Chinese Wine Market Explodes with Bordeaux’s Popularity

on January 17 2012 | in Lifestyle Wine & Spirits | by | with No Comments

Changyu, China, vineyard,

China recently overtook the traditional strongholds of Germany and the United Kingdom to become Bordeaux’s largest export destination. This transformation is particularly remarkable given the country’s short history of mass wine consumption. According to the manager of Scarlett, a prominent wine bar in Beijing, “The Chinese are big fans of Bordeaux and not very curious about other wines.”

In the past few years, China, the world’s second largest economy, has risen to become one of the world’s most important wine markets, offering both high growth potential and generous profit margins. By volume, the country is currently the seventh-largest consumer of wine, with sales of 1.6 billion bottles in 2011. In contrast, the U.S. and France, the first and second largest consumers of wine, are expected to consume 4.0 billion and 3.9 billion bottles, respectively.

Since 2006, the Chinese market has experienced more than 20 percent annualized growth, and experts predict it will further double by 2014 to become the world’s sixth largest purveyor of wine.

Collectively, three major domestic producers account for nearly half the total wine sales in China. The largest brand, Changyu Pioneer Wine, is a unit of the major state-owned conglomerate China National Cereals, Oils, and Foodstuffs Corporation (COFCO). Changyu and the other two primary producers, Great Wall Wine and Dynasty Wine, focus on domestic consumption, with 98% of their production remaining in China.

Foreign wine imports are also growing rapidly. In 2010, imports grew to more than 20% of total wine consumption, a four-fold increase since 2005. Currently, an estimated 20 million adults drink imported wines on at least an occasional basis. A major factor in this growth has been China’s accession to the WTO and the subsequent reduction in tariffs.

Despite rapid growth, however, the Chinese market remains fairly immature. Customer preferences are driven heavily by advertising, with top producers running extensive mass-marketing campaigns to build brand awareness. This brand-driven environment, with a lack of emphasis on taste preferences, has also affected the market for foreign wine. Regardless of brand or vintage, Bordeaux and Burgundy wines enjoy strong recognition among Chinese consumers. High-end consumer demand for first-growth French wines, such as Lafitte and Latour, has caused a tremendous jump in prices.

Most attention-grabbing among these modes of market entry, however, has been Chinese investors’ acquisition of foreign vineyards. Among the first was the 2008 purchase of a Bordeaux chateau by the Cheng family of Qingdao, China.

After an extensive search, the Cheng family chose Chateau Latour-Laguens, a 150-acre property in southeast Bordeaux. Although historically the Chengs have imported wine from other global wine centers, such as South Africa and Australia, their search for property focused exclusively on Bordeaux. Family member Daisy Cheng noted France’s strong reputation in the Chinese market as the key factor in the selection: “The Chinese consider French wine to be the most authentic.”In response to this, domestic brands of wine often mimick French imagery, packaging, and vintage naming conventions.

Genuine French labels account for almost half of all wine imported into China. Although consumer appreciation and knowledge of wine have improved in recent years, purchases continue to be driven primarily by brand-conveyed prestige and status. Red wine accounts for more than 90 percent of the wine consumed. This preference is related to numerous cultural factors, including associations with sophistication, heritage and health.

[upenn]
photo credit: anna frodesiak/wikipedia commons

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