditions, warm and dry. But when fall and winter roll around, conditions are not so great. It’s too darn cold, which means the growers have to bury the vines to keep them alive. To beat the cold weather, the growers tend to harvest the grapes early, before they have attained proper sugar content. Over in the Shandong region, the problem is reversed. The winters are California-like, so the vines don’t have to be buried; but the summer and fall seasons are wet, which means the grapes are susceptible to rust, rot and fungus.

If that’s not enough, there’s an ism problem – collectivism. The land on which the vineyards grow are collectively owned. The wineries have to deal with numerous individual farmers, who may or may not want to cooperate or who may decide to sell to a competing winery for more money. To operate efficiently in such a system, wineries have to establish trust and provide incentives, such as financial assistance, expert advice and bonuses. Trust is the name of the game. And it can be done as witnessed by the successes of Grace Vineyard in Shanxi and Wang Fang’s Kanaan Winery in Ningxia. Still, it’s a precarious situation because it’s difficult to maintain contact with hundreds of farmers.

The good news is that the provincial government in Ningxia took notice and decided to change the equation, entering into leases with the individual farmers. The leases are then combined and leased out as vast areas to wineries. This innovative approach appealed to large foreign wineries, like Pernod Ricard and LVMH, which purchased leases.

Nevertheless, very few Chinese brands are exported because the quality is still not there. In other words, Chinese wine remains a “work in progress.” Chinese wineries produce about 250,000 tons of wine per year and the number is escalating.

On the other hand, China is fast becoming the world’s largest importer of wine. Wine sales increased 37% over 2014, with sales in the $2.5 billion range. This means China’s wine market is now the world’s fourth largest. The largest exporters of wines to China are France, Chile and the Aussies.

France, though, has seen its market share in China decline. French wines still lead the pack, but Spain, Argentina, Portugal and South Africa are invading France’s supremacy. France’s loss of market share is attributed to Chinese wine drinkers seeking out better quality at lower prices.

The number of Chinese wine drinkers is around 38 million. In other words, a very small percentage of China’s 1.4 billion people drink wine. The task confronting wineries is to lure a greater percentage of the Chinese population into the wine fold. Since most Chinese drink beer, which is cheap and readily available, the process of convincing beer drinkers to switch is twofold: education and price. Beer drinkers have be persuaded that wine is a viable alternative and socially acceptable, while simultaneously giving the buyer the same bang for the buck.

Chinese wines would seem to have the best opportunity of gaining market share in their own country, simply because of price considerations and ease of distribution. The problem is quality. Right now, with a few notable exceptions, most Chinese wines are pretty bad. The other problem is that the Chinese wineries, like most vintners, want to produce superlative, complex wines. Put simply, they want to compete with the top French brands. So they are reluctant to produce mediocre quality wines that are moderately priced. It’s a perfect example of the ‘vicious circle’ syndrome: their wines stink, but they want to win the gold medal.

The Chinese vintners perceive star quality wines as more commercially viable. They can’t be blamed for wanting to make a profit, but apparently they are putting the cart before the horse. This explains the dominance of vineyards planted in Cabernet Sauvignon.

Chuan Zhou, of Wine Intelligence, believes that the future of wine consumption in China lies in the younger female population, who account for 50% of the nation’s imported wine drinkers. According to Zhou, Chinese women drink wine primarily for health reasons, followed by the way drinking wine makes them feel about themselves: sophisticated and successful.

China, with the world’s largest population, from a wine-perspective, appears to be the Promised Land. Now, like Moses, the wineries, both foreign and domestic, need to find a way to lead the people in.

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