China Waits for the Sleeping Tiger

May 2011
by Wayne Chan
Today’s U.S. wineries face constant challenges to compete in a mature market against an onslaught of domestic and foreign competition.

How do you distinguish your wine from the competition? How do you attract new customers each year while maintaining your existing customer base? How will you continue to compete?

If life were like the movies, a wild-haired, crazy scientist might drive by and offer to take you into the past in his souped-up Delorean.

Indeed, what would happen if you could travel, say, 150 years into the past, and knowing what you know now, start selling your wine to a population hungry for something new, something they really hadn’t tried before?

Well, first off, you would have the market all to yourself. In the 1860s, the first commercially successful wineries were popping up in places like Cincinnati, Ohio. The wines themselves were of fairly modest quality, but being pioneers in the market, their sales were successful.

Such is life in the movies. Today’s wineries don’t have the luxury to live in the past. Yet, it is possible to reach markets similar to those that existed in the 1860s, and the best part: No wild-haired, crazy scientists or flux capacitors are needed.

That market, of course, is China.

As someone who sources wine for China’s market, I am amazed at the unbelievable growth in China’s economy. Only by seeing it firsthand can you grasp the degree to which China’s newly affluent consumers crave western products, and wine is at or near the top of their lists.

While the analogy between China and the U.S. isn’t completely accurate, there are many similarities. Like the U.S. in the 1860s, wine is a relatively new product in today’s Chinese market. Also similar is the fact that, for both markets, the domestic supply for wine is limited and of poor quality.

In addition, China’s unprecedented growth and wealth creation is similar to the U.S. Industrial Revolution, which was under way, coincidentally, around the 1860s. China’s growth is happening right now, however, and its residents are hungry for U.S. wines.

Consider that in one year, from 2008 to 2009, according to a 2010 Chinese Customs report, imported bottled wine into China increased by 58.3%. The bulk of wine imports into China are coming from France, Australia and Chile. Only 6% of imports came from the United States.

During a visit to China in late 2010, I met with a prominent wine distributor in Shanghai. In discussing wine from the U.S., he said, “I don’t really understand why California wines aren’t in China. Chinese people know that Napa is famous for their wines. We call the California wine industry the ‘Sleeping Tiger.’ If someone ever wakes it, who knows what will happen?”

On the other hand, while the reputations of Napa and Sonoma are certainly there, brand awareness is not. As conscious as Americans are of brands, in China it has become an obsession. Brands like McDonalds, KFC and Starbucks have reaped the benefits of committing their resources to China, and in the wine industry, the French and Australians have benefitted as well.

In China’s import wine market, the current “halo” brand is Chateau Lafite-Roths¬child. While this French wine was nearly as obscure as any other in China’s market a few years ago, its product placement in a wildly popular movie called “Exile” launched its brand into the stratosphere of China’s newly rich. In the upscale restaurants of Shanghai and Beijing, a bottle of Lafite regularly sells for $4,500 (USD) per bottle.

High-end French wines are all the rage with China’s affluent, however their actual taste for wine is significantly more modest. The Chinese consumers who purchase highly expensive wines are likely to find that those wines are too bitter and have too much tannin. While their pocketbooks prefer the cachet of expensive wines, their palates prefer wines that are more balanced, with fewer tannins and a bit of residual sugar. In other words: They prefer the taste of a classic starter wine.

As far as the U.S. wine industry is concerned, it’s an exciting time. China’s market is ripe with opportunity, populated with millions of consumers who are looking to spend their money on imported wines as one of their lifestyle choices.

The question is, when will the sleeping tiger wake?

Currently no comments posted for this article.