Stellar growth of wine sales in China is attracting foreign firms facing 'fierce competition and sluggish sales' elsewhere, but penetrating local markets remains the holy grail for foreign and local firms.
That’s according to a new report from Rabobank, ‘China Wine Market: Mind the Gap’, which noted that bottled wine imports into China rose 65% to 241m litres in 2011, the sharpest rise since the economic downturn in 2007.
Wine offered a strong value proposition given its western-style ‘positive’ association with Chinese consumers, Rabobank analysts Mark Soccio and Martin Wu wrote.
Understanding consumer needs
The beverage was not seen as luxurious as whisky or brandy, as old-fashioned or unhealthy as local strong distilled liquor ‘baijiu’, or as ordinary as beer, they added.
Despite this rosy picture, Soccio and Wu noted that the number of Chinese wine consumers was still relatively small, limited in geographic scope and unlikely to be exploring the imported category with any purpose.
The analysts said that both native and foreign companies were struggling with a “mind-bending proposition”: how to identify and reach 1.34bn consumers spread across five city tiers and 31 provinces, all with diverse cultures.
Soccio and Wu wrote: “Many submarkets display different consumer needs, levels of affordability and product/brand awareness, and even if that is well understood, the task of accessing such a diverse array of markets presents a major distribution challenge in itself.”
High earners favour foreign wines
In recent years the three largest listed Chinese wine companies – Changyu, Great Wall and Dynasty – had been “caught off-guard” by the rapid rise in foreign wine demand, but had since improved product mix and supply chain efficiencies to catch up, the analysts said.
These three wine brands were the most popular across Chinese cities, Soccio and Wu wrote – although they also sold imported products – with normal consumers put off foreign wines by higher prices and lack of brand familiarity.
According to Sinomonitor’s 2011 survey of 90,000 consumers, imports found real favour amongst high earners (around €1,000 per month), while two thirds of those surveyed who drank wine in general over the previous 12 months earned less than CNY 4,000 (€507) per month.
Roughly two fifths of wine drinkers were over 40-years-old and half lived in so-called ‘Tier 1’ cities: these included Beijing, Chongqing, Shanghai, Tianjin and the 10 provincial capitals.
“Fortunately for the foreign wine category, the growing appeal of imported wines is expected to lead domestic companies to increasingly promote imported wines through their enhanced distribution platforms around China,” the analysts wrote.
Frustration with distribution
But although many high-profile international wine companies had managed to partner a national distributor or domestic wine company (key to driving sales volumes and building national brand awareness) the analysts noted a limited pool of national distributors.
This made it hard for many wine companies to access distribution levels they were used to in other major markets, Soccio and Wu said.
“This is frustrating for brand owners who may have a relationship with a [highly capable yet more focused semi-national] second-tier distributor, but at the same time observe total bottled wine imports into the market growing far beyond their own level of sales growth.”
Such suppliers were now exploring complementary distribution solutions, Rabobank’s analysts wrote, such as experimenting with regional distributors via second-tier brands, or even establishing or acquiring their own distribution networks in China.
Rabobank said that France expanded its dominant position as a wine exporter to China in 2011, with average import prices up 20% to US $5.99 per litre, followed in order of volume by Australia, US, Italy, Chile and Spain.