Lodi winery makes first shipment to China as tariffs loom
Farrah Felten-Jolley with Klinker Brick Winery in Lodi watched as a forklift loaded pallets of her family’s wine into a 20-foot container truck.
It was a large and important order: some 10,000 bottles of Lodi Old Vine Zinfandel bound for China, the winery’s first shipment to one of the world’s fastest-growing wine markets. And if Felten-Jolley appeared to be as proud and hopeful as a mother sending her child to school for the first time, it was warranted.
“It’s exciting, especially to hear all of the wines were sold out in seven days to nine different distributors,” said Felten-Jolley, vice president of sales and marketing with Klinker Brick. “It shows they’re excited about Lodi Zinfandel.”
But just as Klinker Brick opens new territory, China is threatening to impose retaliatory tariffs on U.S. exports on the wine industry and many other businesses.
Carl Yu, Todd Chu and Ken Ching of Wine to China in San Ramon helped coordinate the deal between Klinker Brick and the Shenzhen Wine Industrial Association, which partners with distributors in China. They were present when the shipment was loaded Thursday at the winery’s warehouse in Acampo.
“It’s something they want to negotiate,” said Ching, who was born in Hong Kong and lives in the Bay Area. “It’s a good thing they put wine on the list, so now we can negotiate and maybe lower our tax in China. That would be good news. You never know. Nobody wants a trade war.”
U.S. wine exports carry much higher taxes than other countries, such as Chile and Australia, and France long has been the leading wine exporter to China. An additional 15 percent tariff, which China has proposed, would put U.S. wine exports at an even greater disadvantage.
Ironstone Winery, whose operations are based largely in the Lodi American Viticultural Area, has done business with China off and on for about 20 years. Joan Kautz, Sales and Marketing Manager with Ironstone, said her sales representatives in China are conducting business as usual.
“I haven’t heard anything from our importers,” said Kautz, who recently attended wine industry events in London and Germany with other Lodi vintners and winery reps, including Felten-Jolley. “At ProWein (in Düsseldorf, Germany), I still had Chinese importers contacting us and looking for business. There hasn’t been a lot of discussion about it.”
The stakes are high. California accounts for 97 percent of U.S. wine exports, which totaled $1.5 billion in 2017, according to the Wine Institute. Mainland China’s wine imports totaled more than $210 million last year, an increase of 10 percent from 2016.
“China has a rapidly growing middle class that is traveling outside the country and adopting many Western tastes,” said Christopher Beros with the Wine Institute in a recent Bloomberg article. “We expect this trend to continue for the foreseeable future.”
Yu and his cohorts believe Lodi wines are positioned to satisfy China’s middle class from a pricing standpoint and deliver the quality and wine styles the Chinese generally enjoy. And they believe Lodi has the capacity to meet demand.
“Primarily, we ship either the very high-end wines or the lower end,” said Yu, chief operating officer with Wine to China. “But since 2014, people are getting more interested in middleclass wines, like Klinker Brick. It’s right in the middle, so that’s why we are starting to ship wines from Lodi. It’s a perfect fit for most of the middle-class people in China.”
Yu estimates Klinker Brick’s Lodi Old Vine Zinfandel will sell for $30-$40 per bottle and its Old Ghost Zinfandel will retail for about twice that amount. Kautz said Ironstone’s lineup of wines is priced in the middle to upper-middle price range and have sold very well in China.
Last year, Wine to China brought more than a dozen delegates from the SZWIA to Lodi during a week-long tour of California’s top wine regions. After their visit, the delegates made purchase agreements with only two wineries: Klinker Brick and Opus One.
“They visited a lot of the well-known wineries and they went to a lot of distribution centers,” Ching said. “They tried (Klinker Brick) after they visited Opus One, and they liked this one.”
Said Felten-Jolley, “Our wine is technically dry, but it has that fruit and that’s what Lodi shows in their wines. So, it’s really popular over there, especially with women.”
Ching explained the Chinese generally prefer red wines that are full-bodied and low in tannin — a naturally occurring polyphenol in grape skins and seeds that causes a dry, puckering feeling in the mouth. The Chinese are known to add soda pop (Ching said he mixes lemonade with red wine) to take away the tannin. Lodi’s fruit-forward red wines suit the Chinese palate and go well with their cuisine.
“Chinese do not like dry (wine) because Chinese food is starch-based,” Ching said. “Dry (wine) makes it worse. Lodi wine, you do not need that because the wine is smoother. I cannot stop. I love wine, but I want it less painful. This is real smooth.”
Ching said the high quality of the fruit and the advanced age of the vines in Lodi were important considerations.
“They like the old vine because it’s hard to find,” he said. “You can really tell the difference.”
Lodi has some of the oldest plantings of Zinfandel anywhere. But the market for Zinfandel has softened domestically and some old vine vineyards have been pulled recently and planted with other varieties that fetch more money per ton and require less labor to grow and harvest. Could China’s appreciation of Old Vine Zinfandel help keep Lodi’s old vines in the ground? Ching hopes so.
“I want to create a fund to preserve the old vine,” he said. “But before we do that, we have to find a market for the old vine. Once we have a market, we generate enough demand, so we can produce high quality wine that’s very limited in supply. That will create the value and that’s how you become more competitive than Napa. That’s my wish.”
Premium red Zinfandel accounts for only 1.9 percent of the wine grape market in the U.S. But Felten-Jolley sees huge potential on the export side.
“They want Old Vine Zinfandel,” Felten-Jolley said. “They want Zin, Old Vine Zin, and Zin blends are really popular because they don’t grow anywhere else. So, we see the popularity is on the export side.”
Tariffs or not, Felten-Jolley hopes Klinker Brick’s first shipment to China was not the last.
“We’ve wanted to work with China because China is such a large wine market for the whole world,” she said. “It’s a win.”