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Selling Wine In China

20/06/2019

China can be a 'marvel' for foreign wine producers if significant efforts are put in going digital and building an online reputation.

The lure of a market that continues to expand, a foreign product that consumers see as denoting success and lifestyle, yet wine sellers have to understand that China – and the Chinese consumer – is like no other

In some ways, little has changed from the days when Marco Polo wrote his ‘Book of Marvels’ describing his journey to China in the late 13th Century and the different world he discovered at the Court of Kublai Khan in Dadu, now known as Beijing.

Of course, today, China is very much a 21st Century economic power, indeed second only to that of the USA, but marketing and sales success – whatever the product – very much depends on understanding that, as in the time of Marco Polo, China is still in so many ways very different from any Western country, as is the Chinese consumer and the whole process of choosing and purchasing wine.

China: The Opportunity For Wine

Let’s start with some figures (information sources at end of article) and the clear opportunity that China represents for wine producers: it’s predicted that, out of a total population of a little over 1.4 billion, China’s middle class will reach some 550 million by 2022, representing 75% of all urban households; within this figure, there are 50 million upper-middle-class wine drinkers – so-called ‘wine lovers’ – up from 38 million in 2014, and a number that’s now predicted to reach as high as 80 million by 2020 (middle-class definition by income: upper-middle-class $20-$50 per day).

Putting these figures into a global wine consumption context, China is now the world’s 5th largest wine-consuming country, at 17.9 million hectoliters, with the USA occupying the number one position at 32.6 million h/l. In fact, the USA and China, together with France, Germany, and Italy, now consume half of the world’s wine. At the same time, China has become a significant wine producer in its own right, indeed it’s now only second in the world in terms of the area it has under vine and, at 870,000 hectares, is nearly double the area in the USA, and not that far behind that of Spain at No.1.

However, looking at wine consumption per head that the opportunity is really highlighted: in the USA this stands at 12.4 liters a year, but in China, it is just 1.5 liters. Whilst consumption is still at a low level, both in terms of frequency (a wine drinker is deemed to be someone who drinks wine twice a year), as well as overall consumption, Chinese people in general, regardless of social class, consume wine more frequently compared to previous generations. Indeed, wine consumption is up 70% since the turn of the century, whilst, over the same period, wine consumption has gone down in France, Italy, and Spain, and is static in Germany. As such, whilst the older generation and other, poorer, social classes may still be drinking beer and white spirits, such as Baijiu (total alcohol consumption in China is 7.2 liters ahead a year), younger, middle-class consumers see wine as a lower-in-alcohol and healthier alternative (to spirits) and it’s certainly becoming a more commonly preferred alcoholic beverage in other social segments and so can no longer be considered a niche product.

In round numbers: looking at figures from 2017, China’s total wine imports grew 17.4% in volume and 18.3% in value over the previous year. In 2018, imports surpassed 8 million hectoliters, including bulk wines, exceeding $3 billion for the first time, capturing around 30% of the total wine market – this has to be seen as a real business opportunity and, whilst not underestimating the difficulties, which we cover later, is certainly not something to be sneezed at!

The Chinese Wine Consumer

Despite the availability of a domestic product, many Chinese wine drinkers, influenced by high-end foreign brands and expensive-looking designs, together with the sense of luxury these communicate, choose to pay the higher prices of imported wines in preference to drinking local Chinese brands. At the same time, however, these companies and brands have to have earned these same consumers’ trust, and this requires companies to understand a consumer who is not only intrinsically careful when making any selection and decision to purchase, but also how best to communicate with them. The upside of this is that, once trust is gained, it’s somewhat easier to maintain customer loyalty.

China is a young country in terms of demographics, with wine consumers gradually becoming younger. Overall, Chinese wine consumers essentially fall into the 18-54 age bracket, with over 40% of imported wine consumers aged just 18-29 years-old. Unsurprisingly, therefore, the internet plays a major part in their decision-making process: looking at demographic sub-sets, of the 38 million 18-54 year-old upper-middle-class adults that buy imported wine, 88% actively use the internet, with 69% of these searching for wine information online and 49% purchasing wine online. It is worth bearing in mind that Chinese consumers use their phones 60 times more when making payments than consumers in the United States do. Both these factors are strong signposts as to the most effective route to market – and that’s digital.

The Chinese consumer will read articles on specialized sites, visit forums and carefully assesses the company and product reviews, carrying out extensive checks on the winery, the wines it produces and, probably more importantly, what others are saying about both. What this means, in terms of a trade (distribution) and consumer sense – and not just for wine – is that branding, an online presence with digital and social media marketing, an e-commerce facility, together with a strong and positive reputation, are all key if a company is to achieve marketing and sales success in China.

Selling Wine In A Different Internet & Social Media Landscape

The Chinese, as in the populations of other Asian countries, are very open to new technologies and, like in other markets, the most effective way to present a product is to use videos or photos that captivate – and this also applies to wines. However, with the likes of Google, Facebook, YouTube, Twitter, Pinterest, Instagram, and WhatsApp banned, blocked or censored to a greater or lesser degree in China, wine producers and sellers have to operate in an online landscape that's very different from anything in any other major economy.

Baidu is effectively China’s Google and the country’s leading search engine, unmatched by any other, with sites and services to advertise products: like Google, Baidu has pay per click and presents its advertising in much the same way with ads that show up in search results alongside content based on keywords (caveat: China is not Europe or the USA so, even if a campaign has been successful in Google AdWords, the content needs to be researched with a Chinese audience). Baidu, like Google, also has geo-targeting, which is highly important in China because of the level of income disparity, enabling a wine company to target more affluent urban areas.

Without other, western, messaging sites operating in the country, there are two main messaging apps used by the Chinese consumer. Weibo is effectively a hybrid form of both Facebook and Twitter with 254 million daily users and 340 million active users monthly, with over 90% of these people using their mobiles for access.

WeChat is the other, and far and away from China’s most popular messaging site with more than a billion monthly users. As such, WeChat is now the world’s 5th largest messaging site, but actually also offers its users the ability to do much more, from making payments to hailing a ride, to booking flights and hotels. In fact, WeChat has become one of the main ways people communicate in China, even when doing business and it’s preferred to email.

Internet shopping is different, too: Alibaba is China’s biggest e-commerce company, similar to Amazon or eBay, but, with no inventory or warehouses, operates under a different business model. It’s also one of the world’s most valuable and biggest companies, accounting for a reported 58% of all online retail sales in China. As of 2018, Alibaba had 576 million active users –larger than the entire population of the United States. There are 3 main Alibaba sites: Taobao, China’s largest shopping website; Tmall, which offers a wide selection of branded products aimed at middle-class customers (matching the socio-demographics of wine consumers); and Alibaba.com, a business-to-business trading platform. Together they make Alibaba the effective middleman in China’s e-commerce industry.

This is not to say that there are no niche platforms: Pinshanghongjiu and Jiubaowang are business-to-consumer sites that are gaining more market share. These are of particular interest to the wine industry because they specialize only in alcoholic products and wines and provide a more extensive description and customer review section than other, more general, sites.

As in every modern market, the use of digital to market wines is a must and understanding the technology landscape and the opportunities it provides for the effective promotion and marketing of wines is the foundation of a business wishing to sell to the Chinese consumer. There are actually more similarities than differences in the principles of using the internet and social media as sales and marketing support in China. As in other markets, followers need to be involved with original and interactive content if they’re to be transformed into potential customers – but it’s important to recognize the differences, particularly in terms of any approach taken and, most importantly, the message content, and the need to use language that chimes with Chinese tastes and culture.

Social Media: Building Wine Brand Awareness

Technology and the availability of social media is one thing, but it’s necessary to know how to use it to commercial advantage. With corporate communications in China having little appeal, engaging key opinion leaders (KOLs) and experts in wines can amplify a brand’s impact on the web and brand presence in the market, especially when these experts typically have millions of followers online, something that creates virtually free advertising though these-called ‘snowball effect’.

Online video marketing has also taken off, as it has in Western markets, as a way for brands to establish connections with consumers. In China, the key has been the rise of video-centric social networks likeTikTok, as well as the fact that WeChat and Weibo can carry video streams. In fact it’s live video streaming that has increased the importance of the role KOLs: with wine still a largely unknown subject, it’s these young, technology-savvy social media influencers who advise the public on what to buy and are in the best position to communicate a wine brand’s particular message most effectively to a potentially large (and more youthful) audience. Indeed, more than this, it’s these KOLs who best reflect consumer attitudes and trends which brands can incorporate into their brand marketing: this includes, for example, the lower ABV of wine as against spirits, promoting wine as part of health and wellness. This takes on greater significance when it appears from research that less than a third of Chinese wine consumers, with little tradition of growing up drinking wine, actually like the taste (note to winemakers: produce wines that reflect the tastes that Chinese consumers want to drink). In a female context, as well as health and wellness, women are drinking wine for beauty purposes.

KOLs also have a role to play in developing wine culture and in building a greater understanding of wines: within certain demographic groups this is now seen as a mark of social prestige, demonstrating social cachet, and is a powerful way of establishing closer (direct) links with Chinese wine drinkers. As in other markets, but even more so in China, a testimonial from a KOL describing the value a wine (brand) has to a consumer takes on greater significance and is hugely important.

Other Do’s & Don’ts To Help Create A Successful Wine Business

Whilst digital plays an absolutely key role when it comes to building the business, it doesn’t provide a complete picture of the do’s and don’ts of doing business in China

Trademark Protection is important because, whilst the situation is improving, the concept of intellectual property rights in China is still relatively weak. As such it’s essential to register any trademark for each and every wine brand, both to protect the customer as much as the brand owner’s reputation. Whilst counterfeiting and fraud may be in the process of being tackled, this nevertheless still remains a problem: like the 50,000 bottles of fake Penfolds found recently, not to say the thousands of cases of wine found to have been “chemically altered and falsely labeled as a superior product”. Caveat emptor– buyer beware: it’s one of the reasons why the Chinese consumer tends to play it safe by purchasing only from brands and companies they have heard of before and underlines the importance of the online trading model I’ve outlined.

Design is important, too. In terms of labels, it’s best to keep them simple, with a traditional look that clearly shows the wine’s origin, its quality marks (like AOC), together with any awards. The Chinese also appreciate the art of calligraphy and good typography, while red and gold (gilt) colors are particularly attractive. Even if some producers choose to have their brand translated into Chinese, this is not of itself any guarantee of success, although regulatory elements must (also) be translated and written in Chinese script.

China is not the USA or Europe and comes with a different mindset in terms of design: so no matter how successful marketing communications across channels may have worked in other markets, this does not mean that ideas are transferrable and it will pay (literally) to work with Chinese nationals when constructing any advertising and promotional program. 

Importers and distributors: finding the right company to work within what is a complex market with a very different dynamic is key to building a sound business model, especially with China projected to become the world’s second most valuable wine market by 2020. The most important companies importing wine(by business size), based on Chinese Customs data, include ASC Fine Wines (www.asc-wines.com), Changyu, Yangcheng Food (www.yangchengie.cn), Wajiu.com (www.waijiu.com), Yangzhou Perfect, Panati (www.panatiwines.com), and Tenwow.

Trade events can be highly effective in promoting a wine brand and forging links. China is not short on trade wine shows (see www.tradefairdates.com), specifically Interwine China, in Guangzhou (June), the International Bulk Wine & Spirits Show, in Shanghai (July), the Hong Kong International Wine & Spirits Fair (November), ProWine China, in Shanghai (November), Vinexpo, in Hong Kong (May 2020), Best Wine China, in Beijing (date to be advised).

Retail – and ‘New Retail’: whilst wine companies need to be able to trade online, this doesn’t preclude combining this with a retail presence with the ability to introduce consumers to a wider range whilst offering the chance to taste the wines. The retail environment also provides an opportunity to educate consumers. Actually, there’s no “either-or” and the so-called ‘retail equation’ is being replaced by ‘New Retail’ which brings together the best of both the in-shop and online experiences. It’s a revolution which is being led by Alibaba and its more than half a billion consumers shopping on its marketplaces and marshals the fact that, notwithstanding the fact that China’s online penetration is the highest in the world, brick-and-mortar retail still accounts for more than 80% of total retail sales.

What New Retail means is if you go into a store and don’t find the product you’re after you can order what you want off a ‘virtual shelf’, scan with your app and have what you want to be delivered to your home.

Work with a good local partner and / or professional employer organisation: China is different, with its own particular (actually, unique) set of hurdles to overcome, not least as far as HR, legal and administrative procedures are concerned, so it can really pay to work with third parties who understand China and the wine market.

Selling Wine In China: A Simple Action Plan

If I were, to sum up, the most important action for a wine company to take on board when selling wine in China it’s to go digital. For a wine brand to succeed in China it’s necessary to put significant effort into social media as this is the source for Chinese consumers to both discover and discuss products in a country that does not have that much of a history and tradition of drinking grape wines.

To use that word from Marco Polo’s time, and not to underestimate the differences and difficulties in doing business, China can indeed be a ‘marvel’ for foreign wine producers and the business opportunity is considerable if you can build an online reputation.

Imported wines attract decent prices with the Chinese consumer looking for products that denote a superior lifestyle – and that lifestyle does indeed come from overseas.

Source of figures & information in this article includes: Bain & Company, Beverage Trade Network, CNBC, Dragon Social, eCommerce China Agency, EUSME, Forbes, International Organisation of Vine and Wine, Investopedia, IWSR, New Horizons Global Partners, Pew, Richway Group, Statistica, The Drinks Business, Vinexpo, World Bank

Alistair Morrell – Advisor to BeverageTradeNetwork.com

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