McGuigan: opportunity in China huge for Australian wine

Australian wine exports to China climbed 40% to AUS$520 million in 2016, presenting Australia with a huge opportunity, says McGuigan’s chief winemaker Neil McGuigan, as the country moves to becoming the world’s biggest wine market.

Neil McGuigan, general manager and chief winemaker at McGuigan

China has already become Australia’s biggest wine export market by value, and Australian wines have taken up a 25% market share in mainland China, second only to France, thanks to a Free Trade Agreement signed between the two countries.

“The opportunity in China is huge for Australian wine,” said McGuigan, speaking to the drinks business.

“Australian wine is growing 40% per annum in China. China is the largest importer of Australian wine. It just took over the UK. That’s an interesting change to the dynamics.”

His comments follow news from Australian Vintage (AVL), the parent company of the McGuigan, Tempus Two and Nepenthe wine brands, that it had sold a 15% stake in the company to Vintage China Fund – a new partnership established by the founders of China’s largest online wine retailer, YesMyWine – for AU$16.5 million.

The deal, which McGuigan described as a “long-term, strategic partnership”, will give YesMyWine exclusive distribution rights to AVL’s wine brands, except McGuigan, which has an existing partnership with COFCO, China’s largest food processor, manufacturer and trader. Yuan will also join AVL as one of its board members.

“It gives us a great opportunity for us to capitalise on what we think is going to be the biggest wine market in the world in the long term,” said McGuigan. “There’s 1.4 billion Chinese. They drink less than a litre per head. They are becoming more westernised, they love red wine and they love Australian red wine because its all about fruit and approachability. That’s what are are looking at building on.”

The two major players in China’s import market are Australia and France, which currently hold a 23% and 45% share of the market respectively. However McGuigan believes that Australian wines are better suited to introducing new consumers to the world of wine than French.

“They have been educated by the French and they have done a good job,” said McGuigan. “They believe the best wine is Bordeaux, and arguably it is. But if you have someone that’s drinking coke and sweet lemonade or those yoghurt drinks and give them a glass of Bordeaux you can scare them off, because that’s not a step into wine, it’s a leap into wine. We can make very approachable red wines and make it work for them as a bridge between many alcoholic beverages into wine. That isn’t to say that they don’t want to buy expensive wines from us as well.”

LESSONS LEARNED

Explaining his strategy in building the presence of Australian Vintage brands in the Chinese market, McGuigan said he would be applying some of the lessons he had learnt from Australia’s development in the UK market since the 1980s. While the UK is still Australia’s second biggest export market, the category has long battled against supermarket deep discounting, confining it to big volume, low value brands. Only now are consumers beginning to look toward Australia’s more premium offerings.

As McGuigan pointed out, with regard to the UK market where people are generally drinking less, the only way to grow is by taking share from competitors or premiumisation and trading up. 

“The difference between China and the UK is that first of all the consumer is just getting into wine and the distribution in China is so different to the UK,” he said. “It’s a huge country geographically. People are all over the place. A small city in China is 20 million people. They have totally different channels compared to the UK supermarkets.

“What we have to do and what we have learnt from the UK is that we have to take our whole portfolio into China when we go there. We are not going in with entry level wines and saying ‘this is Australia’. We are going in with our whole range from the start. So I suppose that’s what we have learnt from the UK.”

McGuigan’s portfolio ranges from its entry level wines, priced at around 100-120 RMB (Chinese Yuan) (£14), its Shortlist range which sells at about 250 RMB (£29), and then its Handcrafted range at 350 to 400 RMB (£45), with McGuigan also pointing to a need for a wine at 175 RMB (£20).

“We know that we need to get people onto the entry level,” said McGuigan. “There’s no doubt that premiumisation will occur but it will take time. Let’s get them drinking it first.”