Selling wine in China outside the top-tier cities

Robert Joseph has been on a tour of China's smaller cities and he has some thoughts on what it takes to sell wine outside Shanghai and Beijing.

Photo of Nanchang by William Lu on Unsplash
Photo of Nanchang by William Lu on Unsplash

Anyone who has serious ambitions to export to China will almost have certainly visited at least Shanghai or Beijing and quite possibly one or two other well-known big cities such as Guangzhou or Shenzhen. And if they're already shipping wine and have been flying into China over the last few years, like Mike Brown, co-owner of Gemtree Wines in the McLaren Vale, Australia, they'll have been struck by the speed at which wine buyers and drinkers in these major cities are picking up knowledge and confidence. Pouring his wines in the busy organic section of Vinexpo Shanghai in October, Brown said, “I never cease to be amazed at the quality of the questions and comments I get from people here now.”

The lower-tier cities

But what about those other cities, like Changsha and Zhengzhou and Nanchang and Weihai or hundreds like them? Conurbations with millions of inhabitants, shiny new skyscrapers and busy shopping streets full of smart shops selling European-style fashion and the latest models of mobile phone?

According to new research by the internet giant JD.com' Big Data Research Institute, over the last three years, lower-tier cities have been a better market for imported cosmetics and sportswear and equipment than places like Shanghai and Beijing.
Is this true for wine as well?

Consultants or observers who claim to offer a clear answer to this question are lying. Statistics in any sector need to be treated with suspicion in China, but nowhere more so than in wine, where so much – probably 70% – is still sold for gifting, especially at the Autumn, New Year and Spring festivals. The tradition of using high-value French wine as a form of currency between government and executives of state-owned businesses, may have been cut back drastically by the ban on 'official extravagance’ that was introduced in 2013, but wine companies still rely heavily on direct sales to car distributors and banks, for example.

Apart from the Great Wall and Changyu , the ubiquitous Chinese brands, and possibly Penfolds – which single-handedly represents over 60% of Australian imports – and maybe Casillero del Diablo and Jacobs Creek, familiar imported wine brands are almost invisible in supermarkets in these cities. You are far more likely to see private labels that have been created for the Chinese market like Sunshine Estate, which I came across in Nanchang, priced at $80.00 per bottle.

Equally absent are examples of China's growing number of recommendable boutique wines from Ningxia. Most of these are sold, it seems, in Yinchuan and other cities in the region, or in smart shops and restaurants in Shanghai and Beijing.
Where are people buying?

Wine shops as they are known in the West are rarely encountered. Chains like Yesmywine, Noble Family and 1919 exist, but are not visibly sited among the boutiques on major shopping streets. I came across a Penfolds shop in Nanchang quite by chance, one of a handful of wine shops in a city with over five million inhabitants. The owner had recently moved her business from a shopping mall because the rent was too high. Besides, she explained, she sells mostly to friends and friends of friends, so location is less important to her business.

A shop where wine is the focus is still exceptional. Usually wine takes second place to baijiu, the white liquor, in these and almost every other place where it is sold. Westerners often underestimate the size of the market for baijiu, China's favourite form of alcohol; Moutai, the most popular and priciest brand, has an estimated value of $200bn – more than Diageo.
Scores of examples of beautifully packaged baijius, ranging in price from under $5 to over $150 fill the shelves of shops in even the most modest cities, alongside possibly a dozen or so wines, whose prices rise to $30 at most.

So where do people in these cities buy wines? One answer is online through the giant Tmall and JD.com, with the caveat that the authenticity of wines sold through these platforms is never guaranteed. In 2016, for example, Treasury Wine Estates officially complained to Tmall about fake Penfolds bottles being sold through its site. JD.com sells over 50m bottles a year across China, many to smaller cities, and this year, Changyu, launched two brands – Pandawine and Long Tailed Cat – that are aimed at younger consumers and exclusive to JD.com.

Another online route to market is even more invisible. Countless Chinese sell a wide range of products as side lines within WeChat, the local, but much more powerful, version of Facebook.

Lastly and most traditionally, wine is sold through personal contacts. The owner of a big sea cucumber business told me she buys French, Australian and Chilean wine “from a friend who knows about wine.” Perhaps unsurprisingly, she couldn’t recall the names of any of the brands, but enjoyed what she was getting.

What’s the lesson?

First, think twice before signing up with a national distributor who promises to find customers across the nation. There are a few companies, of course, that really do have relationships with large numbers of big hotels and with good local wholesalers. But these businesses' lists are already pretty full and new listings are not particularly welcome right now – the  Chinese wine market has hit a flat patch after cyclical overstocking, combined with a general reaction to the China-America trade war, which has had a significant impact on confidence across all sectors.

As Ian Ford of Nimbility suggested at Vinexpo, working directly with local distributors may make more sense, focusing on a few key cities.

Whichever route one takes, the most important advice is not to walk away and abdicate responsibility to the distributor. This is, of course, true in every market, but probably more so in China where there is a risk that the sales team are more focused on selling profitable, easy-to-move baijiu than a complicated bottle of wine.

Unless one is lucky enough to find a distributor in whom one has total confidence, by far the wisest strategy is to have someone on the ground. One suggestion is to share the cost with another producer or two. Finding keen, bright young WSET graduates in China is becoming easier every year, and I suggest that hiring one might be the best investment a winery could make in China today.

Robert Joseph

 

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