CHINESE WINE INDUSTRY: CURRENT AND FUTURE MARKET TRENDS. Tatiana BOUZDINE-CHAMEEVA, Wenxiao ZHANG Jacques-Olivier PESME

Transcription

1 CHINESE WINE INDUSTRY: CURRENT AND FUTURE MARKET TRENDS Tatiana BOUZDINE-CHAMEEVA, Wenxiao ZHANG Jacques-Olivier PESME 1

2 Outline 1. Introduction an overview of the Chinese wine market 2. Research questions and research objectives 3. The key success factors in Chinese wine market 4. The new trends of the Chinese market 5. Conclusions 2

3 An overview of the Chinese wine market 3

4 Chinese Wine market China The highest increased market and the fouth market of French wine Newly developing market Imported wine 25% of total consumption, mainly from France, Italy, Spain. China reported an increase of more than 65% each year from , and an increase of 25.6%in the year 2012

5 Chinese wine market Chinese Wine Production: At the time the China in the 70s, the annual production of wine was about 0.85 mhl per year, while in 2011 the total wine production was mhl. The total market grew 58% between 1996 and 2001, 98.8 % between 2001 and 2006, and 192% between 2006 and Chinese Wine consumption: A sharp increase in total consumption in ten years (from mhl to 964 mhl) (Anderson and Nelgen, 2010) Current consumption per capital in China of 1.12 L in 2012 has room for increases. Imported wine: The imported wine accounts for 25 % of volume sales in China in A sharp increase of wine imports (including bottled wine, bulk wine and sparkling wine) from 12.5 mhl to 162 mhl (Anderson and Nelgen, 2010) confirm that China is rapidly emerging as an appealing market for foreign wine businesses (Jenster and Cheng, 2008). 5

6 Major players of the Chinese wine market Government Local producers China's Wine market Customers Foreign operators Chinese investors who invest into foreign wineries 6

7 China s institutional & policy environment Political trends: The volume gain of 583 million liters of grape wine during 1999 to 2004 was the result of government encouraging consumers to switch drinks and consume more grape wine in order to preserve national stocks of rice for the production of food. Legal and regulations: Since China entered the WTO, tariffs on imported wines have been lowered. Since January 2005, the import duty on bottled wine has been reduced from 43% to 14% and on bulk wine from 43% to 20%. 7

8 Wine production and Local producers in China In 2011, China has 560 thousand hectares of grapes for wine making (OIV, 2012) and over 940 wineries in operation. The wine market in China is an extremely concentrate market, The sales volume of ChangYu, Great Wall and Dynasty has occupied over 37% on Chinese wine market.. 8

9 Wine Growing Locations in China Based on data from Euromonitor International (2007); jenster and colleagues (2008); Wine Institute (2007) 9

10 Local producers Leading domestic wine brands have performed poorly in the year 2011 and 2012 because of the high competition from the increased imported wines. Changyu's revenue declined in the first half of year 2012 for the first time in five years, falling 2.5% yearon-year to 3.01 billion yuan ($470 million). Cofco s sales declined 2.1% year-on-year in 2011, and the Sino-French joint venture Dynasty saw a 10.5% yearon-year slump in its income in

11 Wine consumption and customer preferences Total Volume 000s 9 liter case ,110 45,595 51,753 63,690 72,417 93, , , ,499 Per capital Year-on-year increase Share of alcohol mkt 13.5% 23.1% 13.7% 28.6% 34.4% 21.9% 12% 1.1% 1.0% 1.1% 1.2% 1.3% 1.6% 1.9% 2.2% 2.3% There is an overwhelming preference for red versus white wine in China, with the former accounting for 85 percent of the market 11

12 Wine imports and foreign operators Origin French 32.4 % 34% 36.8% 39.7% 44.6% 46.3% Australian 20.1 % 22.6% 20.8% 20.1% 20.5% 16.2% Italian 6.9 % 9.1% 12.1% 8.7% 6.9% 7.7% Chilean 10.7 % 6.2% 6.3% 7.4% 7.5% 7.2% Spanish 5.2 % 8.8% 8.1% 5.5% 5.1% 6.5% US 15.0 % 9.9% 5.6% 6.7% 6.9% 6.3% German 2.6 % 3.1% 2.7% 2.5% 1.6% 1.9% Argentina 1.3 % 1.2% 2.3% 2.7% 1.8% 1.9% S.African 1.6 % 1.5% 1.5% 1.7% 1.6% 1.6% Portuguese 2.3 % 1.6% 1.6% 1.1% 0.8% 1.2% N.Zealand 0.6 % 0.9% 0.6% 0.6% 1.1% 0.9% Hungarian 1.0 % 0.4% 0.2% 0.2% 0.1% 0.2% Bulgarian 0.3 % 0.6% 0.3% 0.3% 0.2% 0.1% Other 0.2 % 0.2% 1.2% 2.8% 1.4% 2.1% Total 100% 100% 100% 100% 100% 100% Consumption by country of origin % share (source : IWSR) 12

13 Wine import trends Bottled imports growing strongly during the last years, traditionally, it is thought that the majority of imported bulk is blended with domestic wine and labeled as made in China. 13

14 Research questions and Research objectives 14

15 Objective of the research Investigate and examine the wine distribution channel structure existing on Chinese market. Study the evolution of channels in mature and emerging wine markets. 15

16 Research questions -What are the characteristics of Chinese market? -What are the distribution channel systems functioning in China? -What are the evolution trends from the emerging market to the mature market? 16

17 Methodology and Research design Our research is based mainly on the literature review, though we have carried about thirty interviews with Chinese wine producers, distributors and importers in China and in France (Bordeaux region). We triangulated the latest with the information collected mainly from research papers, online sources, government reports, consultant reports and medial search. 17

18 The key success factors in Chinese wine market 18

19 Food and drink preferential model of Chinese customers Personal factors: Wine is perceived in China as socially and culturally sophisticated and is used as a status symbol to aid one s social standing (Zhao, 2003). Biological factors: Wine drinking is more popular between mid to high income earners, those in tertiary education and the year-old age group. Extrinsic factors: Marketing and advertisements play more and more important role on the Chinese market. Chinese customers have enduring "country-of-origin". Intrinsic factors : There seems to be acceptance that Chinese wine consumers prefer fruity red wine styles with a degree of sweetness as distinct from dry tannic styles or white styles (Regan, 2000; Dewald, 2003; Guinand, 2005; MCM Wines, 2004). Cultural, religious and regional factors: Health and good fortune are two very important virtues in the Chinese culture, Red wine is considered to be lucky due to the connotation of good fortune that is associated with the color red (Liu and Murphy 2007). Educational factors: MCM Wines (2004) and Knott (2004) attributed the low wine consumption to low levels of wine knowledge among Chinese wine consumers and suggested more wine education is required to increase consumption. Socioeconomic factors: Wine drinking is popular mainly in urban areas of the coastal provinces. 19

20 Characteristics of different distribution channel structure Types of distribution Characteristics of each structure Producer - consumer -Cutting out distributor profit margin. (Jobber, 2001) Producer - retailer - consumer. Producer - wholesaler - retailer - consumer Produce-agent/distributor - retailer - consumer / Producer - agent/distributor - wholesaler - Retailer - consumer. If the retailer is big enough, it becomes economic for producers to supply retailers directly rather than through wholesalers. (Jobber, 2001) For small retailers with limited order quantities, the use of wholesalers makes economic sense. (Jobber, 2001) This channel is most common when companies enter international markets (Jobber, 2001) due to low sales volume, high start-up costs and local knowledge (Coelho et al, 2003). Some companies use multiple channels to distribute their products for the market share consideration. (Jobber, 2001). McCammon (1963) accepts that economy factors (functions of intermediaries) play a role in determining channel structure, though also advocates the inclusion of other types of influencing factors in the analysis. 20

21 Distribution channel in wine sectors The distribution policies should be considered together with the characteristics of products. (Miracle, 1965) (Wine production follows a rigid yearly cycle. Grapes are harvested once a year and bottled subsequently in a few months. Wineries must allocate production across several sales channels before demand is known.) Wineries must identify and implement the key components of building effective relationships with their distributors to gain access to the channel and to continue to have distributor support to move the product at the retail level where they can become available to consumers (Prichard, 2004). Chandes and Estampe (2003) modeled the value chain of the four wine segments (Branded wines; Store brands, Grand Crus and wine marked direct by wine-maker), Referring to the case of Bordeaux natural wine exports. Bouzdine-Chameeva and Ninomiya (2010) analyzed the wine distribution chain model for the Bordeaux wine suppliers in the Japanese wine market. The study emphasized a marked heterogeneity of the Bordeaux natural wine production sector and considerable differences in distribution channel solutions, which partly depend on the core competencies of the actors. 21

22 Discussion: Wine supply and market characteristics differences Items Major players China Only 940 wineries. The top four wine companies control over 27% of the entire grape wine market in China Cooperatives No Cooperatives Origin of Imported wines 62% from France, Italy and Spain 20% from Australian Importers Traders 22

23 Wine distribution channels ``The distribution channel is the key to any company's success. (Stern et al. 1996, p. 502) However, the choice of channel is often made haphazardly, with limited information. (Cabaniss, 1995). The selected distribution channel should constantly be under observation to make sure it is utilized in an effective manner. (Segerstedt, 1999) There is an important shortage of the studies of the distribution channels in the wine sector (Beaujanot et al., 2004; Orth et al., 2007)

24 Discussion: Wine distribution channel system in Chinese market Data from OIV, 2012; Chinese custom data, 2012; Wine intelligent,

25 Discussion: Channels and prices Items Average price The retail price local wines The retail price imported wines Direct sales China 5.25 / L lower end is Mid-range Premium wines >10 Normal range Luxury wines:>1000 Twice of the retail price 25

26 Discussion: Chinese imported wine distribution channels system Data from Rabobank,

27 Conclusions Wine production China 13 Mio.hl, No.6 of the world production Vineyard Export Wine consumption ha, 940 wineries Mio.hl 16.1 Mio.hl; No.5 of the world consumption Imported wine Imported wine 25% of total consumption, An increase of 26.5 % imported bottle wine of year 2012 Imported wine Consumption 2012 Share of wine type Distribution channel 47% from France 20% from Australian L per capita 70% for gift, 10% drink 72% red wine; 22% White Wine 6% Rose Wine 20% sales in retail, 80% Restaurant, hotel, bars, While for local wine : 54% sales via retail Direct sales for imported wines not local wines Increase rate ( ) Production 8.97% Consumption 20% Market characteristics New developing, production and consumption quick increasing 27

28 Conclusions: China market characteristics Respondent Alix Producer Joost Negociant Fabre (producer & negociant) Chinese market/importers -You have to exchange with importer -no plan -not stable -not very confirm market -a market of opportunity -prefer classic labels. -market growing -do not know how to sell the wines -one-time business, never hear again -long process -more costs -has lots of ideas -Translation problems -supermarket in China is more complicated. -creditable market -new market -learning quite fast -many people just start do wine business -do not know about wine -they can invest money -rising market -secret channel within china 28

29 The new trends of the Chinese market 29

30 Recent trends of entries into wine sector include Chinese purchases of foreign vineyards, fullservice distributors catering to the unique qualities of the Chinese market, and high-net-worth Chinese investing in wine as part of their wealth management strategies. Investment into vineyards all over the world More than 40 Bordeaux wine chateaux belonged to Chinese investors in January of is the figure of June 2013! 30 30

31 Chateau Latour-Laguens: First bought by Chinese investor in 2008 Chateau du Grand Moueys : 170 hectars Chateau Lagarosse: AOC entredeux-mers Château Monlot: Grand crus

32 2012 : The first Chinese purchase of Grand Cru Classé Saint Emilion

33 Comparison of the distribution channel in new developing and mature markets. 33

34 Conclusions In line with the Chinese government s policies to boost economic development in the interior regions, China is now one of the world s most attractive and intriguing markets for wine. Middle class will continue to be the center of attention. While this will no doubt attract further competition of country-oforigins, building a localized strategy delivered consistently and duplicated throughout China will generate needed moment and confirm an identity which has the potential to last for generations to come. As the Chinese market continues to rapidly evolve, winning will largely depend on the extent to which the wine industry is able to coordinate industry and government resources in raising awareness and solidifying its premium quality. 34

35 . Thank you!! 干 杯 Gān bēi! Merci!! 35