Category Archives: China

The Chinese Wine and Spirits Market: Opportunities and Challenges

DoorHandle

I recently completed my WSET Diploma (!); the final assessment was this paper (already submitted and graded) on the growth and influence of China on the global wine and spirits market. I thought some of you might find the topic interesting…

Introduction

The global marketplace has witnessed rapid changes commensurate with the rise and fall of economies and the relentless, exponential rate of technological advancement. China, now a key player, only entered the commercial sphere a mere forty years ago, yet the country has fundamentally shaped all facets of global trade. The sheer size of its population, its growing thirst for imported wine and spirits, and the rapid expansion of its domestic wine industry, means China has the power to change the drinks market, forever.

Lijiang

City of Lijiang

Key Events Since 1972

The first U.S. president to visit the People’s Republic of China, Richard Nixon broke new ground in February 1972. The country had been closed off to the rest of the world, and the private business sector had practically zero contact with the country. At the time of the President’s tour, normalizing political relations took precedent over economic ones. While the U.S.-China Business Council was founded in 1973 (and now represents nearly 240 companies), no pundits foresaw that China’s phenomenal ascendancy in economic influence would happen in such a short time. [1]

As a noted Asia scholar claimed, “no one in the twentieth century had a greater long-term impact on world history than Deng Xiaoping”[2], Mao Zedong’s successor after his death in 1976. Seeking to mitigate damage done by the Cultural Revolution and loosen policies that stifled China’s growth, Xiaoping instituted a policy of openness or “kai fang” with the west. The ‘80s saw economic reforms allowing foreign investment, establishment of private business, and new rules allowing personal wealth accumulation. In conjunction with President Carter, Xiaoping promoted people-to-people exchanges and allowed an unprecedented number of students to study abroad, anticipating they’d bring home new ideas for change.[3] But while he supported liberal economic policies and a measure of increased personal freedoms, Xiaoping maintained tight political control as evidenced by the tragic Tiananmen Square massacre in 1989.

Zhu Rongji, the fifth premier of the PRC, presided until 2003, and continued encouraging economic growth while also seeking political influence in international affairs. He enacted domestic reforms necessary for China to join the WTO, which it did in 2001. From 1985 to 2010, trade in goods between the U.S. and China increased from $7 billion to $365 billion, rocketing the red state to becoming the second largest economy in the world by 2013.[4]

China’s growth has enticed business from around the globe as its population of nearly 1.4 billion becomes more urban and sophisticated. Millions of Chinese have been lifted out of poverty, their children growing into a middle class with disposable income, and producers of consumer goods are eager to court them.

The Chinese are now the world’s biggest emerging market for aspirational and conspicuous consumption, and the newly middle class of the interior cities are on the heels of the major coastal cities like Beijing and Shanghai in terms of spending growth. Real estate developers are building half the world’s newest shopping malls in China, many in smaller, second tier cities, because middle and lower income households have become big shoppers.[5]

What are they buying? Globally, the Chinese are the leading purchasers of expensive goods, and they hold foreign brands in high esteem, especially those with heritage appeal. While this applies across all aspects of consumerism, it especially holds true for wine and certain spirit categories. In the last few years, the Chinese set new records, becoming the most voracious consumers of Bordeaux and cognac, or at least collectors. Consider that at Berry Bros & Rudd’s bonded wine warehouse in southern England, more than 1 million of 4.5 million expensive bottles stored there, are now owned by Chinese.[6]

Drinking Changyu in Lijiang

Drinking Changyu Wine in Lijiang

The Chinese Drinks Market

Interestingly, China’s mania over wine was first prompted by the state in the 1990s as a healthy alternative to popular grain-based spirits. A cereal shortage coupled with health concerns motivated the campaign. Red wine in particular, promoted as a cardiovascular disease inhibitor, took off: new wineries proliferated, distilleries were adapted for winemaking, and bulk wine was shipped in for local bottling.[7] In 2001, when China joined the WTO, wine import tariffs dropped from pre-WTO levels of 65% down to 48%. While 48% is still extraordinarily high, especially as compared to Hong Kong’s zero tariff policy (repealed in 2008), this combination led to a significant increase in foreign alcohol imports.

As early as 1979, foreign companies were capitalizing on Xiaoping’s reforms to invest in China’s domestic wine market. French cognac giant Remy Martin set up the first joint venture winery, Dynasty; Seagram’s assisted in the establishment of Great Wall winery. Many have since followed, including Pernod Ricard and Chateau Lafite-Rothschild, importing vines, equipment, and oenologists along with them.[8] Between 2000 and 2011, registered Chinese vineyards more than doubled from 200,000 hectares to over 500,000 hectares.[9] Recognizing the importance of the Chinese national grain-based spirit baijiu (the highest-selling spirit in the world thanks to China[10]), LVMH and Diageo each acquired baijiu makers such as Wenjun and Shui Jing Fang to diversify their portfolios.[11]

Incredibly, China has become the 5th largest consumer and producer of wine in the world, importing 30.9 million cases in 2013.[12] Nearly one out of five wine bottles opened in China is imported. The country has overtaken France and Italy to become the largest consumer of red wine, drinking nearly 1.9 billion bottles in 2013. The importance of the color red cannot be overemphasized: due to its strong (if superstitious) cultural affiliation with health, happiness, and luck, red wine accounts for 85% of wine purchases.

French wine still dominates nearly half of all imports, though lesser known countries are benefiting. U.S. exports of wine to China were nearly 23 million bottles in 2013, after being practically nonexistent a decade earlier. Chile’s wine exports to China increased 157 percent by March 2014.[13] Wine consumption continues to rise at a rate of 15% per year, in both the major and second tier cities.[14]

In the premium imported spirits category, the biggest players are Hennessy, Cognac, Martell, and Chivas, at 43% of the market share. A recent lifting of a ban on 100% blue agave tequila caused a spike in sales in Shanghai and Beijing; the industry predicts China to be the second biggest market in five years.[15] In 2012, China consumed 38% of the world’s premium vodka, gin, whiskey, and rum. However, as large as that number appears, 99% of all spirits consumed in China is baijiu.[16]

The Rise and Fall of High-End Alcohol

China’s economic boom led to a bubble in the luxury wine and spirits categories, notably for Bordeaux.[17] Rather than having the typical pyramid model of a normal market, in which expensive products represent a narrow point at the top, China’s was inverted.[18] The rapid rise in wealth, coupled with desire for prestige and the elevated social status that came with owning hard-to-get or expensive bottles, fueled demand and wildly inflated prices of first growths like Lafite, Latour, and Margaux until 2011.[19]

In particular, the market had an unusual over-reliance on lavish bureaucratic gifting — as much as 50% of all premium wines are speculated to have been paid for with government-related money.[20] The current government, led by President Xi Jinping, is now seeking to restore discipline and fight corruption, cracking down harshly on the practice.[21] China’s rich cut gift-giving by 25% to officials responsible for contracts, licenses, and tax breaks.[22]

Major beneficiaries of that once booming market have suffered significant losses in business. Scotch sales plummeted 35%;[23] French brandy dropped 20%.[24] Shipments of Bordeaux to mainland China, their largest export market by volume and value, dropped 26% by July 2014, down from the same period before.[25]

Shanghai's Pudong by day

Shanghai’s Pudong by day

Opportunities in China

Anti-Corruption Campaign

While the anti-corruption campaign hurt sectors of high-end alcohol, the austerity program will have the long-term benefit of forcing the industry to build a stable market. With sales to local governments dry, companies are focusing on finding new clients and ordinary consumers, and on delivering quality wines at better prices.[26]

Creative Marketing

Wooing new clientele, particularly in the off-trade sector as emerging middle classes in second tier cities grow in importance (on-trade in first tier cities had been up to 80% of business), has forced some companies to get creative. [27] Catalan import firm Torres, which has seen its corporate business shrink by 90% in the last two years, transformed its retail outlets, China Everwines, to resemble hip Barcelona wine bars, and has been successfully selling accessory products like Spanish hams.[28]

Changes in Consumption Patterns and Demographics

Meanwhile, the trend to drink wine for pleasure grows as new market segments of younger drinkers and women look to fit wine into their lifestyle (traditionally, wine has been reserved for special occasions such as holidays and banquets, or older, male-dominated business meetings).[29] Younger consumers regularly use the web and social media, two channels the wine and spirits industry should exploit.

Social Media

Although Google, Facebook, and Twitter are banned on the mainland, the equivalent of the latter two, Weibo and Renren, are enormously popular. Market entrants, willing to hire Chinese social media firms versed in these channels can expose their products to millions of users.[30] A recent analysis of upper middle-class drinkers of imported wine revealed that 75% of them research wine online, visiting sites like Winechina.cn, and 62% say they use social media as a source. The online channel is seen as cost-effective, convenient, and trustworthy.[31]

E-Commerce and Lower Priced Wine

CEO of ASC Fine Wines, John Watkins, insists growth lies in lesser-priced wines and expanding e-commerce.[32] Case in point, two of China’s top five wine retailers are online marketplaces Tmall and Yesmywine, and many wines sold are entry-level at 100 RMB and below.[33] While China is one country with many markets, e-commerce gives retailers (and producers who sell through them) an opportunity to reach deeper into the country on one platform.

Maturing Tastes

While French red wine remains the dominant choice for imported wine consumption, opportunities for the rest of the wine world will evolve as the domestic market grows. In the early 70s, Americans drank cocktails. After the explosion of California’s industry, however, the average American’s interest in wine increased, as did their desire to try imports from Europe. Eventually, the imported wines market outpaced domestic wines.[34] Even without a strong domestic wine market, tastes tend to mature. Twenty years ago, Japan developed an appreciation for red wine first, too, but has since evolved into a consumer of all colors.[35] In China, the decline in interest in Bordeaux has already led to regions like Burgundy, Italy, and Spain, enjoying newfound attention.[36]

Sparkling Wine

Curiously, Champagne (and sparkling wine) has not caught on, but given the Chinese interest in fashion, luxury goods, and Western culture, it seems a matter of time before this market takes off. While bubbles account for less than 1% of wine sales, consumption rose in 2012 by nearly 52%.[37] To spur those numbers further, Moët has launched its Chandon Ningxia winery to produce high-end method Champenoise for the local market.[38]

Wine and Spirits Education

As wine education develops, so will the palates of consumers. For instance, the WSET program on the Chinese mainland jumped from the fourth largest market to the second, in mere months.[39] Meanwhile, marketing efforts between distributors and producers can educate consumers through creative initiatives. Despite its suitability for much of Chinese cuisine, white wine remains an underappreciated category. To challenge this, Summergate Fine Wine Importers launched a Riesling Revolution tour with major producers from Alsace, Germany, and Australia. They conducted tastings and media events across four major cities, and reported the effort as successful.[40]

Trade education in a country with a nascent wine culture is at least as important as consumer education: waiters, sommeliers, and retail staff have great impact on customers given they interface directly with them. The Bordeaux Wine Council regularly runs trade seminars in 20 Chinese cities, while promoting its mid-range appellations of Bordeaux, Bordeaux Superieur, and the Cotes and Cru Bourgeois, through the Simply Bordeaux program.[41]

Trade Shows

The proliferation of wine shows should be utilized by regions looking to market their country of origin.[42] For example, ProWine China, an international trade fair for wine and spirits, provides a platform both for international dealers and producers and for local suppliers to present themselves, establish contacts, and become familiar with the Chinese market. ProWine specifically aims to showcase a range of countries: 30 participated in 2013.[43] Additional fairs include the Shanghai Wine Expo, Xiamen Fine Wine Show, Vinisud Shanghai, and the Beijing Wine Expo.[44]

Snake wine from Guilin.

Snake wine from Guilin

Challenges in China

Complex Distribution System

China has been called the wild west of the global wine and spirits market for good reason: the distribution path to the consumer is varied and unlike anything western companies have dealt with previously. This was especially true when the first import firms struggled to establish and develop distribution channels from scratch, having to hire and train employees who had never tasted wine.[45]

Those first, intrepid firms, like ASC Fine Wine, Summergate Wines, and Torres, now control the premium imported wine market. Producers looking for a piece of China may be swayed to sign with them because they laid the industry’s foundation. However, these firms lock clients into exclusivity agreements, and products from regions without stature (and non-red grapes), risk getting lost in growing portfolios. Alternative strategies include engaging an e-commerce site that sells direct to consumer,[46] working with a trusted grocery like Carrefour, and hiring several smaller, regional firms.[47]

Wine and spirits companies looking to crack the code of China should remember it’s composed of a multitude of small markets; they should carefully vet the importer or distributor they select, to make sure their product lines up with their agent’s expertise, strengths, and financial means.[48]

Cultural and Language Differences

Effective communication with the Chinese consumer is a major challenge. Brands need websites in fluent Chinese providing updated information, and names of stockists (important given all the fakes in the supply chain). Since China does not have a western food culture or related vocabulary, producers should consider marketing with a China-specific wine vocabulary, something Cambridge-educated, Beijing-based wine educator Fongyee Walker has been developing.[49] Additionally, premium packaging conveying luxury and pedigree are highly valued by Chinese consumers. [50]

Alcohol Tariffs

High tariffs on imported alcohol drastically increases retail prices, creating challenges for low- to mid-priced products entering the market, as they are significantly more expensive than their domestic equivalent (which continues to improve in quality). While there is industry speculation tariffs will start to ease[51], they have another consequence: alcohol smuggling from Hong Kong (which does not have an import tariff). Crackdowns have curbed this, but the problem persists.

Free Trade Agreements

Products from countries that lack Free Trade Agreements (FTAs) with China are subject to the alcohol tariff, as well as capricious, market-disruptive behavior by the Chinese government. In 2012, Europe and China had a tit-for-tat trade spat. Europe investigated China for dumping solar panels into its market, so the Chinese responded with accusations that Europe had flooded it with cheap wine, and threatened to further increase tariffs. The dispute was eventually resolved but it rattled the European wine and spirits trade.[52]

On the flip side, for countries that have bilateral FTAs like Chile and New Zealand, alcohol tariffs are being phased out to zero, and, consequently, wine exports from these countries have increased significantly.[53]

Regulations

Capricious regulation can extend to import restrictions, like the recent tightening on manganese limits (from 4 mg/l to 2 mg/l) that caught many Australian producers off-guard. Nearly a quarter of wines ready for shipment, after being tested first by Australia’s Vintessential Laboratories, were over the new limit, despite any scientific basis for the decision, according to Vintessential’s Managing Director.[54]

Counterfeiting

China’s counterfeiting has created consumer trust issues: a survey in January found 44% of respondents feared buying fake wine in all price categories.[55] Counterfeiters target inexperienced consumers with little knowledge of how a wine should taste, especially beginning collectors eager to purchase wines for status or for gifts (in which case the wine might never be tasted). To combat counterfeiting, ASC has developed a QR code and hologram to affix on the neck of bottles and can be scanned with a smartphone to give the consumer product information and shipping history. They import the codes and keep them under “lock and key” until affixed in China. ASC expects to apply these to 10 million bottles.[56]

BuddhistYunnan

Conclusion

The allure of penetrating the mainland Chinese drinks market is strong; the population is on track to hit 70-80 million imported wine drinkers by 2020.[57] This growing force will undoubtedly play an integral role in shaping the global drinks economy in the coming decades.

As the market evolves, Chinese tastes will mature. White wine will inevitably draw fans, as will Champagne, especially as the population of lifestyle drinkers, and young and female consumers, increases. However, the strong cultural identification with red and the appeal of whisky and grain spirits won’t abate.

Education, from consumer to industry, will greatly enhance the sophistication of the market, and major cities will continue to set trends as new products gain favor. Despite the loss of the high-end market in the short-term, luxury goods will remain in demand so long as millionaires and billionaires continue to be made in China. Meanwhile, the market for good quality, mid-range and lower priced wines will broaden as second tier cities and off-trade retail gain share. Distribution will remain a barrier to entry, but channels to reach the various markets will, hopefully, become more seamless.

Jumping into the complexities of the Chinese market, even as it seasons over the next decade, is not for the faint of heart; small producers lacking strong regional marketing boards with time and money to invest in China, should consider applying what resources they have, elsewhere. Any potential player must be prepared to build relationships, and establish recognition over a long and potentially unproductive period of time; deep pockets generally make such perseverance easier to bear.

Nightime on the Bund in Shanghai

Nightime on the Bund in Shanghai

Bibliography

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Boyce, Jim. “Selling Wine in China: Helene Ponty on the Beijing Market.” Grape Wall of China. 3 Sept. 2014. Web. 11 Nov. 2014.
Boyce, Jim. “Wine Fairs.” Grape Wall of China. Web. 11 Nov. 2014.
Branigan, Tania.”Xi Jinping vows to fight ‘tigers’ and ‘flies’ in anti-corruption drive.” The Guardian, 22 Jan. 2013. Web.
Carrell, Severin. “Scotch Whisky Sales Drop as China Frowns on Lavish Spending.” The Guardian. 22 Sept. 2014. Web. 11 Nov. 2014.
Carter, Felicity. “On China: An Interview with Stevie Kim.” Wine Business International. 1 Aug. 2012. Web. 11 Nov. 2014.
China: Five Trends for the Wine Market in 2013. Wine Intelligence, 5 Dec. 2012. Web. 11 Nov. 2014.
“Chinese Consumers Looking for Less Expensive Wines.” ASC Fine Wines. 2 Aug. 2013. Web. 11 Nov. 2014.
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Chow, Jason, and Wei Gu. “China’s Wine Market Shifts Toward Entry Level.” The Wall Street Journal. 14 July 2013. Web. 11 Nov. 2014.
De Beaupuy, Francois, and Caroline Connan. “Bordeaux Wines Feel Pain of Chinese Crackdown on Lavish Living.” Bloomberg.com. Bloomberg, 14 Nov. 2014. Web. 11 Nov. 2014.
“Economic analysis of import tariffs in the wine markets of China and the Republic of Korea.” Australian Government Department of Agriculture. July 2012. p. 1. Print.
Gibb, Rebecca. “Fear of Fakes High For Chinese Buyers.” Wine-Searcher. 8 July 2013. Web. 11 Nov. 2014.
Guilford, Gwynn. “Latest Evidence the Party Is over in China? Chinese Are Drinking Less Wine.” Quartz. 9 Apr. 2014. Web. 11 Nov. 2014.
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“Industry Focus: Importing Wine into China – China Briefing News.” China Briefing. 20 Aug. 2014. Web. 11 Nov. 2014.
“Marketing U.S. Wine in China.” USDA Foreign Agriculture Service, 19 April 2012. p. 4. Print.
Mercer, Chris. “Australian Wineries Wary of China’s Allure.” Decanter China. 23 Oct. 2014. Web. 11 Nov. 2014.
Mercer, Chris. “China Agrees to End Anti-dumping Probe into European Wine.” Decanter. 21 Mar. 2014. Web. 11 Nov. 2014.
Mianyang. “Doing It Their Way.” The Economist. The Economist Newspaper, 25 Jan. 2014. Web. 9 Nov. 2014.
“More Chinese Drinkers Turning To Imported Spirits, But Baijiu Still King.” Jing Daily. 4 May 2012. Web. 11 Nov. 2014.
Moselle, Mischa. “China Becomes World’s Second Biggest Consumer of High-priced Wine.”South China Morning Post. 9 Apr. 2014. Web. 11 Nov. 2014.
Mustacich, Suzanne. “Has Bordeaux’s Bubble Burst?” Wine Spectator. 18 Jan. 2012. Web. 11 Nov. 2014.
Nelson, Jacqueline. “Corruption and Cognac: China’s Crackdown Hits Luxury.” The Globe and Mail. 20 Aug. 2014. Web. 11 Nov. 2014.
Noppe, Raymond. “Rise of the Dragon: The Chinese Wine Market.” March 2012. p. 25. Dissertation, Cape Wine Academy.
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“Unsurpassed Diversity: More Exhibitors – New Countries.” ProWine China. Web. 11 Nov. 2014.
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 Footnotes

[1] Hormats, Robert. “Forty Years After the Nixon Visit: Progress, Challenges, and Opportunities in U.S.-China Economic Relations.” U.S. Department of State. 6 Mar. 2012. Web. 11 Nov. 2014.

[2] Vogel, Ezra. “Deng Xiaoping and the Transformation of China.” Online video clip. Youtube, Youtube, 19 Mar. 2012. Web. 8 Nov. 2014.

[3] Hormats.

[4] Hormats.

[5] Mianyang. “Doing It Their Way.” The Economist. The Economist Newspaper, 25 Jan. 2014. Web. 9 Nov. 2014.

[6] Mianyang.

[7] Robinson, J. (ed.): The Oxford Companion to Wine, 3rd edition, Oxford University Press, 2006, “China”, p167 – 169

[8] Schmitt, Patrick. “Lafite China’s First Wine Declared ‘not Bad’.” The Drinks Business. Web. 11 Nov. 2014.

[9] Winny, Monica. “Domaines Barons De Rothschild Unveils First ‘Experimental’ Chinese Wine.” http://www.billionaire.com/. 14 Aug. 2014. Web. 9 Nov. 2014.

[10] Sterling, Justine. “You’ve Never Tasted Anything Like Baijiu.” The Huffington Post. 17 June 2014. Web. 11 Nov. 2014.

[11] “More Chinese Drinkers Turning To Imported Spirits, But Baijiu Still King.” Jing Daily. 4 May 2012. Web. 11 Nov. 2014.

[12] Guilford, Gwynn. “Latest Evidence the Party Is over in China? Chinese Are Drinking Less Wine.” Quartz. 9 Apr. 2014. Web. 11 Nov. 2014.

[13] “Industry Focus: Importing Wine into China – China Briefing News.” China Briefing. 20 Aug. 2014. Web. 11 Nov. 2014.

[14] Robinson, Jancis, and Hugh Johnson. The World Atlas of Wine. 7th ed. Mitchell Beazley, 2013. 374. Print.

[15] Wilmore, James. “Patron Spirits to Launch in China after High-alcohol Tequila Ban Lifted.” Patron to Launch Tequila in China after Ban Lifted. Just-Drinks.com, 1 Aug. 2013. Web. 10 Nov. 2014.

[16] “More Chinese Drinkers Turning To Imported Spirits, But Baijiu Still King” Mustacich, Suzanne.

[17] “Has Bordeaux’s Bubble Burst?” Wine Spectator. 18 Jan. 2012. Web. 11 Nov. 2014.

[18] Chow, Jason, and Wei Gu. “China’s Wine Market Shifts Toward Entry Level.” The Wall Street Journal. 14 July 2013. Web. 11 Nov. 2014.

[19] Robinson, Jancis. “Wine Advances on China.” JancisRobinson.com. 19 Nov. 2011. Web. 11 Nov. 2014.

[20] Chow and Gu.

[21] De Beaupuy, Francois, and Caroline Connan. “Bordeaux Wines Feel Pain of Chinese Crackdown on Lavish Living.” Bloomberg.com. Bloomberg, 14 Nov. 2014. Web. 11 Nov. 2014.

[22] Areddy, James. “New Frugality Puts Strain on Chinese Firms.” The Wall Street Journal. 22 Jan. 2014. Web. 11 Nov. 2014

[23] Carrell, Severin. “Scotch Whisky Sales Drop as China Frowns on Lavish Spending.” The Guardian. 22 Sept. 2014. Web. 11 Nov. 2014.

[24] Nelson, Jacqueline. “Corruption and Cognac: China’s Crackdown Hits Luxury.” The Globe and Mail. 20 Aug. 2014. Web. 11 Nov. 2014.

[25] De Beaupuy and Connan.

[26] Spegele, Brian. “One Good Side Effect of China’s Anti-Corruption Drive: Better Wine.” China Real Time Report. The Wall Street Journal, 29 Sept. 2014. Web. 11 Nov. 2014.

[27] “The Chinese Grape Wine Market.” Rabobank International. October 2010. p. 6. Report for Grape and Wine Research Development Corporation.

[28] Robinson, Jancis. “China Loses Its Shine.” JancisRobinson.com. 29 July 2014. Web. 11 Nov. 2014.

[29] Halstead, Richard. “China Wine Market Landscape.” Wine Intelligence. June 2014. Report Brochure.

[30] Thach, Liz. “Using Social Media in China to Promote Wine & Spirit Brands.” Wine Industry News. WineBusiness.com, 8 Jan. 2014. Web. 11 Nov. 2014.

[31] Halstead, Richard. “China Wine Market Landscape.” Wine Intelligence. June 2014. Report Brochure.

[32] Chow and Gu.

[33] China: Five Trends for the Wine Market in 2013. Wine Intelligence, 5 Dec. 2012. Web. 11 Nov. 2014.

[34] Chow and Gu.

[35] Moselle, Mischa. “China Becomes World’s Second Biggest Consumer of High-priced Wine.”South China Morning Post. 9 Apr. 2014. Web. 11 Nov. 2014.

[36] Chow and Gu.

[37] Xin, Livia. “Sparkling Wine Gains Recognition in China.” The Drinks Business. 6 Nov. 2013. Web. 11 Nov. 2014.

[38] “There Are Plenty of Reasons Why Champagne’s Falling Flat in China.” Jing Daily. 8 Mar. 2013. Web. 11 Nov. 2014.

[39] Schmitt, Patrick. “Wine Education Booms in China.” The Drinks Business. 19 Nov. 2012. Web. 11 Nov. 2014.

[40] Robinson, Jancis. “Riesling Revolution in China.” JancisRobinson.com. 16 Apr. 2014. Web. 11 Nov. 2014.

[41] “Chinese Consumers Looking for Less Expensive Wines.” ASC Fine Wines. 2 Aug. 2013. Web. 11 Nov. 2014.

[42] While brand is important, marketing of country of origin should be pursued aggressively. Nationality of the wine is the most influential factor affecting purchasing decisions of customers in China, followed by “Taste”, “Brand”, “Quality”, etc. “Marketing U.S. Wine in China.” USDA Foreign Agriculture Service, 19 April 2012. p. 4. Print.

[43] “Unsurpassed Diversity: More Exhibitors – New Countries.” ProWine China. Web. 11 Nov. 2014.

[44] Boyce, Jim. “Wine Fairs.” Grape Wall of China. Web. 11 Nov. 2014.

[45] Noppe, Raymond. “Rise of the Dragon: The Chinese Wine Market.” March 2012. p. 25. Dissertation, Cape Wine Academy.

[46]  Carter, Felicity. “On China: An Interview with Stevie Kim.” Wine Business International. 1 Aug. 2012. Web. 11 Nov. 2014.

[47] “Marketing U.S. Wine in China.” p.5.

[48] “Marketing U.S. Wine in China.” p.6.

[49] Robinson. “China Loses Its Shine.”

[50] “The Chinese Grape Wine Market.” p. 7.

[51] “Marketing U.S. Wine in China.”  p. 3.

[52] Mercer, Chris. “China Agrees to End Anti-dumping Probe into European Wine.” Decanter. 21 Mar. 2014. Web. 11 Nov. 2014.

[53] “Economic analysis of import tariffs in the wine markets of China and the Republic of Korea.” Australian Government Department of Agriculture. July 2012. p. 1. Print.

[54] Mercer, Chris. “Australian Wineries Wary of China’s Allure.” Decanter China. 23 Oct. 2014. Web. 11 Nov. 2014.

[55] Gibb, Rebecca. “Fear of Fakes High For Chinese Buyers.” Wine-Searcher. 8 July 2013. Web. 11 Nov. 2014.

[56] Chow and Gu.

[57] Halstead.

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Filed under China, Future of China's Wine and Spirits Market

New York Wines hit Chinese Shores

Shanghai’s Pudong on a rainy day, viewed from the Park Hyatt

I can’t stop reading and thinking about China and wine.  Perhaps topical stories are catching my eye, since I am tuned into the subject due to my visit to China in June; nonetheless, I have discovered another new development.  It seems the looming tidal wave of Chinese wine consumption has finally reached local NY shores—or rather, we have gone to theirs, hoping to catch a ride in on the money wave: New York State Wine Outlet opens in Shanghai!  Unfortunately, my visit was a month before the opening of this exciting experiment, or else I would have liked to see how the Chinese represent NY wines to the local populace.  Currently, Chinese wine consumption is estimated at 1 measly bottle a head per year (I know some people who can put one back in a night—not good either though).  This figure may sound small, but there are 1.3 billion humans over there, and consumption and income are ballooning.

Lord Stow’s Egg Custard operation in Macau

It seems, rightfully so, that New York wants a slice of the egg custard (particularly if it is from Lord Stow’s in Macau. Me too!)  Empire State Cellars (the only all NY wine store), owned  by Peconic Bay Winery in the North Fork, was commissioned with creating an assortment of 30 wines representative of different regions and styles from NY State.  Wineries that comprised the initial shipment included: Anthony Road Wine CompanyBedell CellarsChanning Daughters WineryHudson-Chatham Winery, Jamesport VineyardsMedolla VineyardsPaumanok VineyardsPeconic Bay WineryShaw Vineyard and Shinn Estate Vineyards.

The Outlet itself is meant as a resource for trading, selling and showcasing NY wines plus the venue will host trade shows, promotional events and matchmaking (no, not like Elimidate) for distributors and buyers.  Why is this exciting beyond merely the opportunity for New York to stake a claim in unchartered China?  It was only a decade ago that NY State wines lacked the quality-price ratio (QPR) to compete nationally, let alone globally. I am sure many will pick a bone with that statement, but I stand by it having spent more than a decade tasting and mostly spitting the wines.   However, in the last 5-6 years the vino has improved tremendously across the board; call it better weather (global warming) or better technique, or both.  Either way, the price points look much more reasonable when the juice in the glass has balance, complexity and is delicious to drink.

So, what does the New York State Wine and Spints (yes, not Spirits) website look like? Kind of hilarious.  Having just come back from China, I am familiar with the theme of poor Chinese –English translation and spelling, coupled with jumbled site design.  They definitely have some work to do on the NYSWO website.  For instance, some of the NY wineries have their names misspelled: sparking ponte vineyards should be Sparkling Pointe and lieb family cellards is, well, obvious.  Also, content was lacking and functionality was off.  I was the 76th visitor; my husband, 15 minutes later, was the 72nd. Maybe they are counting down from a million and #1 will win a prize!  I applaud the efforts here, but wonder why winemakers stateside aren’t insisting on a few fixes, given there is a large population of English speaking expats in Shanghai.  Maybe the Chinese version of the site looks better-unfortunately, I can’t read it!

Lion guarding the gates at the Forbidden City, Beijing

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What I Drank – Changyu Dry Red Wine, Vintage Unknown

Changyu Dry Red Wine (non-vintage?)

I planned to write a simple tasting note on the single bottle of Chinese wine I drank in China, while providing background info on the producer.  While looking up the winery Changyu, however, I came across a few random pieces of info on the ‘nets that struck me as comment-worthy.

1. Changyu winery just celebrated 120 years of wine-making. What?  Maybe they were fermenting Snake Wine, but I highly doubt they have been producing Bordeaux-esque, barrel-aged wines for ONE HUNDRED AND TWENTY YEARS.  Well, I looked it up and YES, technically the winery and cellar were built in 1892, but they had a hell of a time producing anything worthy of consumption. In 2002, the French Castel Group teamed up with Changyu to create the first professional Chateau in China.  I guess I should retract my affront and at least give them credit for being first in trying to establish a vineyard in a non-wine drinking country (at the time).  And if that didn’t blow your mind, how about this:  Changyu is now the 10thlargest wine producer in the world!  So many new (scary?), random facts learned today. Here come some more…

Napa Town?

2.  Changyu winery announced plans at their 120th anniversary gala to build a wine theme park, twice the size of Monaco.  This “Winetropolis” would include such delights as a “wine-themed tourist town”, a vineyard, a shopping street, wine spas, bars and a chapel. Yikes. Having just returned from China and seeing the utter destruction done by the domestic tourism industry to both the natural environment and China’s ancient cities, this scares the crap out of me.  Seriously–the whole country is going full-Disney.  Why can’t domestic tourists embrace the natural beauty of their country?

Evening blight-show in center of Lijiang

Imagine putting up fluorescent, multi-colored high-beams all around El Capitan in Yosemite National Park, then holding a nightly song and dance show at the base of the mountain, set to David Guetta, using workers bused in from Appalachia, forced asked nicely to prance around in fake Native American garb, all while selling out of tickets to this disaster EVERY NIGHT; followed by a mass migration to the historic Ahwahnee Hotel, recently converted into a ginormous, disco-lit karaoke barn. This is the city of Lijiang, China.

3. A French Sommelier, while at the dubious 120th Anniversary tasting, apparently declared he was “glad to see that Changyu can produce great white wines, red wines, sweet wines and brandiesall different products but all at a very high level. They compete very well with the French wines.”  Seriously? Who is this Sommelier Pierre Barthe, and what on earth is he drinking in France?  Apparently an independent British wine consultant feels differently: “it (Changyu) has yet to improve quality in both its vineyards and winemaking.”

Oh, well. The world is officially insane. And with much ado about nothing, here are my tasting notes:

The wine draws a blank on the nose—very little aroma.  There is some perceptible, pleasant red fruit on the palate, but nothing I could pick out of a gang in a fruit line-up.  The wine has obviously had some oak treatment, reminiscent of a brown paper bag—possibly oak chips. The tannins are dry, a little scratchy but not totally offensive.  Amazingly, this is NOT the worst wine I have ever had.  For what it’s worth, we finished the bottle.  Of course, my standards may have been lowered inadvertently as a result of the sh!tty-Chinese-beer-fatigue-syndrome I was suffering from at the time.

Drinking some Changyu on the balcony in Lijiang

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From Snake Wine to Grapevine: Observations from the grape frontier of China

Shanghai’s Pudong by day

After spending the winter months at home in PJ’s, undergoing pre-China Pimsleur coursework, muttering out loud to my Doberman “wo bu ming bai” (“I have no idea what the heck you are saying to me”); followed by spring months honing my Putonghua with the dry-cleaner (who I later found out is Korean!), I have gone and returned from a 3 week jaunt across the mainland of China and Hong Kong; and since forgotten most of my Mandarin.  What I did grasp came in handy and generally broke the ice with locals—apparently it was hilarious that I, the blond-haired, blue-eyed wife of a partially Chinese husband, traveling with my partially Chinese father-in-law, was the only one who could bust out phrases in the native tongue.

Me and a bottle of Changyu on the terrace in Lijiang

As far as my goal of grasping the state of wine culture in the Motherland, that was a little more difficult.  The first half of the trip was dedicated to adventure travel: we traipsed through remote-ish places with limited exposure to modern wine culture (we still found weird, fermented “wines” such as made from snakes).

World Famous Ray’s Snake Wine. Not to be confused with Famous Original Ray’s snake wine, mind you.

The second half was dedicated to the major cities of Beijing, Shanghai and Hong Kong, but we had my 80+ year old in-laws, in-tow, and they weren’t particularly interested in patronizing wine bars or the kind of restaurant that might have a wine list (we ate a lot of down and dirty—and delicious—food geared towards locals).  Yet, despite what I can hardly consider obstacles, I was still able to bring home a few observations about the state of the wine market for the mid-level consumer from both a retail and Café/Restaurant/Hotel standpoint.  If you read my piece on Where I am going: China, you will remember I offered some market analysis and speculation, largely based on my reading of 3rdparty resources.  Now that I have had two feet on their turf, I thought I would follow-up with a few impressions:

  • Wines are CRAZY expensive on the mainland.  China’s import tariff is staggeringly high at 50%; despite the abolishment of such tariffs in Hong Kong, Central is still sticking it to the ZhongGuoRen consumer and businesses. This is a short-sighted strategy given the huge, potential market and money to be made, particularly if the duty’s purpose is protectionism—a failing proposition as evidenced in history.
  • Bottles that cost $10/20/30 in the United States sold closer to $30/60/90 in groceries or department stores.  Yellowtail priced at $7 bucks in the United States, cost over $22 in a Shanghai shop.

    $22 Yellowtail. Yikes!

  • Wine by the glass at bars and restaurants is limited or non-existent. Most wine is sold by the bottle at such incredible mark-ups, even The Donald would blush.  This was always the case at bars geared towards the Chinese.  Bars and restos with broader  international appeal, such as found in the Sanlitun district of Beijing or at wine bars operated by non-chinese (such as H.O.W. aka House of Wine in Shanghai, owned by a Frenchman), tended to have more interesting bottle selections with by the glass programs that were, relatively speaking, affordable.

    H.O.W. House of Wine in Shanghai

  • Horrible storage conditions.  Apparently importers don’t include leaflets on ideal storage temps when they drop off their shipments.  We saw countless bottles of wine—some high-priced Bordeaux(!)—standing upright, baking in sunny windows, and covered with dust.
  • There were entire wine shops dedicated to high-end Bordeaux and Barolo. Nothing else.  All luxury, no middle ground, all over-priced.
  • Wine shops with a broader selection, still tended to carry 60-70% French wine. They are obsessed with it. Second place goes to Italy, but only Barolo and wines from Tuscany. I keep reading the American wine companies have made the biggest dent in the market, but from the ground, it all looked French and Italian to me.
  • The “high-end” or better Chinese wines, mentioned in my previous article, were very difficult to find.  Grace Vineyards, for instance, never graced a shelf I surveyed. Granted, I didn’t have time for major recon of every city’s best shops, so take that with a few salty granules.
  • Mid-range and low-end wines from the most prolific Chinese producers such as Great Wall and Changyu, were available in a few spots, but again, not as common as I expected.  We managed to find a shop in Lijiang that sold some mid-range stuff ($25), so we bought a bottle of Changyu red for tasting.  See my post on that bottle.

    Bottle of Changyu “Red” Wine

All in all, China has massive market potential and those getting an early foot in the door should make some bucks—whether through importing or working with local wineries, such as international partnerships with Chinese vineyards.  For those of us more interested in unique, small-produced wines from less trendy regions, Hong Kong has a population more open to learning and experimenting without any of the tariffs.

Nightime on the Bund in Shanghai

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Where I am going- China

Hong Kong Harbor

I feel like I haven’t been on a lengthy trip in ages, although such restlessness (and irrationality by most people’s travel standards) is common in those with wanderlust fever.  It is completely incurable, but treatable through frequent exposure to new places and wines.  So, for my annual, extended therapy session, I am headed to China.  We depart late May and return mid-June.   The itinerary consists of 3 weeks and the following stops:  Hong Kong, Guilin/Yangshuo, Shangri-La (near Tibet), Lijiang, Beijing, Shanghai and back to Hong Kong and Macau.  This trip is not immediately recognizable as being related to wine, because it is not.  Primarily, we are going to escort my 83-year-old father-in-law around the country on his final overseas voyage.  He grew up in Hong Kong and Macau, but has not stepped foot in the region in nearly 40 years. I have a feeling Macau as a gambling mecca and Hong Kong, a shopper’s paradise, will be fairly unrecognizable.

Although not an obvious wine destination, I am dedicated to uncovering what, if any, wine culture does exist there, and where it might be headed.  My WSET studies introduced me to the nascent and looking-to-be-tapped-by-exporters wine market lurking beneath the surface of the growing upper and middle classes of the mainland.  Plus, there are 6 or so notable wineries already on the mainland, winning a few Asian regional awards, producing wine of dubious quality at varying price points.  However, one wine that actually won an international trophy from Decanter—under the shadow of bribery accusations—is Jia Bei Lan of Helan Qing Xue winery in Ningxia Province.  Word on the street is the wine was released in Beijing this spring. Perhaps I will look out for it, but if the $120 per bottle price tag is correct, it will probably remain a stranger to my lips.

Rice terraces in Bali- similar to the Longsheng terraces in China

For a longer look at China’s current wine economy, keep reading…

The most obvious place to begin an assessment of Chinese wine culture and economy is Hong Kong.  Given the island’s great wealth and exposure to Western culture, it seemed only a matter of time that Hong Kongers’ taste for luxury goods would extend to wine.  The tariff on wine imports was completely abolished in 2008—it had previously been as high as 80 percent, later dropped to 40—setting in motion Hong Kong as a major player in the auction market.  No longer beholden to extraordinarily high taxes, label wh*res lovers went crazy bidding up trophy Bordeaux and Champagne bottles to stratospheric levels.  This isn’t a particularly mature attitude towards wine, since the behavior of buying the most expensive, iconic brands for adult show-off-and-tell is the complete antithesis of my perspective. Despite this inauspicious beginning (in my opinion-probably not shared by Château Lafite), there are clear signs a more thoughtful and approachable market is developing.

When I was last in Hong Kong in December 2009, there were a handful of new wines bars, including one of the first enomatic tasting machines, in the trendy Lan Kwai Fong district.  And as aforementioned, exporters have had their sights on the ever-growing middle class of China—the U.S. export market jumped 400% between 2006 and 2010.  Hong Kong even has its first urban winery the 8th Estate Winery (although they source their grapes globally, not from China).  Clearly Hong Kong has laid the foundation for importing wine, but what about actual winemaking in China, from Chinese grapes?  It exists.

Now, if you really want to get academic…

For a stellar and easy read on the “globalization of wine”, I recommend Wine Wars by Mike Veseth, AKA the Wine Economist.  I devoured this book a few weeks ago.  Mr. Veseth devotes a section on the variables and hurdles that Chinese winemakers have to contend with, and there are a lot of them, predominantly in the supply chain.  For instance, regulations don’t encourage quality grape growing and farmers are paid for quantity; growers function independently in teeny, tiny little vineyard plots, a holdover from communist era land programs—natch—which discourages best practices oversight by the winery, such as optimal pick-time.  It sounds like the key to high quality wine would be an estate vineyard, a practice which well-received newcomer Grace Winery supposedly employed in their first vineyard in Shanxi province (they now own 3 other vineyards in other regions).  More good news is that foreign partnerships are growing, giving the Chinese access to better technology and expertise.  With such a potentially huge domestic market, I would imagine, and hope, that wines would continue to evolve in quality.

Tourist Junk Boat in Hong Kong

Finally, some hurdles in developing the Chinese wine palate lie in existing cultural habits. For example, some postulate the Chinese prefer red wine because they are used to drinking warm drinks at a meal and because of the auspiciousness of the color red, though white wines might be better suited to certain fiery dishes. Also, tea is tannic, as is red wine, so they are used to tannins in their beverages.  Or perhaps the Chinese palate is not meant to be like the Western palate at all- they grew up eating different foods and may expect and appreciate different tastes and qualities in their wines. None of this should be viewed as a scientific analysis; rather speculation by wine industry folk.  Perhaps I can gain a greater insight when there on the ground, meeting fellow or future wine drinkers of China.

For those that are interested in a list of Chinese wineries—I imagine not too many of you, yet—the larger and notable names I have come across so far are the following: Great Wall, Dragon Seal, Changyu, Huadong, Domain Helan Mountain, Grace Vineyards, Helan Qing Xue.  If anyone has any other suggestions of local wines I should seek out while there, please let me know!

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