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Comment: China remains the golden ticket to cracking Asia’s wine market
Developing markets, the likes of India and Vietnam included, may catch the eye of wine businesses tapping into Asia, but China offers the best prospects. Rob Temple breaks down why China is still Asia’s biggest prize.
India, Thailand and Vietnam are Asia’s most prominent emerging markets. Consumption there is unquestionably growing, fuelled by rapidly growing economies, and being first to market, or at least early, is as important as ever.
However, today they are a long way from providing wine brand owners with the kind of volume sales that China offers. Despite the recent economic challenges in Mainland China, it is still the driving force of wine consumption in Asia and will remain so for many years to come.
Since 2018 wine imports to China have dropped from 452 million litres to 249m litres, according to the National Bureau of Statistics of China, and Chinese wine production has also almost halved in that time.
Several factors have impacted imports and consumption – Covid (total lockdown), punitive tariffs on Australian wines (there was not a direct replacement for brands as big as Penfolds), and the economic issues of Covid and high US interest rates.
There has also been an enormous upheaval in the property market which contributes around a quarter of the country’s GDP. The economic challenge is similar to the one we saw in the late 90s – high US interest rates sucked much of the investment out of the Asia region causing stock markets and currencies to plummet. This time, with the US fighting inflation (the fallout from the ‘quantitative easing’ measures to avoid economic collapse in 2008) the high US interest rates have been sustained and the only way Asian nations can protect their currencies and stock markets is to raise theirs.
Consumer spending on non-essentials is far below pre-Covid levels. Looking at wine bars and restaurants in Shanghai, Shenzhen and Guangzhou you can see that the passion for wine has never diminished, but spending has. Challenges facing the industry today are economic ones rather than anything systemic in wine.
Trying to find relief from China’s downturn in other Asian markets will be difficult. Vietnam, with a population of 100m, is Asia’s largest per capita consumer of alcohol at over nine litres per person, but 91% of that is in beer, and only 0.8% wine.
India, now the world’s largest population, has a middle class of 360m (vs China’s 400m) but its GDP, despite galloping along at 8% growth per year for the last two decades, is one-fifth the size of China’s.
India’s wine imports in 2023 were 7.8m litres vs China’s 249m litres (and Vietnam’s 23m and Thailand’s 26m in 2022), Statista data shows.
Japan is still a substantial market for wine, with young consumers willingly exploring the category at the expense of sake; 20 years ago there were over 3,000 sake breweries in Japan, today only around 1,100 remain.
The yen is at a 34-year low against the US dollar, its population has shrunk by 3.2% since 2018 — and continues to fall at a rate of 96 people per hour — its GDP by 16%.
Wine imports reached 171m litres in 2023 raising per-capita wine consumption to three times that of China’s, according to Statista. But with these demographics (98% of people who live in Japan are Japanese and initiatives to import a population are insufficient to reverse the ageing trend) and economic challenges, how long will that consumption trend last?
Other regions in Asia are unlikely to compete on the same level. Malaysia and Indonesia are predominantly Muslim by faith, so alcohol is eschewed by consumers and tightly controlled by the government. Indonesia has less than twenty government-appointed importers, and traditional retailers can only sell alcohol up to 5% ABV.
The Philippines has a relatively small economy and a consumer with limited spending power. Taiwan, South Korea, Hong Kong and Singapore will remain small populations albeit wealthy ones with a thirst for premium and fine wines in particular.
So that brings us back to mainland China as the key market in Asia for the mid- to long-term, and the importance of remaining active and visible until a full recovery has been achieved.
Wine imports to mainland China are down by 70% from the peak of 2012, the National Bureau of Statistics of China has reported, due first by a curb on government entertainment and gift-giving in that year, followed by an economic downturn and Covid lockdown. Some distributors have removed wine from their portfolios due to lower margins than other alcoholic products. Significant economic headwinds remain, and indeed, debate remains as to whether or not we have seen the bottom of the market.
In terms of alcohol consumption in mainland China, wine takes a 3% market share of total sales which equates to less than half a litre of wine per person annually (of around five litres of total alcohol per person). Yet wine occupies a significant shelf space in leading grocery retail stores, particularly in first- and second-tier cities where average incomes are highest. Wine also maintains a large space on premium on-trade drinks lists. The growing demand for white wines, wines with authenticity and a story, shows a level of maturity among regular consumers. Locally made wines are improving in quality with each vintage, adding local interest to the category.
Wine consumption is expected to recover and grow when disposable incomes and consumer confidence recover. Government measures to stimulate the economy and address the issues around the property market, such as allowing local governments to buy stressed property to repurpose for public housing, are already under way. June 2024 export figures showed an 8.6% growth in year-on-year trade (imports were less impressive).
So, what can brand owners and distributors do in the meantime? Being visible and active in the market is critical to stay in the consumer mind, retain market share and be ready for the resumption in consumer spending.
More than ever importers and distributors need partnerships in this process, where brand owners play an active part in the brand building strategy by being present in the market. There is no substitute to opening bottles with trade and end consumers.
A recent consumer survey of wine drinkers in China’s Greater Bay Area (GBA) by YouGov this year showed that GBA consumers in 2024 drank wine three times more often than Hong Kong residents and chose to buy more often from wine specialist retailers (49%) than supermarkets (37%). Around 25% of all wine imports arrive in mainland China through Guangdong. Word of mouth was listed as the most common factor influencing the reason for selecting a wine brand, indicating that direct contact with end consumers is essential to brand building.
Not all importers and distributors can access all channels in all regions, so choosing the right partner for a channel or regional strategy is essential. Having one that can deliver on consumer engagement programmes will go a long way to establishing long term brand growth.
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