Despite steady growth in the last decade, China’s wine market is changing. Rabobank’s new Wine Quarterly report identifies several factors impacting both its foreign and domestic wine suppliers in 2019.
Rabobank said that the competitive positioning of imports is evolving, while domestic producers are adjusting their strategies to appeal to a more knowledgeable Chinese wine consumer. The country also has an evolving retail landscape focused on e-commerce.
Import winners and losers
As the fastest-growing wine market in the world, there are several factors that contributed to China’s decade of success and current, temporary burn-out period. The Chinese consumer prefers imports, for example, viewing them as superior and higher-quality than domestic options.
This led to imports growing ‘fourfold’ over the last 10 years, according to Rabobank. But the market is tapering off, and 2018 saw the first decline in imports since 2014. A mostly positive market performance resulted in oversupply and overstocked products, and over-zealous investors.
The biggest losers in the Chinese wine market have been the US and France. Rabobank said that French wine imports decreased 23% in volume and 4% in value in 2018. But French wines saw an overall significant price increase in 2018, due to poor crops in 2017.
The US-China trade war that’s been brewing since Donald Trump was inaugurated in 2017 is taking a serious toll on wine.
“After China imposed three rounds of increases in import duties – 15%, 10%, and 25%, respectively – US wine is now subject to a total levy of 106%, including tariffs, a value-added tax, and an excise tax,” Rabobank’s report said.
Between 2017 and 2018, US wine imports to China fell 25% by value. And in the first four months of 2019, they have been down by 58.7%.
“Exports to China represent less than 1% of US production, but the long-term concerns should not be underestimated,” Rabobank said.
The biggest winners in the Chinese wine market have been Australia, who is benefiting from a successful free trade agreement with China, and New Zealand, Chile, and Georgia, who all have bilateral trade deals with China.
Can domestic keep up?
On the domestic side, Chinese winemakers are evolving their production and marketing strategies to keep up.
Optimizing product portfolios, cutting down lower-end product lines, and focusing on best-selling labels are all ways that domestic players are simplifying their wine offerings to help consumers feel ‘less overwhelmed.’
Rabobank pointed to the wine and spirits consolidation at China National Cereals, Oils and Foodstuffs Corporation (COFCO) in the last two years. Since 2017, the Chinese food conglomerate has reduced product lines of its Great Wall Wine by 60%.
They have shifted to focusing on their best-selling labels and expanding its presence in the mid- and high-end segments.
China is also dabbling in tourism efforts to increase domestic wine consumption. Wine museums and wine-themed destinations have begun cropping up from brands, including the launch of the Wine Train from Beijing to Ningxia last August.
Passengers on the Wine Train can taste wine and local cuisine from Ningxia, and participate in wine-themed activities during the journey.
“The Chinese wine market appears to be showing a slowdown thanks to a variety of factors, but we believe this to be a temporary phenomenon. China is expected to remain an attractive export market moving forward,” Rabobank’s report said.