Changyu feeling the squeeze

China’s biggest wine producer and a major importer, Changyu Pioneer, saw profits decline in 2016, despite its ambitious plan to buy up overseas wineries to drive up its import business in response to the growing demands of the domestic market.

The company’s net income attributable to shareholders was RMB 982 million (US$142.6 million), a year-on-year decline of 4.62%. Its total revenue stood at RMB 4.717 billion (US$684.9 million), a 1.46% increase over the year before.

“With an influx of imported wines, prices have declined and therefore intensified competition in the market, resulting in a greater challenge for our company’s stable and continued growth,” the company wrote in its annual report.

Facing fierce competition from imported wines, the Chinese winery has rolled out ambitious plans and purchased a few overseas wineries in Spain and France including one of Spain’s biggest producers, the Marques del Atrio winery in Rioja, hoping to sell the imported wines in the Chinese market.

However, based on the annual report, Marques del Atrio’s annual revenue in 2016 was RMB 281 million (US$40.8 million) and its net profit dropped RMB 7.48 million (US$1.08 million).

Changyu purchased a 75% majority stake in the winery for 35 million euros in 2015, the biggest single overseas purchase for the Chinese company, and within the next few years leading up to 2020, the company is expected to buy another 15% stake worth about 5.25 million euros in the company, as reported by Chinese media Wine Fancier.

Despite the decline, the company showed no sign of slowing down. It is planning to buy a few more wineries in Australia and Chile in order to have a network covering all major wine producing regions, it says.

Its target revenue for 2017 is RMB 4.9 billion (US$711 million).