Chinese Wine Market: A Great Opportunity with High Walls to Overcome

China is in the mind of many Spanish wineries: it is at the same time an Eldorado, a market where any forecast seems useless, since anything can happen and initial estimates can quickly be out-of-date and a market so culturally distant from Spain that it is often difficult for a Spanish producer to know exactly how to enter this promising market.

However, there are a few wineries which have been present in China for quite a long time (over ten years) and start to know that market well. And many others are rearranging their global strategy in order to be more competitive in the international market.

In their struggle to have a broader international presence, Spanish wineries are adopting one of the three following strategies: diversity, specialization and niche strategies. The first strategy type adopted by big – and smaller - companies producing wine is diversity, meaning that they include several appellations in their portfolio, most commonly Rioja, Ribera del Duero, Toro, Rueda, Mancha, Penedes and some others. Names that spring to mind are Torres, Felix Solis, Domecq, Yllera… These players can either act as negociants, buying wine from different producers and then ageing it the way they want, giving their portfolio a true personal touch, including the packaging, an aspect of the product they can easily innovate in; or they can either buy or build the winery they need outside their “mother region” (generally Rioja and Cava in Penedes). Another strategy consists in having more focus, being a specialist player. That kind of winery enjoys wide recognition, a recognition completed by a strong brand which is easily identified both by the sales channel and the end consumer. Here a key example would be Muga, with a specific focus on Rioja. Another type of market approach is to be a pure niche player, with for instance organic, biodynamic or natural wines. Typical examples of this approach are Kirios de Adrada in Ribera del Duero, El Patio in La Mancha, 6º Elemento in Utiel Requena, Barranco Oscuro in Granada and so many others that could be cited. Of course, a mix of some or all of these strategies may also be identified.

Along with the strategies described above, there are also innovative ways and opportunities of collaborating with new initiatives in China, like that of the City of Wine, in Yantai, in the Shandong region, in Northwestern China, a center dedicated to wine and scheduled to open in 2016. Since this city will include an investigation center, wine producing facilities, vineyards and an international shopping mall exclusively dedicated to wine, the whole completed by a European style village, the most advanced and risk-oriented wineries and wine producing groups may run the risk and develop a presence there, either by launching joined research with Chinese scientists, investing in the shopping mall, buying a piece of vineyard to plant Tempranillo, Grenache and other Monastrell grapes or even running Spanish restaurants serving the best Spanish wines. Will Spanish wineries be able to take advantage of this new City of Wine? This is undoubtedly an initiative to follow closely within the next few years.

But, in fact, how important is China for Spanish producers? Even though China has registered in 2011 per capita consumption of 2,16 liters a year (compared to the 47,17 liters for France, 45 for Australia and 9,04 for the USA), the trend is positive. In 2012, wine imports in China have increased by 7,8% in volume and 7,5% in value (these are more modest figures compared to previous years). Bottled Spanish wine has increased its volume fourfold compared to the average growth rate (+41%) but prices have declined by 12%, limiting their value increase to a mere 24%. Spain is the second wine exporter in volume and fourth in value in 2012. France is the leading export country in both value and volume, followed after Spain by Chile and Australia.

When talking about the Chinese wine market with Spanish officials in charge of developing the Spain brand locally, some ideas appear: the Chinese wine market is undoubtedly a difficult market, where finding the appropriate partner seems a hard task; there is a growing interest about wine (more and more Chinese companies are investing in European producing countries and learning actively from local experts). Spain also needs to keep on making considerable efforts to build a strong brand as a wine producing country. Since there is a huge emotional and geographic distance between China and Spain, the fact that individual appellations come to China to make their own promotion does not work: Spain needs to gather efforts and resources to appear as one united powerful wine country, which it is. One message instead of many is one key to commercial success in China.

According to Rafael del Rey, head of the OEMV (the official body gathering data on the wine market, both domestically and internationally), China is an Asian market (with all what the term means), huge, diverse and with different selling systems. Spain as a whole is in the process of discovering it, with different ways of approaching it. There are mainly two market segments worth of interest: the upper segment and the basic wine segment.

The luxury wines are wine for celebrations and gifts. It is no coincidence if for instance the Grandes Pagos Association (an association of Spanish wine producers dedicated to upholding and promoting very high quality single estate wines with a true distinguishable personality) was recently touring across China to present its wines. The other segment is geared towards massive consumption wines, chiefly located in the Eastern coast of China and some inner areas. Wines for this segments are in a high proportion jug wines which are blended and bottled locally. Both segments benefit from the fact that people are getting richer and concurrently adopting western habits. Main exporting regions in Spain are Rioja, Cataluna and Mancha. Red wine is the most wanted type, and cabernet sauvignon is most demanded. Tempranillo grape has a problem in China: even though it is the most common in China, the name of this variety is the most difficult to pronounce and thus the one that non-experts tend to forget first.

In any case, Spanish wineries have learnt to improve their commercial presence in the main importing countries and consistently offer better quality wines, being closer to the customer, some of them even opening branches abroad. Packaging and taste of the wines with local adaptations are now on the agenda of the more conscious, quality-oriented exporters. As a direct result of these efforts, Spanish wine image is improving abroad. The fact that people have many different “Spains” in their mind, which are all positive also contributes to building a strong image, says Miguel Torres Maczassek, General Manager of Miguel Torres SA. Examples of the Spanish image are: Barcelona, the Olympics, Barca, Madrid, Gaudi, Dali …: they all bring positive and premium associations. It of course also helps that in the past 10 years many Spanish and Catalan top chefs put Spain on the absolute top of the world gastronomic map. So suddenly the perfect combination is there: top Spanish cuisine and top Spanish wines. And at the same time a new generation of wine consumers whose knowledge is growing every day and who want to experiment also appears.

As far as the upper / gift segment of the market is concerned there is a winery making an exemplary work: Aurum Red. Hilario Garcia, the owner and the idea man behind the project has been present in the Chinese market for over two years. He started making tastings, with different wine profiles and packaging in order to find the best match for the Chinese palate and taste. Since wine is closely linked to luxury and prestige, wine is used to show how knowledgeable one is about wine and how much buying power one has. Hilario’s wines are now sold in Shaghai, through one of the multimillionaire clubs of that city and also through specialized distributors in Guanzhou. These distributors in turn organize fine dinners with very wealthy people, where great wines are tasted and classic music concerts are held. In one of these encounters, Aurum Red wine was preferred to even the most prestigious French first class growth from Bordeaux, among them the Chateau Lafite.

On the other end of the spectrum, other Spanish wineries like Felix Solis have a very different approach of the Chinese market. The company entered it back in 1998, being a pioneer. It has followed two strategic lines: on the one hand, Shanghai Felix Solis Winery is in charge of the bottling of the jug wine imported from Spain and coming from the different appellations; and on the other hand there is Pagos del Rey Shanghai, responsible for the import of the bottled wine coming from the wineries of the group.

Another key Spanish player on the Chinese market is Torres. The company started with a very small team back in 1995 with a joint-venture called “Zhangjiakou Great Wall Torres Winery Co. Ltd.” which included a bottling line and a small experimental vineyard. Later this partnership was ended and in 1997 the “Shanghai Torres Wine Trading Co. Ltd.” was founded, which today is the third most important importer in China with a turnover of more than 25 million EUR. It represents more than 40 other family-owned wineries, among them Baron Philippe de Rothschild, who are partners in Torres China since 2007. Besides, Torres launched a brand called "Symphony" in 2009 in cooperation with Grace Vineyards, with a very positive outcome for both partners.

 Time and patience are the two key words: Torres China took about 8 years to reach ‘break-even’. However, all these efforts are now paying off: on the one side, the number of people who know about wine is growing at an incredible pace and the company is well placed to take advantage of this new enthusiasm for wine, developing its presence with 8 offices and 25 Everwines shops. These shops allowed Torres to sell and communicate directly with the Chinese consumer following what Mouton Cadet did with its Wine Bar in Guangzhou. This structure allows Torres to be as close as possible to its clients and “turn every customer into a friend”. To complete this presence, the on-trade channel – the restaurants, the specialty shops – is also an ideal place where Torres can talk about its wines, present and explain them.

Mas La Plana, one the top brands of the company is now doing extremely well. For Miguel Torres Maczassek, the success of imported wine in China goes hand in hand with that of the local Chinese wine: national and imported wines collaborate to expand the market.

Others, like the Grandes Pagos de Espana, gathering 25 top level producers in the whole Spanish geography and representing the Crus from Spain, are increasingly betting on the Chinese market. After two years experience, Beatriz Fernandez, representative of the association says two important things: first of all, traditional areas are slowly starting to be overcrowded, with massive competition; secondly, there is still a huge amount of work to do in order to educate the Chinese consumer, even though some young people have already gathered a good knowledge about the European wine producing countries.

As a conclusion, we can say that those who persevere are the ones now ripening the benefits of their efforts: they have acquired a strong presence and gain respect from the Chinese consumer. But that does not mean that efforts should be stopped: quite the contrary. New more inner geographic areas need to be conquered along with new consumer segments, all of which will need extensive market research and product adaptation. And Spanish gastronomy still has to extend its presence in China, not to mention the fact that direct flight connections between China and Spain should be developed further.