Chinese wine market: how to overcome the barriers

By

Demei's View - Wine Communication from a Chinese Winemaker

A few days ago I was invited to make a speech at a wine forum. The organiser kindly suggested I could talk about any topic I wanted. I panicked for a while - having been raised in an environment where you’re used to doing whatever you’re told to, I was unfamiliar with such freedom. What if I can’t find anything to talk about?

Fortunately, a helpful friend inspired me. He noticed that I was so worried that I couldn’t even relax to enjoy the fine wine he brought for me, so he suggested, ‘just talk about the difficult situation the industry is facing at the moment, and give some constructive advice. That’s the kind of topic people do seriously care about.’

Image: 2013 harvest, Ningxia

The current situation of Chinese wine market

Recent reports have it that China has become the number one red wine consuming country in the world. (As I mentioned in one of my previous columns, in China ‘red wine’ is considered as a synonym to ‘wine’ in many places. So some Chinese media misunderstood and hailed the report by saying, ‘China has become the number one wine consuming country in the world!’ In fact, we do hope that day will come —as long as wine prices don’t rocket at the same time.)

There is no doubt that from the end of 2012, both the production and consumption of China’s domestic wine are decreasing significantly compared to the same period the previous year.

According to figures released by the National Bureau of Statistics of China, by the end of December, the annual production of Chinese wines in 2013 was 1,178,300 kilolitres, a 14.59% decrease from 2012. Sales revenue was down by 8.52% to 40.82 billion RMB, making a profit of 4.38 billion RMB, a 20.06% decrease from the year before.

The larger-scale companies were hit hardest. Across the 19 wineries owned by the top four winemaking companies in China, the production, sales volume and revenue are significantly down by 23.78%, 34.35% and 37.8% respectively.

People working in the wine trade perhaps feel the impact of decrease more intensely, as the production and sales of Chinese wine had been enjoying an annual increase of almost 20% for several years.

Reasons behind the difficult situation

Image: Maotai Wines

Speaking of the current situation faced by the industry, many people assumed that the strict austerity policy of the new central government is the main cause, while in fact it’s just an ostensible reason (even if that is the true reason, we don’t really expect our society to go backwards, do we?). The chronically distorted development of the Chinese wine market is the fundamental reason behind these difficulties.

1) Consumers are willing to buy, but don’t know what to buy

Consumers are not in the same position as distributors to gain information about the products. They have very limited access to any information about the products, which are mostly held solely by the distributor. Consumers are following the salesperson’s words, either consciously or unconsciously, and are purchasing and consuming wine in a passive manner. This may have a negative effect on their enthusiasm and willingness to consume more.

2) Distributors are not all professionals

Selling wine is seen as a profiteering business, thus has attracted many investors who had no retail experience before whatsoever. There are a few successful examples, but behind the seemingly glamorous market, more of them are just barely sustaining a business. These proprietors rarely follow the usual order of the market, and they are affecting those who are serious about the business.

3) Overly replying on group purchase while overlooking consumer market

Many distributors or importers with a big business volume but very few clients rely heavily on a few group buyers. As long as they make the buyers happy, it’s easy to achieve a great sales performance in a short period of time. However, their sales revenue may fluctuate significantly when the personnel in charge of group buying changes. In comparison, hardly any distributors would focus their sales force on developing and maintaining the consumer market. 4) The methods used to promote wine are too linear, paying not enough attention to the special features of Chinese food culture

Local food culture is part of consumers’ daily life, and should certainly shape the methods used to promote wine. But how many producers or distributors thought about this? Simply copying the food-and-wine culture from the Western world and applying it to Chinese dining tables hardly strikes a chord with Chinese consumers.

A few thoughts about how to overcome these barriers

Image: Yunnan Red Wines

1) Analysing Chinese wine consumers

When studying the Chinese wine market, don’t let the fact ‘this is a primary market’ slip your mind. This is an immature market where consumers have very diverse understandings of wine, and need to be approached in different manners. For the very least, we can divide Chinese wine consumers into two groups:

Occasional consumers

This is a group of consumers which the trade should be giving more attention and encouragement. They are not yet ‘real’ wine consumers, as they possibly just consumed some wine out of curiosity or other occasional reasons. Their loyalty to the wine market is very low, but they represent a huge consumer group, and are the backbone of potential market needs.

Habitual consumers

This is a group or serious wine consumers. They have some knowledge in wine and may even have personal preferences. They pay great attention to the quality, price, uniqueness and diversity of wine. Obviously this consumer group is still not large enough in China.

2) Cooperation and competition

The wine industry should seek the cooperation of other alcoholic drink businesses—there is even room to cooperate in sales promotions—rather than trying to attack each other. Just think about those international giants in the alcoholic drink business—do any of them sell only one type of drink? Cooperation can only be beneficial for the promotion of wine, as other types of alcohol drink may occupy a far bigger share in the market (see the chart below).

3) Address the specific features of Chinese food culture

Column: The best 'way’ to pair Chinese food with wine (see below)

4) A unified ‘Chinese palate’ doesn’t exist

Many people are making great effort to produce a wine that best suit the palate of Chinese people. As a matter of fact, a unified ‘Chinese palate’ doesn’t exist at all. The vast territory of China means that people living in different areas may have hugely diverse dining habits and life styles. Their loves and hates of food can be completely different, and shouldn’t be generalised.

5) The validity of consumer research

Those who come to explore a new market usually start with a consumer research. But sometimes how to really understand the feedback from consumers is not an easy task. For instance, many people are saying that judged from a few tasting events it’s obvious that Chinese consumers ‘prefer sweet wines’. Do they really?

Column: Wines that suit the Chinese palate

Image: Sichuan food by Clément Bucco-Lechat
and adapted under the Creative Commons BY-SA 3.0 Unported license.

6) The rationality of wine price

The pricing of wine in the Chinese market is generally quite high, especially when the wine is sold through smaller or less professional distribution channels.

Every section of the distribution chain wants to add a lot more to the price, therefore ‘consumer not being able to find any information about the chateau online’ actually becomes one of the conditions for buyers to decide whether to purchase a wine or not. However, once consumers find out about the truth, they will immediately abandon these distributors without even looking back, and these distributors can’t go any further.

Another extreme is to force the price down as low as possible. As consumers are complaining about the overly high wine price in Chinese market, some distributor promise to ‘sell at the same price’ as the wines’ original production area. It might seem possible for those highly priced wines; but for those basic styles to be sold at such a low price, there might be something they are not telling us.

7) Capture the new-generation of consumers

Currently a considerable portion of Chinese consumers prefer wines with intense, powerful flavours, as they are used to drinking the fierce Chinese spirits. Those fine and delicate styles are simply too weak to be appreciated by their palates.

However, the new generation (born after 1980) grew up in an opening-up China; they are leading a life that is distinctively different from their parents’ generation. Few of them are still willing to comply with the ‘Ganbei (bottom up)’ drinking culture.

Are these changes still not enough to attract some attention from the winemakers?

8) Misunderstandings about wine education

Indeed if the consumer don’t have enough or comprehensive knowledge about wine, they may choose not to buy. Even so, we can’t really expect to ‘educate’ them about buying wines. It’s up to people in the wine trade to communicate with consumers, and find a better way to present and introduce their products. Consumers are here to purchase products, and they have no obligation to be ‘educated’.

As for the many wine courses launched nowadays—I wonder how many people are there purely for the knowledge, rather than a certificate, which can possibly get them a better job?

I’m no sales person. Although I’m closely following the changes of the Chinese wine market, I haven’t managed to come up with a practical solution to all the problems. Hope my string of thoughts above can inspire further discussion.

Translated by Sylvia Wu / 吴嘉溦

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