Developing markets such as India and Vietnam may be catching the eye of wine businesses looking to expand into Asia, but it's China that holds the most promise. Rob Temple explains why China remains Asia's greatest treasure.
India, Thailand and Vietnam are Asia's most prominent emerging markets, where consumption is undoubtedly rising thanks to fast-growing economies, making it more important than ever to be first in the market, or at least get in early.
However, we are still a long way from realising the volume of sales that China currently offers wine brand owners. Despite mainland China's recent economic problems, China remains the driving force behind wine consumption in Asia and is likely to remain so for many years to come.
According to China's National Bureau of Statistics, wine imports into China have fallen from 452 million liters to 249 million liters since 2018, while China's wine production has almost halved in the same period.
There are several factors that affected imports and consumption: COVID-19 (total lockdown), punitive tariffs on Australian wine (there was no direct alternative for big brands like Penfolds), economic problems due to COVID-19, and high interest rates in the US.
The real estate market, which accounts for about a quarter of the country's GDP, has also been hit by major disruptions. The economic challenges are similar to those experienced in the late 90s, when high US interest rates sucked a lot of investment out of the region, causing stock markets and currencies to plummet. This time, US interest rates remain high as the US fights inflation (an aftereffect of “quantitative easing” measures to avert the economic collapse of 2008), and the only way Asian countries can protect their currencies and stock markets is to raise interest rates.
Non-essential consumer spending is well below pre-COVID levels. A look at wine bars and restaurants in Shanghai, Shenzhen and Guangzhou shows that passion for wine has not waned, but spending has declined. The challenges facing the wine industry today are economic, not wine-systemic.
It will be hard to find a remedy for China's slump in other Asian markets. Vietnam, with a population of 100 million, has the largest per capita alcohol consumption in Asia, at over nine liters, but 91 percent of that is beer and just 0.8 percent wine.
India is now the world's most populous country with a middle class of 360 million people (China's is 400 million), but despite booming at 8% annually for the past two decades, India's GDP is still only one-fifth the size of China's.
According to Statista data, India's wine imports in 2023 will be 7.8 million litres, compared with China's 249 million litres (Vietnam 23 million litres and Thailand 26 million litres in 2022).
Japan remains a big market for wine, with younger consumers actively purchasing wine instead of sake. Twenty years ago, there were more than 3,000 sake breweries in Japan, but now only about 1,100 remain.
The yen is at a 34-year low against the US dollar, the population has fallen 3.2% since 2018 and continues to decline at a rate of 96 people per hour, and GDP has fallen 16%.
According to Statista, wine imports will reach 171 million liters in 2023, making per capita wine consumption three times that of China. But given the demographics (98% of people living in Japan are Japanese, and efforts to import population are insufficient to reverse the aging trend) and economic challenges, how long will this consumption trend last?
It's unlikely other parts of Asia can compete on the same level. Malaysia and Indonesia are predominantly Muslim countries where alcohol is shunned by consumers and is tightly controlled by the government. Indonesia has fewer than 20 government-approved importers and traditional retailers can only sell alcohol with up to 5% alcohol by volume.
The Philippines has a relatively small economy and limited consumer purchasing power, while Taiwan, South Korea, Hong Kong and Singapore are wealthy countries with particular tastes for premium and fine wines, but their populations will remain small.
Shanghai, China
We have therefore once again come to view mainland China as a key medium- to long-term market in Asia, and it is important for us to remain active and visible until a full recovery is achieved.
According to a report by the National Bureau of Statistics of China, wine imports into mainland China are down 70% from their peak in 2012, due first to government restrictions on entertainment and gift-giving that year, followed by the economic downturn and COVID-19 lockdowns. Some retailers have removed wine from their portfolios because of lower profit margins compared to other alcoholic products. Economic headwinds remain significant, and debate continues about whether the market has hit bottom.
When it comes to alcohol consumption in mainland China, wine accounts for 3% of total sales, which equates to less than half a liter per capita per year (total alcohol consumption per capita of about 5 liters). Yet wine occupies significant shelf space in major grocery retailers, especially in first- and second-tier cities where average incomes are highest. Wine also occupies a large place on premium drinks lists. The growing demand for white wines, i.e. wines that are authentic and have a story, signals the maturity of the general consumer. Locally produced wines are improving in quality with each vintage, and local interest in the category is on the rise.
Wine consumption is expected to recover and grow as disposable income and consumer confidence recover. Government measures are already in place to stimulate the economy and address problems surrounding the real estate market, such as allowing local governments to purchase distressed properties to convert them into public housing. Exports in June 2024 increased 8.6% year-on-year (imports were less impressive).
So what can brand owners and merchants do in the meantime? Staying visible and active in the market is key to staying in consumers' minds, retaining market share, and preparing for the resumption of consumer spending.
More than ever, importers and distributors need partnerships in this process and brand owners are actively involved in their brand building strategies by going to market. There is no substitute for opening a bottle together with your trading partners and end consumers.
A recent consumer survey conducted by YouGov this year among wine drinkers in China's Greater Bay Area (GBA) found that in 2024, GBA consumers will drink wine three times as often as Hong Kong residents and will more likely purchase wine from specialized wine stores (49%) than supermarkets (37%). Approximately 25% of all wine imports into mainland China are imported via Guangdong Province. Word of mouth was cited as the most common factor influencing the reasons for choosing a wine brand, revealing that direct contact with end consumers is essential for brand building.
Not all importers or distributors have access to all channels in all regions, so choosing the right partner for your channel and geographic strategy is important. Finding a partner who can execute consumer engagement programs can go a long way in establishing long-term brand growth.
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