Everyone knows the incredible story of growth in China's wine market but will it last? What are the key market factors that international wine producers need to know?
According to General Administration of Customs of China, the total volume of Chinese wine imports in 2017 was 746 million litres, an increase of 16.88% over the same period last year, and the overall import value was USD 2.789 billion, an increase of 17.96% over the same period last year. (Source: China Customs Magazine)
The outlook for the next 5 years sees an additional US $6 billion of expected growth with the total market value reaching US $23 billion. This amount is over 2 times the total volume of Chinese wine imports in 2017, or 6.5 times the total sales of Chinese wine listed companies in the first three quarters of last year and indicates an unstoppable growth trend in Chinese wine market.
Looking forward, the three major wine producers in the southern hemisphere have significantly improved their competitive advantage with Chile and New Zealand achieving zero tariffs on wine and Australia following with no tariffs for both bulk and bottled wine in 2019. As such many Chinese wine importers are likely to be less enthusiastic about wine coming from other emerging wine producing countries.
"the time for importing wine to China for easy money is over."
Even so, the time for importing wine to China for easy money is over and international wine brands need to consider the following factors that will undoubtedly influence the Chinese wine market.
Market Prediction 1: Surviving the Price War
For the most part there have been cost increases throughout the major wine producing regions across Europe and Australia and yet for those international wineries that lack brand power within their key Chinese markets, it could prove quite difficult to raise prices - even to cover costs. This is especially true for those brands who entered into the China market using low consumer pricing as their sales differentiator as a low-end wine price war is extremely difficult to sustain in a market as competitive, concentrated and cut-throat as China.
Market Prediction 2: More Squeezing by the Middle-men
There has been an accelerated flattening of sales margins by both internal and external factors. China's e-commerce giants have dived in to the wine industry and are squeezing more and more profits from wine sales. Moreover, B2B platforms within the industry have increased the speed of penetration into the blue ocean markets in China's third and fourth tier cities leaving some wine merchants and their traditional ways of doing business behind and unable to respond in time.
Market Prediction 3: Baijiu is still King
China's native alcoholic beverage of choice is 'baijiu' and it is to be expected that the growth in the Chinese wine market will affect the market share of 'baijiu' (and vice versa) with both sides earnestly competing for the same resources in accessing some shared market channels.
Entering 2018, “price control” seems to be a tacit priority for Chinese liquor companies with a number of well-known 'baijiu' brands beginning to significantly increase their market prices. Many of these companies have also received additional capital funding and investor interest to secure their development plans. Moreover, the high-end brands have higher market penetration making it difficult for smaller brands (both domestic 'baijiu' and international wine brands) to grow.