Sector Insight... As wine sales soar, will China be the next Chile?

They mark the midpoint of a swath of vineyards that stretch north to Heilongjiang and southwest to Sichuan. In fact, as early as 2005, China’s 1.15 million acres of vineyard exceeded that of major exporters Australia, Chile and South Africa combined, according to a recent report in the International Journal of Wine Research.

By last year, sales of ‘still’ wine stood at 939 million litres, with a value of Rmb 51.1 billion (US$7.4 billion). Compared to wine sales of Rmb 23.3 billion (436 million litres) in 2003, Euromonitor calculated a compound annual value growth of 17.1 per cent during the past five years.

“What is driving growth is availability and price,” says Joy Huang, alcohol analyst for Euromonitor. “Economically priced brands are available. Wine was once viewed as extremely expensive, but now there is even a segment in the Rmb 20 to Rmb 30 range. Consumer behaviour is changing as a result.”

Four hundred wineries are scattered across China, but the big four - Great Wall, Changyu, Dynasty and Weilong - accounted for one-quarter of wine sales last year, according to Euromonitor. Together, these giants cover the low-middle to low-premium price points, which in the off-trade ranges from Rmb 20 to Rmb 60, accounting for 70 per cent of sales. Other wineries serve the under Rmb 20 category - roughly 26 per cent of off-trade - while only four per cent is priced above Rmb 60.

Social status is the other driver. “In China, wine has incredible snob value, not just if you can afford to buy it, but also if you can demonstrate how to drink it,” says Darryl Andrew, CEO, Synovate China. “It is about self-display. Drinking occasions happen where there is visibility.”

This applies to stratospherically priced imported fine wines consumed in international hotels and the more economical domestic wines offered at everyday eateries.

Estimating the sales of imports is problematic, as bottled wines are sometimes stockpiled, and imported bulk wines are used in some local brands. One source claims 54 million 750ml bottles were imported in 2007, which puts the market share of ‘labelled’ imports in the low single digits.

David Liu, MD of Weber Shandwick China, which recently retained its client Great Wall, says: “The wineries see the other domestic liquors as their main competitors.” The battle is grape versus grain, and grape is winning.

“Many white-collar workers have a preference for wine,” Liu adds. “In our PR work for Great Wall, we work with the media, often through celebrity spokespeople to promote wine consumption as part of a high-end lifestyle.”

Below-the-line and channel marketing are the big four’s main promotion tools, though Changyu spent enough on advertising to make it the 10th biggest alcohol advertiser. Last year, Changyu spent Rmb 314 million, compared to Rmb 160 million for Great Wall and Rmb 92 million for Dynasty, according to Nielsen data for the 12 months ending March 2009. Still, it is important to note, their combined adspend was atypically high - 2.8 times higher than 2007.

Despite low media spend, discernible brand positions are emerging. Synovate’s Andrew says: “Changyu displays a classic branding ethos; and its brand conveys authenticity. Its ads feature slogans such as ‘better with age’ and communicates the passion of its staff. Dynasty is relying on its relationship with Rémy Cointreau and its French heritage.”

The wine press sometimes hint that China will be the next Chile. Arend Heijbroek, associate director, beverage and dairy at Rabobank International, is not so sure. “The world looks at China as a buyer - a place to sell cheap excess wine. Right now, bulk wine is at extremely low prices, and it would take China a long time to create a
consistently good low-priced

bulk wine. For China, it is better to create value with its wine in the domestic market, because it is much more profitable.”

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