A highlight of Vinexpo Hong Kong 2016 was the much anticipated Vinexpo coordinated China Market Conference. It brought together leading business professionals to share insights on trade in China. Opening the full-house conference Vinexpo CEO, Guillaume Deglise, cited the latest reports from the Vinexpo/IWSR study (International Wine and Spirits Research) showing that China is now the fifth-largest consumer market for wine and spirits in the world. China has also emerged as one of the top 10 wine producers globally with an output of 120 million cases in 2015, even as it accounted for more than 30% of global spirits production. The conference, focusing on the “Future of Wine in China”, featured key market players as panelists such as: Xavier Pignel-Dupont, Greater China–Asia Pacific Director of Castel Frères SAS; Bruno Baudry, CEO of ASC Fine Wines; Robert Foye, Managing Director of Australia’s Treasury Wine Estates; Frantz Hotton, Managing Director of Pernod Ricard Hong Kong & Macau; Judy Chan, Co-Owner of family-owned China winery Grace Vineyard; and Chris Tung, Chief Marketing Officer of Alibaba Group.
The panel was moderated by Don St Pierre Jr, Chief Executive and Co-Owner of Californian fine wine trader, Vinfolio. Questioned on the opportunities in the market, Chris Tung of Alibaba started off by highlighting that by 2018, online sales of wine and spirits in China are projected to double every year for the next three years to 80 billion yuan (US$12 billion). Alibaba Group prompts producers, importers and retailers to come up with innovative ways to grow their brands, tap into new markets on the mainland, and wrestle with challenges such as a rapidly shifting economy and parallel imports of alcoholic products. Asked about the nature of the China market, Tung acknowledged that it is indeed a complex market, but that e-commerce could help manage its complexity. “Physical distribution channels can be complex, but people have developed a steady habit for buying online, which now accounts for 30% of all consumer sales in China,” Tung said. He added that while businesses are struggling with the slowing economy, online sales for alcoholic products were projected to double every year for the next three years. “In five years’ time, we expect sales of alcoholic products on various online platforms to account for about 70% of total wine and spirits sales in China,” Tung said, adding that producers should take advantage of the potential of e-commerce to build their brands in China and capture a bigger slice of the rapidly growing market.
The potential for imported wine in China is largely untapped, according to Baudry of ASC Fine Wines. “The typical consumers in China can only name 10 wine brands, so the industry has to create more brands,” he said, adding that “more qualitative” local wineries may enter the market and secure the brand loyalty of “patriotic consumers”. However, according to Chan of Grace Vineyard, promoting locally-grown wine in China can be challenging. “Why would Chinese consumers consume Chinese wine? It keeps me up at night. Running a vineyard is very costly. Consumers prefer imported products, so it’s a challenge for local producers,” she said. To remedy this, Chan said they are using e-commerce and social media to promote wine education and brand loyalty on the mainland. “We have to find ways to connect with the consumers. In China, personal connections are important, so we do intimate ‘personalised’ events with direct consumer interaction,” she said. Pignel-Dupont of Castel Frères echoed this view. “Consumers buy from people or dealers they know. Consumers need that wine experience, to know and feel the story of the brands. But consumers in China don’t always know where to go, so big brands are guiding consumers, for instance through wine education to help them switch from easy and cheap wines to more valuable wines,” he said, adding that this strategy could also help address the problem of cheaper parallel imports and fake wines. That switch can be helped a lot by highlighting the heritage or history of a brand, said Foye of Australia’s Treasury Wine Estates. “Branding strategies will evolve in China, and the focus will be much more on the brand story,” he said.
The crafting of such brand stories has to be innovative and creative to appeal to an emerging generation of savvy consumers in China, especially those from second- and third-tier cities. “We see a new middle class of millennials, those 28 to 40 years old, whose numbers in China will be the same as the working population of the US and Western Europe combined,” Foye said, putting the incremental increase in millennial spending in China at US$700 million to US$800 million. To tap into this young market of potential wine and spirit drinkers, Foye said they’re fielding more brand ambassadors, and spending five times more on marketing, 10 times more on wine education and 100 times more on digital marketing. “Our prices now are also more competitive, as the consumers are more authentic and knowledgeable compared with 3-5 years ago.”
According to Baudry, of ASC Fine Wines, less than 35 million people in China drink imported wine, but that e-commerce could open up a billion-strong market. “There are more than 600 million Chinese using various online platforms in China, and the wine market there is very young at just 20 years. The opportunities are vast,” he said. But, as Hotton of Pernod Ricard Hong Kong & Macau, pointed out, China “can be the biggest market but with a low value”, hence the need for fostering a sustainable wine and spirits industry. “We see a new generation of Chinese consumers with the growing middle class.
But it’s a big, messy and grey market, so we need to bring brands in for value. We believe ecommerce will offer strong new channels for sales, so we’re investing big education and visibility, as we see a big growth in digital.” Summing up the various insights at the conference, Pignel-Dupont of Castel Frères said that both global and local wine brands need to acknowledge the habits of Chinese consumers. “Sometimes you have to aim your products province by province. You need to shift from global to local strategies,” he said. Through this conference Vinexpo Hong Kong strengthens its partnership with the global industry, enabling a deeper understanding of the China market for visitors to the show, with panelists sharing unparalleled knowledge that will further impact business growth and development.