China’s Wine Market Shifts Toward Entry Level

on July 16 2014 | in Daily Headlines | by | with No Comments

When the Chinese government announced a crackdown on lavish gift-giving in its effort to root out corruption in 2012, the wine industry braced for a slowdown in corporate entertainment spending. But John Watkins, the chief executive of ASC Fine Wines, never thought the restrictive policies would last.

“We all thought the anticorruption would be a six- or eight-month program. None of us imagined he’d double-down and deepen the reforms and policies,” recalled the head of China’s largest wine importer by value.

“We thought the second half of 2013 would recover. We brought in inventory” but sales of top wines—those at 5,000 yuan per bottle (US$804) or more—never did come back and have remained low, added the former aerospace executive, who joined the company just last year.

Mr. Watkins says ASC, a private company started in 1996, has returned to growth, though he didn’t disclose figures. China’s still drinking, he insists, and the growth lies in lesser-priced wines and expanding e-commerce.

Mr. Watkins spoke with The Wall Street Journal’s Jason Chow and Wei Gu.

WSJ: How has the government crackdown on excessive spending and gifting affected ASC?

Mr. Watkins: A normal wine market is a pyramid, with premium Bordeaux wines at top, a medium tier of other quality wines, and your lower-priced wines at the bottom. But China was an upside-down pyramid. As much as 50% of all premium wines, some people say, were paid for by government-related money. A lot of that volume went away when the new policies came.

We’ve assumed this year that anything related to government spending isn’t coming back. Our plans this year are much closer to reality in the market place.

The year 2012 was a record year in sales, but it’s when we started to see the drop-off in the premium end of the market. In 2013, we were flat, year over year. And this year, we’re up 10%.

WSJ: If not the luxury wines, what are the Chinese buying instead? 

Mr. Watkins: People are not drinking the 5,000 yuan wines anymore. But those who are drinking can spend 1,000-1,500 yuan and still get a great bottle of wine. We’re seeing a lot more activity at that end of the market.

We’re selling more at the entry level. Burgundy is hot. We’re seeing strong interest in Italy and a growing interest in Spain.

Read more at The Wall Street Journal.

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