In sporting terms, it was a ‘game of two halves’ for Chinese wine importers last year. Results for wine imports through July had been upbeat, but as demand flagged warehouses remained full. Poor Mid-Autumn Festival sales triggered a crash in orders to China’s nearly 4,000 wine importers in the last quarter of 2018.
Poor Mid-Autumn Festival sales triggered a crash in orders to China’s nearly 4,000 wine importers in the last quarter of 2018.
There is some variance in opinion over the level of decline, but both the Chinese Customs and the China Association of Imports and Export of Wine & Spirits (CAWS), report volume losses of between -8% and -9%. Value performance was relatively stable.
The vibrancy of sales of imported wines had been a recent feature in the Chinese drinks market. Before last year, imports of wine had rocketed nearly tenfold in a decade, and in 2017 imports were in the double digits, based on IWSR consumption figures.
The market has come a long way from a time where some consumers were reputed to have added Coca-Cola to their wine. Young affluent middle-class Chinese became increasingly educated on their wine and it was perceived very positively. Drinking wine was an opportunity to demonstrate status and sophistication to peers. Most consumption occurred in modern Western-style restaurants and bars. At home, wine was enjoyed after dinner. Its popularity was even identified as a factor in the decline in Chinese beer volumes.
In 2017, French wine comprised 39% volume share of total imports to China, followed by Australia, Chile, Spain and Italy. As European countries make up the majority of wine imports, the exchange rate between the renminbi and the euro is influential. A strengthening renminbi in 2017 made European imports cheaper. In the last quarter of 2018 however, the renminbi began to decline. The scale of the losses with some of the major European markets would point to a weakening of the Chinese renminbi with the euro and played a part in pushing down demand for wine from core French, Italian and Spanish producers.
The weakening currency certainly did not prompt a revival in the domestic wine market. The 1,000 or so SC-certified wineries in China have been selling less wine each year since the 2013 production peak. According to data released by China’s National Bureau of Statistics, local wine production plummeted by nearly -40% last year.
The market for local wines had almost doubled in size in the five years prior to 2013, but Chinese wine failed to win local hearts and minds as it is not seen as glamorous as imported alternatives. The challenging growing conditions mean that production costs are high and it is difficult to compete on quality with imports. There is a perception among Chinese drinkers that local wine is of poor quality.
The economic slowdown and the looming trade war with the US played a part in the losses.
There is a case that the level of exchange rate movement was not enough to explain the fall in imports entirely. The economic slowdown and the looming trade war with the US played a part in the losses. Just like the smartphones that many Chinese consumers buy their wine on, wine imports are more vulnerable than other categories when there is a change in economic climate. Drinkers tend to be made up of the cosmopolitan, educated and entrepreneurial young who gained the most from rapid economic expansion. So, when the economy falters, demand for imported wine will waver.
Stakeholders in the imported wine market in China are right to be concerned. With the two main causes of the deterioration in wine imports related to exchange rates and fading consumer confidence, any economic improvement will reinstate demand and growth. Importantly, it will not mean that imported wine is falling out of fashion with its audience. Given the value of wine imports held up despite some volume losses, it would suggest that as with baijiu, the interest in premium products is being maintained.
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