China ‘not the El Dorado we first thought’

Australian wine sales have fallen flat in China, with one producer admitting that the country is not “the El Dorado” the industry was hoping it to be.

Speaking to the drinks business during a visit to London this week, Judy Watson, finance manager of Barossa Valley-based Schild Estate said: “You’re mad if you don’t deal with China but you have to be careful. Some of the larger wine companies have invested a lot in the market and are feeling the sting.

“It’s not the El Dorado we initially thought it would be. People are getting hurt out there but the doors are slowly opening. Somebody has to be bold and make the first inroads there, but it isn’t the job of the small producers,” she added.

Australian wine sales have fallen flat in China since the Chinese New Year at the end of January due to the country’s austerity drive and a curb on government spending on luxury goods.

Currently the second most-imported wine into China, Pernod Ricard recently announced that sales of Jacob’s Creek in China had levelled off and were likely not to rise again until 2015.

The news will add salt to the wound of the Australian wine industry, which is also seeing sales slide both in the US and the UK.

To counter the lack of interest in Australian fine wines, Watson believes Australian estates should turn their focus to selling bulk wine to the Chinese.

The Chinese government’s luxury gift giving spend has been curbed since 2013

“We don’t send our top stuff to China but are having success with selling bulk wine out there as that is where the demand is,” Watson told db.

“We’re loathe to send our top wines to China as you have very little control over where they end up and the danger is they will get discounted, which dilutes your brand’s strength and is both a risky and potentially damaging strategy,” she added.

Watson revealed that in her experience, the Chinese only want to deal with the bottom end of the Australian wine market.

“They are only interested in AU$4 wines, but they should really be focusing on what Australia has to offer in the $15-20 bracket,” she said.

The lack of enthusiasm for Australian wines in China is leading to a surplus of stock floating around the Asian market.

Up until 2012, China had overtaken both the UK and the US to become Australia’s fastest growing export market, though exports dropped 7% last year.

Last October, Treasury Wine Estates, which owns Penfolds and Wolf Blass, warned that demand for imported wine in China had waned as a result of the austerity drive.