Regional Manager Report: Alex Yao, China
In the first of an extensive analysis of what is happening on the ground in China we talk to VINEX’s regional manager, Alex Yao, who first looks back on 2018 and then sets the scene and groundwork for what we can expect in the year ahead. In Part Two of our analysis next week we will more closely at what will be the big driving trends for 2019.
How do you look back on 2018 in terms of the wines being imported into China for both bulk and bottled wine?
The wine market is changing faster than we think. Various unstable factors such as the trade war in 2018, Brexit and climate change made some regions more become of a hot spot, while others were sluggish. Some fine wines also performed better than stocks and bonds, which allowed investors to make a big profit.
It is clear the Chinese market is now looking for more premium wines, to such an extent that entry-level wines have basically been eliminated from the market and replaced by mid-range and relatively high-quality products. We can look back on 2018 as a transitional year and 2019 will be the year when we see a new generation of wine drinkers in China.
What grape varieties were most in demand for importing bulk and bottled wines?
We saw strong demand for Cabernet Sauvignon, for both bulk and bottled wines, followed by Shiraz, which was good news for Australia for 2018. We also saw a big increase in blends, such as GSM and Shiraz and Cabernet (Australian style).
What sort of pricing demands and trends did you see in 2018?
We would like split our pricing analysis into a number of key areas:
- 2018 was a big year for Chile and for private label wines which went from $1.7 per bottle to $1.5 (which everybody seemed to accept). In the fourth quarter of 2018 generic red moved from $0.8-0.9 to $0.65 for the lowest quality.
- Due to big demand for Australian wine in both 2017 and 2018, the entry level price for South Australian wines increased from A$2.5 to A$2.8 and more and even South East Australia wen up to A$3 from some suppliers.
- There is now a case of “wait and see” for Australia as it now tariff free as part of its free trade agreement and we could see prices going down.
- There is also good interest in terms of producer brands, particularly from Australia, such as Penfolds, with some exclusive importers, like EMW, taking in over 50 SKUs from all over the world.
- There has been less demand for Old World wines from France and Spain at the lower end which has kept prices stable at around €0.90- €1.1 per bottle.
- New World wines are certainly taking share away from Cru Bourgeois as local tastes prefer those wines.
- There is also more demand from importers for better quality wines rather than just being focused purely on price. They are looking for consistency.
Which countries and regions did particularly well in terms of importing wine and why do you think that was?
Australia and Chile were the two stand out performers in 2018. Chile has a very clear strategy for the Chinese market and can offer higher cost performance for private label wines. Australia is doing the same for its producer brands which are proving successful against Old World wines in terms of their easy going taste profiles. Chilean and Australian labels are also well suited to the Chinese market. They are bolder and more creative than the tired Old World labels. They are also doing well because of their free trade agreements.
Any grape varieties that struggled or were in short supply - what impact did that have on prices?
We don’t really feel that was a factor in 2018.
What changes have there been in terms of where imported wines are being sold the most in China?
There is one clear absolute answer to this question: online. China online wine trading is very concentrated, with the leading Tmall and JD.com sites accounting for more than 70% of sales. To put their size and influence in context, the sum total of their sales would be equal to three times the total amount of online transactions in the US. The total amount of online liquor sales in China is three times that of France and the UK. The volume of alcohol sold online in China is growing by 15% a year and it is estimated the online alcohol market will exceed 70 billion RMB in 2019. Compared with the stable growth of traditional channels, the online alcohol market has grown by more than 50%.
What trends or changes did you see in terms of the countries that were looking to export more wines to China and why?
We are saw a lot more activity from more Eastern European counties like Moldova, Georgia, Kyrghyzstan etc. They are certainly being helped by what their respective countries are doing and what the EU is investing in. This is particularly the case at the key Asian trade shows for Prowein and Vinexpo. But they are also strongly relying on the strength and influence of the major importers in China to sell their wines. Because their price range seems been awkward place, low can go old world, mid to high can go new world. But a lot of the wine coming from the EU is in bulk. Bulk wine from the EU is really competitive.
For more information, contact your VINEX Regional Manager here