As high-end wine prices continue to fall, importers set their sights down market

By Yu Xi Source:Global Times Published: 2015-11-8 18:48:01

China's high-end wine market is in decline. Prices of the best bottles have fallen as the central government's crackdown on official extravagance takes a toll on sales and Chinese drinkers become more discerning. Still, high-end wine sales make up only a fraction of the domestic market, which has continued to grow at a rapid pace. While premium wine dealers have struggled, their down-market peers have done well catering to consumers who don't want to pay thousands of yuan for a bottle.

Australian wine at an imported goods retailer in Nantong, East China's Jiangsu Province Photo: CFP

After attending the 118th Canton Fair in Guangzhou, capital of South China's Guangdong Province, Li Yuan went to Hong Kong on Thursday to investigate the local wine market.

"Our wine business suffered a decline in 2014," said Li, CEO of G.Mantra Trading Co, a wine trading company in Central China's Henan Province that deals in high-end and mid-range wine.

G.Mantra's wine sales revenue fell 70 percent in 2014 from 2013, so Li was taking a hard look at his own business.

"I need to watch the market carefully to know what customers really want," he told the Global Times on Thursday. "That's also why I came to Guangdong and Hong Kong - to investigate things further in order to find more opportunities."

Like Li, many of China's wine importers have been struggling in the midst of the central government's anti-graft campaign against extravagant spending that so often accompanies it. At the same time, wine dealers have been grappling with a consumer base that has become a lot more discerning about its purchases.

High-end lows

The decline in demand hit the premium wine market especially hard.

"It's really difficult to sell high-end wine now," Li said.

For instance, a bottle of iconic 1982 Chateau Lafite that sold for around 80,000 yuan ($12,596) in 2012 now sells for less than 40,000 yuan, news portal reported on November 3.

Besides, consumers have become more careful about what they buy after being fed up with news about counterfeit bottles of wine.

The Shanghai Morning Post reported in August 2012 that authorities had discovered counterfeit bottles of Chateau Lafite selling for 10,000 yuan each, even though they actually cost only 80 yuan.

"People don't want to spend a lot of money on a bottle of wine that might be counterfeit," said Chen Yimin, vice general manager of Shanghai Longmeng International Trading Co.

The government's campaign against official extravagance - especially in the forms of banquets and expensive gifts - has also cut into high-end wine sales, Li said.

Meanwhile, these developments don't spell doom for China's wine market, said Ma Wenfeng, an analyst with Beijing Orient Agribusiness Consultant Co. There are still opportunities for nimble wine merchants.

"It's good that people have become more rational about the wine they purchase," Ma told the Global Times on Thursday.

"Without the luxury spending on expensive wine, merchants will have to cater to ordinary consumers. That will lead China's wine market develop in a healthier way."

Room to grow

The wine importer Chen has not seen his business decline in recent years. Rather, it has been growing. But Chen's company caters to a different segment of the market. Its most expensive bottle sells for around 4,000 yuan. Its cheapest is priced around 200 yuan.

China's wine market is huge, so there are a lot of ways to meet the needs of customers, Chen said. His company has done well focusing on the middle of the market. Consequently, it hasn't been hurt by the decline in demand for expensive vintages.

In fact, China's overall wine consumption has continued to grow. From January to September, China's wine imports jumped 46.4 percent year-on-year to 427 million liters, according to data released by the General Administration of Customs of China on October 21. In value terms, wine imports rose 22.7 percent to $1.92 billion over the same period.

Liang Weiwei, a wine importer in Beijing, believes there's plenty of room for China's wine market to grow. She pointed out that not so many people in China actually know wine and enjoy it.

One might expect optimism from a wine merchant. But there is evidence to suggest Liang is right.

"We project that China's net imports of wine could rise by between 330 million and 790 million liters during the 2011-18 period once the full impact of China's recent bilateral free trade agreements (FTAs) with Australia, Chile and New Zealand are felt," professor Kym Anderson, executive director of the Wine Economics Research Centre at the Australia-based University of Adelaide, said in a report posted on the university's website on May 6.

In 2008, China charged a 14 percent import tariff on bottled wine and 20 percent on bulk wine. Based on prior FTAs, China dropped the tariffs on New Zealand wine in 2012 and on Chilean wine in 2015.

In June, China and Australia signed an FTA that will remove the tariffs on imported Australian wine in 2020.

The removal of the tariffs will make imported wine much more competitive with domestic vintages, Chen said, ultimately benefiting Chinese consumers.

Paring prices

Li believes 2016 will be a tough year for wine importers, as the economy continues to slow and more competitors enter the market.

With the decline in the high-end market, the way forward for most of China's wine importers will be the mid-range and low-end of the market, said Ma, the analyst.

Li's company will continue to cater to the higher end of the market because he believes there are still plenty of people willing to pay thousands of yuan for a bottle.

However, he also plans to cut prices and import more mid-range and low-end products to meet the needs of less wealthy consumers.

"Sometimes a bottle of wine sells for less than 100 yuan in a promotion, but sales of these low-end products are good," Liang said on Thursday.

"I will still focus on the low-end products because I believe most of the ordinary consumers prefer to buy inexpensive products."
Newspaper headline: Varying the vintage

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