Mega-market opens up as China develops a taste for wine

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Imports of foreign wines are growing and the quality of the local product is improving, as the growing Chinese middle class increasingly turns to wine instead of stronger liquor.

In China, beer and liquor – especially the strong sorghum-based baijiu – account for the majority of alcoholic beverage sales and consumption, and the Chinese wine market remains immature. But despite that, its sheer size means that China is today ranked the fifth largest red-wine market worldwide.

“The vast majority of Chinese wine drinkers have little knowledge about wine,” says Dr Justin Cohen, senior research associate at the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia, who spends half his time in China doing marketing research. “Their perception is often formed from their experience of the country of origin.”

Chinese people’s first experience of wine often come at occasions such as work functions or weddings. Drinking wine has become a sign of being cultured and wealthy among Chinese, and they tend to prefer red wine, since red is synonymous with wealth, power and luck and is also the colour of China.

However, recent research from Mintel shows that white wine, rosé and sparkling wine are now considered more fashionable and premium than red, and are popular among higher earners.

Wine-tasting clubs have become popular among the affluent in China’s first- and second-tier cities due to the relative gap in knowledge regarding wine. Indeed, drinking ‘shots’ of wine and even mixing Bordeaux with Coca-Cola is not unheard of among many consumers, according to Daxue Consulting, a Beijing-based market research group.

Made in China

The history of Chinese grape wine goes back some 4,600 years, and wine became more common during the Tang dynasty (618–907). China’s “first modern winery”, Changyu, was founded in 1892 in Shandong province and is still today one of China’s leading wineries. It was, however, the economic reforms of the 1980s that made domestic wine production grow. French winemaker Rémy Martin established a joint venture called Dynasty already in 1980 and, in 1983, the domestic Great Wall Wines was founded.

Up until the 2000s, most of the wine produced in China was exported, but as disposable incomes grew with China’s rapid economic development, domestic consumption also gained momentum.

Consumption continued to rapidly expand until 2012, but has dropped over the past couple of years due to China’s economic slowdown. President Xi Jingping’s widespread campaign against corruption and extravagance has probably also played a role, as did the collapse of the Shanghai stock exchange in August 2015.

Imported wines have, however, continued to grow in volume. French wines are by far the most popular – especially Bordeaux wines, followed by wine from Australia, Spain and Italy. Chilean wines have been making inroads lately.

“China is still lacking reliable consumer purchase data,” says Cohen. “Export and import data are most commonly used for making decisions by brands, but these are measures of inventories at best – not what is actually being purchased. However, I’ve been told that four out of five bottles sold in China are Chinese.”

Cohen reports that the quality of Chinese wine is steadily improving. “Today, some wineries can produce really good wine, but a problem is that they are selling them at unreasonably high prices. It is always hard to convince Chinese consumers to pay premium for a domestic product,” he adds.

Cohen predicts that more and more Chinese consumers will buy their wine online and will also realise that they don’t have to spend a fortune on a good bottle of wine.

The packaging challenge

“Often, restaurants don’t have the right glasses or the right storage for wine,” he says. “Another issue is pricing. When looking at alcohol assortments in a convenience store, for example, you can often buy a bottle of spirits cheaper than a bottle of wine. For the consumer with low product knowledge viewing alcohol as alcohol, it presents a choice decision that is forcing them to go against rational behaviour.

“Creating ways to sell wine in packaging types and volumes that make sense for the Chinese market is another challenge, for example by introducing smaller formats,” Cohen says.

Giulia Pelliccioni, Marketing Services Manager, Beverages, Food & Wine at Tetra Pak, says that the company keeps a close eye on China’s wine market development, given the strong potential for portion pack offerings. She points to new research that shows that currently wine in portion packs below 601ml accounts for 44% of the total Chinese wine market, and that it is set to further grow at 5.7 % CAGR between 2016 and 2019.

Premium and sophisticated

“This could help producers tap into new product segments and consumer groups,” Pelliccioni says. “On the one hand, China’s market is strongly centred on red wine, while on the other still white wine’s penetration is growing quickly among high earners. So there is clearly growth potential for white wine with a premium and sophisticated appeal.”

Pelliccioni points to a report from Tetra Pak research partner Mintel that shows that female Chinese consumers often find red wine’s taste profile quite “challenging”, and are at the same time concerned about its higher alcohol content.

The Mintel research also reveals that – surprisingly – penetration of both white wine and rosé wine is higher among men than women in China, with 59% of men drinking white wine versus 50% of women, and 32% of men drinking rosé, against 28% of women. Women also show little interest in trying unfamiliar niche segments, Mintel found.

“So we are confident that opportunities for further growing the Chinese wine market reside both in smaller portions, as well as in well-formulated product concepts that deliver on the needs of more sophisticated emerging consumer groups.”

Despite the recent drop in consumption, the future for wine producers and importers in China looks quite bright. The growing middle class is increasingly turning to wine, per capita wine consumption is still very low and the government is encouraging the population to switch from baijiu to wine, which has a lower alcohol content.

Facts about wine in China

  • In 2015, the Chinese consumed 132 million nine-litre cases of red wine and, in 2014, the country was the fifth largest red wine market in the world, according to the international wine and spirits exhibition firm Vinexpo.
  • Yantai/Penglai in China’s eastern province Shandong is the largest wine producing region in the country with more than 140 wineries. Other notable wine-producing regions include Beijing, Zhangjiakou in Hebei, Yibin in Sichuan, Tonghua in Jilin, Taiyuan in Shanxi and the autonomous region of Ningxia.
  • A blind test among Chinese wine drinkers, carried out by the Ehrenberg-Bass Institute for Marketing Science, showed that the Australian wine style the consumers liked most was Pinot Noir, which is light and fruity, compared to the oaky and tannic taste of Cabernet Sauvignon.
  • Online sales through e-commerce channels are regarded as a future main driver for the Chinese wine industry.

Download Mintel’s report into the growth of niche wine segments in China.


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