The Chinese Wine Market an Industry Analysis
by Dr. Stephen Reiss, Ph.D., C.W.E.
Member first US Wine Delegation to P.R. China
China has a 6,000 year history of grape growing, and a 2,000 year
history of wine making, and yet until this century the wine that was
made in China was not of a style that would be recognized in the
I can not over stress the importance of the fact that in Chinese
the word for alcohol "jiu" is used to mean all types of beverages,
from beer 'pijiu" to liquor of all sorts (just called "jiu") to grape
wine, called "putao jiu", literally, "grape alcohol". This lumping
together of all intoxicating beverages gives us great insight into
the traditional use for alcohol, intoxication. Even in modern China
alcoholic beverages are generally classed by the general population
by how much intoxication it delivers for the money. From this point
of view table wine is at the bottom rung of the consumer preference
list, with brandy being much higher.
This has not escaped the official notice of the Chinese government
who in 1987 began to encourage the Chinese people to drink grape wine
over the sorghum based "baijiu" (almost a pure alcohol white liquor).
This would switch public consumption from grain based to fruit based
beverages, very important in a country struggling to feed its masses;
as well it would bring down the average ethanol content consumed in
the market. This program has met with limited success, but what
success it has found has been in the younger markets, which bodes
well for the future.
The desire to embrace western products is the single most
important driving force in the adoption of wine as a viable import in
China. Alas economics, as usual, is the final arbitrator. With a 750
ml bottle of beer costing around US$.60 it is difficult for the
Chinese consumer to spend even the $2- $4 that a bottle of Chinese
wine fetches. Imported wines with their average price around US$10 a
bottle and up, is far beyond the reach of most consumers. As the cost
of living and the economic growth of China continues to skyrocket,
there will soon come a day when this price resistance is less
The Chinese people have a sense of brand loyalty that almost
borders on the fanatic. Once a brand name is established, anything
with that name is sure to do well. Coca-Cola is often held up as the
perfect model for breaking into the Chinese market. First established
in the early 80's, Coke could not at first be given away, although
that is exactly what they did. In time the Chinese began to develop a
taste for Coke, and now, more than 15 years after its introduction,
Coca-Cola has a stronghold on the Chinese market. Any wine brands in
China would do well to follow a similar model.
Alcohol related regulations, as far as distribution and labeling,
are almost non existent; although the bureaucracy in China being what
it is, this may change at any given moment. This climate of relaxed
standards is a mecca for unscrupulous importers and bottlers, and it
should be considered that legitimate concerns will have to compete
with falsely labeled and adulterated wines as this market explodes.
One of the single greatest barriers of exporting wines to China is
the duties. As of spring 1996, the last time I had a meeting with the
Chinese government, the duties for wines imported into China were an
exasperating 70%, down from 80% the year before. This high duty makes
it especially difficult to compete at the under US$5 retail level,
where most wine is now being sold.
The distribution system for wines in China is currently chaotic.
Once the domain of the government, distributors have now found
themselves out on their own with no support from the central
government, who still expects their cut. There is no such thing as a
wine cellar or refrigerated storage in China, a major obstacle. In
fact Seagrams who's failed attempt to market fine wines in China
point to the lack of proper facilities and distribution as their main
cause for failure. It can also be pointed out that Seagrams entered
the Chinese market early, looking for quick returns. Because of the
lack of regulation, any new wine venture in China would do well to
consider their own distribution system. This system is unheard of in
other countries and so is slow to be adopted in China.
The main competition for imported wines in China comes not from
the Chinese wines, but rather the other forms of alcoholic beverages.
The French Cognac houses, who are the main players in China, usually
in the form of a joint Franco/Sino venture (e.g.,. Dynasty and Great
Wall Wineries), have discovered that brandy, and not table wines are
the current top sellers in China. Because the consumer is looking for
the effects of the ethanol, rather than the taste of the beverage,
the lowest grade brandy's, most of which would be below the
regulations of most nations, are in the greatest demand. These
brandies, when produced or bottled in China (bringing in bulk
alcohol, adding caramel color and water, and calling it brandy, is a
successful model in China), often sport such terms as VSOP and other
designations that have no legal meaning in China and therefore are
only used as means of recognition, not a designation of quality.
By far and away the most compelling aspect of the Chinese market
is the demographics. While there is not currently any portion of the
market that would be likely to drink table wine on a regular basis,
the shear numbers are staggering. If each of the 1.2 billion people
of China bought a single bottle of wine a year, they would outrank
most of Europe as consumers. Even when you take just the upwardly
mobile youth of the cities, the traditional wine market of other
countries, you are talking about a population of over 300 million,
more than 10 time the potential market of the US and many more times
that of other Western countries.
In summary any venture to export wines to China must be prepared
to establish their brand over a long and potentially unproductive
period. They must be able to price their product, after paying 70%
duties in such a way as to compete with other alcoholic beverages,
especially beer. They must be willing to create or support a
distribution system in each major urban area. They must create not
only their own storage facilities, but help their customers learn
about storing, and even opening bottles of wine. With perseverance,
and deep pockets, the potential to market wine to 1.2 billion people
is a staggering concept with great potential for profit, in the long
run. Education above all else is required before the Chinese people
will become a wine drinking nation of even the most meager sort.