Uncorking China's Wine Market

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Uncorking China's Wine Market: Knowledge@Wharton (http://knowledge.wharton.upenn.edu/article.cfm?articleid=2898)

Uncorking China's Wine Market
Published : January 03, 2012 in Knowledge@Wharton

Although China's bustling metropolises and staid Bordeaux may seem worlds apart, the two are becoming increasingly intertwined. Indeed, China recently overtook the traditional strongholds of Germany and the United Kingdom to become Bordeaux's largest export destination. This transformation is particularly remarkable given the country's short history of mass wine consumption. Historically, beverages such as sorghum-based baijiu and beer have dominated Chinese alcohol consumption, with wine only recently gaining wide acceptance. Bubbling to the Top This is a single/personal use copy of Knowledge@Wharton. For multiple copies, custom reprints, e-prints, posters or plaques, please contact PARS International: reprints@parsintl.com P. (212) 221-9595 x407.

In the past few years, China, the world's second largest economy, has risen to become one of the world's most important wine markets, offering both high growth potential and generous profit margins. By volume, the country is currently the seventh-largest consumer of wine, with expected sales of 1.6 billion bottles in 2011. In contrast, the U.S. and France, the first and second largest consumers of wine, are expected to consume 4.0 billion and 3.9 billion bottles, respectively. Since 2006, the Chinese market has experienced more than 20% annualized growth, and experts predict it will further double by 2014 to become the world's sixth largest. Collectively, three major domestic producers account for nearly half the total wine sales in China. The largest brand, Changyu Pioneer Wine, is a unit of the major state-owned conglomerate China National Cereals, Oils, and Foodstuffs Corporation (COFCO). Changyu and the other two primary producers, Great Wall Wine and Dynasty Wine, focus on domestic consumption, with 98% of their production remaining in China. Foreign wine imports are also growing rapidly. In 2010, imports grew to more than 20% of total wine consumption, a four-fold increase since 2005. Reductions in tariffs following China's accession to the WTO have been one factor in this growth. Currently, an estimated 20 million adults drink imported wines on at least an occasional basis. Given that this figure is a fraction of the overall estimated 200 million plus people who have the purchasing power to buy imported wine, the future for foreign wine appears bright. In China, domestic wines are sold primarily at the lower end of the pricing spectrum, while imported wines are sold at the mid-to-higher end. The average retail price at the lower end is RMB20-30 (US$3-$5) per bottle. Mid-range wines sell for RMB30-80 (US$5-$13) per bottle and are aimed at consumers with higher disposable incomes and more exposure to wine. Premium wines sell for RMB80 (US$13) and up per bottle. Imported wines typically range from RMB80-400 (US$13-$66) per bottle and are in direct competition with high-end domestic wines. A Chinese Taste for Wine Numerous factors have driven the growth of the overall wine market in China. In particular, the government's promotion of wine as a healthy alternative to baijiu and other spirits, declining tariffs on wine imports, and consumers' increasing purchasing power have given rise to an increased interest in wine. Consumption still centers around entertaining and gift-giving occasions, with two major holidays -the Chinese New Year and the Mid-autumn Festival -- accounting for about 60% of annual wine sales. As one customer in a wine store in Beijing noted, "I'm not too familiar with wine, but I know it makes a great   All materials copyright of the Wharton School of the University of Pennsylvania.                    Page 1 of 4 

Uncorking China's Wine Market: Knowledge@Wharton (http://knowledge.wharton.upenn.edu/article.cfm?articleid=2898)

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