Covid-19: Challenges and opportunities in the Chinese wine market

In a recent webinar hosted by Vinexposium, Tommy Keeling, research director of The IWSR Asia-Pacific, gave his analysis of the wine market in China following the impact of Covid-19.

Looking back at the last decade, he began, it’s clear that Covid-19 is not the first knock the Chinese wine market has received, the government’s anti-corruption policy in 2012 was one such moment but the pandemic has proved much more severe.

“The imported wine market in China started to pick up again in 2015. Wine has been popular among young Chinese people, who think wine is cool, sophisticated, and it is not the beverage that their parents used to drink. The product is particularly having a moment among female drinkers, as wine is not as filling as beer and it is not as harsh as spirit,” said Keeling.

Despite the market enjoying a positive run these past few years, the beginning of 2020 definitely proved harsh and challenging for the industry. Although E-commerce in China has become quite well developed in the last decade, the logistic chain initially strained under the huge volume of online transactions. Fortunately, the industry was able to quickly respond to this and online sales channels had even been able to cover the losses of volumes in the on-trade.

“COVID-19 has accelerated the growth of e-commerce in the world and China is no exception. It is a huge boost that pushes things to happen possibly two to three years earlier,” said Keeling.

Keeling reckoned the sales channel has provided the wine category with an array of advantages. In general, it tends to offer a huge number of SKUs for customers to choose from and sellers can also display all the relevant information online for customers to reference. As a matter of fact, up until 2019, it has been the major sales channel for wine and spirits in the country,

Most of the sales are generated through the two local e-commerce giants, namely T-mall (backed by Alibaba) and JD.com (backed by Tencent). Keeling also pointed out that the younger generation in China is very mobile-savvy, and a large portion of sales is conducted via smartphones.

Despite Baijiu still dominating the beverage e-commerce market in China, Keeling predicted that, “the channel, including the sales volume of still wines and spirits, will grow at a fast rate in the next few years. This is also due to the huge labour resources available in China, as compared to other countries, to support the expansion of logistics.”

Moreover, Keeling observed a few other changes in the wine market due to the impact of the pandemic.

“High-end wine products have not been doing well as people are turning away from luxury items to core ranges as the desire for purchasing expensive bottles diminishes according to the diminishing role of social gatherings during the lockdown,” he explained. Furthermore, luxury products have fewer advantages when selling online as the sellers always prefer to meet their potential clients face to face.

Secondly, Chinese consumers’ awareness of health and ethical consumption has been growing lately and they prefer to drink less and more mindfully. Red wine in particular has long been seen as a ‘healthier’ drink than hard spirits in China, despite the latter being more popular.

Speaking of the on-trade business, China seems to have recovered a lot quicker than many other countries. Dinner occasions and social gatherings have almost returned to normal, although many people still try to avoid large crowds.

Even though there are a number of disruptions forecast for the market in the near future, for instance another wave of the pandemic, the slowing economy, and trade wars with the US and Australia, Keeling reckoned, “there are still a lot of opportunities in the wine category and we expect the business will return [to normal] again over the next few years”.