Wine importers experience shaky start to 2019
Experts predict market will maintain overall vibrancy, despite various headwinds
Imported wines suffered a decline in China at the turn of the year, hampered by fierce market competition after continuous rapid growth in the previous years.
Yet, experts predicted overall growth in the years ahead despite the adjustment in late 2018.
Wines imported from France, Spain, Australia and many other countries saw a slide in total import values.
In 2018, the value of French wines imported to China totaled $1 billion, down 8.75 percent over 2017. The value of imported Australian wines reached $703 million, falling 3.51 percent over a year earlier, according to data provided by market consultancy ASKCI Consulting Co.
Last year, the value of imported Italian wines totaled $156 million, down 3.53 percent from 2017, and the value of imported Spanish wines came in at $155 million, dropping 20.13 percent from 2017.
But the value of Chilean wines China imported reached $344 million, up 4.5 percent over 2017.
By 2021, China is expected to replace the United Kingdom as the second-largest wine consumption market after the United States, according to projections from wine and spirits analytics firm IWSR. The firm also predicted that this year, the total value of imported wines will grow 8 percent over last year.
“The overall Chinese market might lose some short-term steam, due to the current global political and economic woes, as well as the supply surplus that many distributors are experiencing, but overall growth in the next few years is foreseeable. Growth will slow but continue,” said Ryan Christianson, owner of Xanthos Wines, a winery in Napa Valley, California.
“Chile is growing well in the market, due to a good price point and customer preference. For Chinese consumers, Chilean wines are highly cost-effective. In the past few years, Chilean producers have also reacted well to consumers’ preference, such as introducing good design and packaging options,” he said.
“Some different countries will grow much more quickly than others that have historically dominated the market. For example, I expect French wines to retract further, just based on the amount of market share they currently hold. This is due to consumers’ interest in new things.”
The decline in the fourth quarter drove the drop in the whole year’s import value. From January to June last year, the imported value of Italian wines actually jumped by 25.45 percent, while starting from the third quarter, its growth speed slowed down, and the value dropped remarkably in the fourth quarter.
Chu Guohui, China CEO of Direct Wines Ltd, said supply is greater than demand as the latter has been dampened by numerous external factors, such as China-US trade tensions and the fluctuating yuan exchange rate, as well as internal factors. Thus, the lower-than-expected sales during Mid-Autumn Festival in September last year caused the excess inventory.
With the continuous rise of foreign winemakers exporting their products to China, along with the expansion of sales channels, competition in the imported wines market in the country has become increasingly fierce.
Christianson said Chinese consumers are becoming much more sophisticated and adventurous in their wine preferences, and they are willing to try wines from more countries. Countries like the United States, South Africa and Argentina will see faster growth in the market, he noted.
“New World wines are very suitable for the Chinese pallet. These wines are suitable for a number of growing Chinese consumers who have limited purchasing power and may not be able to afford premium wines,” he said.
“The strong relationship between the Chinese and wines will continue to grow. The high number of young and female wine enthusiasts is very exciting. People across the country are becoming sommeliers or getting certifications in wine. Many more mature consumers are gradually shifting away from drinking traditional Chinese spirits to enjoying wine with their meals or at gatherings. These will be the ones setting the wine trends in China in the near future,” he said.
This year, the total sales volume of still light grape wine (still red, white and rose wine) is expected to reach 2.65 billion liters in China, up 6 percent over 2018.
The total sales value of still light grape wine is forecast to reach 395.73 billion yuan ($58.7 billion), up 6 percent over last year, according to market research provider Euromonitor International.
By 2022, the total sales volume of still light grape wine is expected to reach 3.11 billion liters, expanding 24.4 percent over 2018. The total sales value is expected to reach 467.35 billion yuan in 2022, up 25.3 percent over 2018, Euromonitor International found.
Under the China-Australia Free Trade Agreement that became effective in December 2015, tariffs on Australian wines imported to China will drop 2.8 percent on Jan 1 every year after the signing of the agreement. Originally, the rate was 14 percent. By 2019, China started to levy zero tariffs on wines imported from Australia.
“The zero tariffs levied on Australian wines and the continuously opening China market, in addition to favorable business opportunities related to the Belt and Road Initiative, will be beneficial to the future growth of Australian wines,” said Dong Guoshu, a wines industry analyst.
There are around 5,000 enterprises that import foreign wines in China, and with a high elimination rate, about 1,000 companies withdraw from the imported wines market every year, while a considerable number of new companies join in the sector, industry reports said.
“Building a strong brand, targeting consumers’ new demands, and actively expanding new sales channels are key to successfully selling imported wines. I’m bullish on the future growth of imported wines in China, but the adjustment and short-term pains are unavoidable,” said Wang Xuwei, secretary-general of department of alcohol traders under the China Chamber of Commerce for Importers and Exporters of Foodstuffs, Native Produce and Animal Byproducts.
“The depreciation of the yuan and the rise of operational and marketing costs have resulted in the profit squeeze. With a period of white-hot competition and the decline in import volumes and prices, the new cycle of the imported wine sector will comprise the fittest enterprises that survived,” he said, according to a report from industry media outlet jiuyejia.com.
“It’s better to sell wines directly to consumers through self-operated channels, to strengthen communication and to get closer to consumers. By eliminating sales hierarchy, importers can increase their profits,” Wang advised.
The strong relationship between the Chinese and wines will continue to grow. The high number of young and female wine enthusiasts is very exciting. Many people across the country are becoming sommeliers or getting certifications in wine.”
Ryan Christianson, owner of Xanthos Wines, a winery in Napa Valley, California