China Foods to sell Great Wall wine brand, due to ‘great uncertainties’

China Foods Ltd, owned by China’s state-owned conglomerate COFCO, is planning to sell its wine and other non-beverage business, which mainly comprises of the production and distribution of Great Wall wines, for more than HK$5.069 billion (US$649.2 million), the Hong Kong-listed company has announced in its latest filing to Hong Kong Stock Exchange.

The decision, announced on 16 October, was mainly a result of Great Wall’s sluggish performance over the years and the gloomy prospects for domestic wine market the company forecasted.

In the company’s half-year report, it revealed that Great Wall suffered 8% drop in sales. In addition, the revenue of the company’s wine business recorded a negative compound annual growth rate of -11% from 2011 to 2016. Its wine business segment continued to record losses for the two consecutive years from 2015 to 2016, and the six months ending 30 June 2017, the company stated.

“The wine industry in the PRC has faced increasing competition and is expected to remain in a slow growth rate in the next three to five years similar to the 2011 to 2016 period,” the company said, explaining the board decision.

Citing the country’s declining domestic wine production and profits from 2011 to 2016, the company thus concluded: “The Board believes that there would be relatively great uncertainties in the domestic wine market in the next few years,” adding that Chinese spirits Baijiu have continued to maintain a double-digit annual growth rate thus creating “pressure on the growth and profit margin of domestic wine products” in the country.

The sale will include a variety of Great Wall’s wines including Cabernet Sauvignon, Merlot, Pinot Noir, Cabernet Franc, Shiraz; and Chardonnay, Riesling, Sauvignon Blanc in addition to its Brandies and sparkling wines. Meanwhile, the sale also involve five of its production plants, five wineries in and outside of the country and the distribution of imported wines.

In addition to profit losses, earlier Great Wall has experienced management reshuffle, when Castle Li, head of COFCO Wine & Wine, the importing arm of COFCO’s wines and spirits business, was appointed as its new general manager.

Shortly afterwards, seemingly in a move to boost morale and market confidence in Great Wall, Li penned his first open letter as general manager of Great Wall to its partners and clients, reassuring that China’s domestic wine market will follow the success model of New World wine regions such as the US, forming what he calls “the third paradigm in the wine world” after New World and Old World wines.

“Great Wall needs to hit the reset button, and embark on a new journey, and in order to do that, we need new vision, new strategy and review everything at a new height to assess external environment and our own business,” he wrote in the letter cited in Chinese media reports, “in order to shoulder the responsibility of leading China’s domestic wine industry”.

This sale of Great Wall wine brand is expected to help China Foods to allocate more resources and energy to boost its Coca-Cola related beverage business, the most profitable business for the company.

COFCO Coca-Cola Beverages Ltd (CCBL) has the exclusive right to manufacture, market and distribute Coca-Cola products in 19 provinces, municipalities and regions in China, covering approximately 51% of the population in the country and approximately 81% of the regional market area, said the company.