This blog post follows a whirlwind set-up of wine in China posted here.
As a student in the MBA program at the University of Washington, I am so lucky to have the chance to learn from amazing community business representatives on a variety of topics. This quarter we are discussing China, so naturally I am writing about China and wine. Most recently we heard from Amazon executive Diego Piacentini. In the first forum Mr. Piacentini alluded to adding a cancellation/return policy to Joyo, how everyone else thought returns were just not a part of Chinese culture. But then, when it became an option the Chinese sure took to it. In short he surmised that the Chinese may not be all that different from Americans…
An analysis of wine consumption in China sites the major cities Beijing, Shanghai, Shenzhen and Guangzhou and the SAR (special administrative region) Hong Kong as the largest growing markets for wine in China. For example, wine is still a symbol of luxury in Hong Kong as consumption trends have been influenced dramatically by revocation of taxes that were upwards of 80%.
Consumption is growing rapidly over 35% annually and occurs primarily in fine restaurants of Urban Centers. Subsequently, the domestic consumption leaves little for export and exceeds domestic production leaving China as one of the largest markets for bulk wines from France, Australia and possibly the U.S.
According to an interview of St. Pierre a father-and-son Canadian wine exporter, wine drinker’s in China appear to have gone from mixing red wine with soda water to worshiping first growth recommendations by Wine Spectator (hey, you gotta start somewhere).
Marketing in China
So, knowing these tidbits… It seems the world of marketing, as I’ve learned about it at the Foster School of Business in Seattle may apply across international boundaries such as China.
Let’s begin with what Halstead of decanter.com says:
I think most of the wine industry round the world would agree that Asia in general, and China in particular, represent a colossal opportunity for sales growth over the next 20-30 years.
Most everyone is familiar with Yellow Tail, the wine not the sushi. Yellow Tail changed the face of wine imports in the US, less than 10 years ago and virtually became an overnight success in the value segment. Unfortunately, the US value segment was just as quickly saturated and the Aussies had to look else where. How about China?
Again from Mike Veseth’s blog:
The Australian wine industry is dreaming about a Chinese future because their present reality is an emerging nightmare. Australian wine is being battered by a number of factors, both natural and market driven… Although there are many distinctive and delicious Australian wines, “Brand Australia” is pretty much defined by one-dimensional Shiraz and over-oaked Chardonnay… The “brand” was easy to understand and promote, but it didn’t have legs… Australia has adopted a new marketing plan… that is meant to highlight the quality and diversity of its fine wine industry. It’s a good idea but a difficult one to put into practice — hard to un-ring the Yellow Tail bell…
The Landmark Australia plan may be working in China. Or maybe not… The French have 40% of the fine wine market to Australia’s 20-22% [in second place]. The U.S., Italy and Chile trail far behind… The geographical proximity to China is certainly an advantage. There’s evidence of the China Syndrome dream in the data, but also hints of a possible nightmare. It seems that Australia is doing even better (in terms of rising market share) in the bulk wine market than in sales of bottled wine… One reason for higher sales at the low end of the market is that surplus bulk wine is being dumped (sold below cost). Hard to compete with that, of course… but it is hard to be optimistic when this market segment is Australia’s greatest Chinese success. Australia wants to get out of the bulk market, in terms of its brand, not deeper into it.
American Wine in China
So, if French first growths have the ultra-premium segment and Aussie plonk has the value segment where does that leave the US opportunity?
As an American producer, we have the U.S. market, which today is number one or number two in the world for total consumption. An example is flying to Denver costs $300 round trip, and takes no time. Our potential to sell in Colorado alone is equal to or better than that in all of China; the Chinese consume very little wine, in total, of which 85% is Chinese production. And, being [an emerging] consuming market, they want only two kinds of wine: Famous and cheap. About 99% of the world’s wineries are neither, which means you have to develop a market for your brand. Costly!
So, in summary and according to Tom Hedges, if your own backyard is still growing why would you move overseas? I’m glad I answered that for myself. But, what about those Canadians? What are they thinking?