Ignore the Chinese wine market at your peril: How China can rescue the Australian wine industry

Is it half full? or just enough?

The Australian Wine industry has been around for just short of 200 years. The major wine growing regions in Australia are long established, and in the 1980’s and 1990’s the Australian Wine industry took the world by storm leading the “new world wines” against the “old world wines” into the European wine market. This market penetration was based primarily upon the ability to produce wine in a stable and scientific method that resulted in efficient and effective wine production that was standardised. When this was added to the low relative value of the Australian Dollar, it resulted in the Australian Wine industry taking a large stake in the low cost wine categories particularly in the UK.  In the past few years this production advantage for Australia has been eroded by a number of factors, firstly a substantial increase in the number of vineyards in Australia, and subsequent grape volume has meant that Vignerons are now getting less per ton of grapes than ever before, keeping the cost of wine low for the end consumer, but ensuring there is no real margin for the wine producer. Secondly, there has been a transfer of the wine making technology into other new world wine producers in New Zealand, South Africa, South America and North America, which has resulted in substantial competition at the low cost wine segment. The third and final factor has been the appreciation of the Australian Dollar in comparison to the currencies of these other New World Wines and the European markets themselves. This has ultimately ensured that although the wine glut has kept the cost of wine low from Australia, it has been rising in cost due to the currency conversion. And thus, the Australian share of the European wine market has fallen or stalled. The Australian wine industry is at a serious cross road; will it survive or ultimately fail?

What can Australian wine producers do to save their industry?

These are indeed challenging times for the Australian Wine industry, and it could well be that the root cause of the

Can wine enter the mainstream in China?

problem stems from targeting the low cost wine segment, and bulk wine, instead of a premium or super premium segment as well.  A rebranding of Australian wine as high quality is probably required going into the future if Europe is to remain or regain its status as a strong market for Australian Wine. The other potential for Australian Wine industry redemption is in the new and emerging wine markets in Asia. China holds a great deal of promise for Australian wine producers, and in contrast to the European Wine producers, China and other Asian markets are in Australia’s backyard, so there is geographic and logistic advantage for Australian wine producers which they can take advantage.

The wine is flowing in China

The wine is flowing in China

China is a market full of complexities and challenges to much of the western world, and it is true that the current market penetration of Wine into China is only minimal, with most Chinese preferring to drink Tea, Beer or traditional Chinese spirit wines such as Beiju or Maotai. However, wine does exist in China and there is a growing home grown wine industry in China, with vineyards and “chateaus” popping up in many regions of China. There is also a strong presence of French and Italian wines in the Chinese market, with their perceived prestige amongst the average Chinese wine consumer. The important thing here is that this wine market is only in its infancy, with only 5% wine penetration into the Chinese drinks market. In any other market, with perhaps the exception of India, a market of only 5% would seem very small and of little consequence to serious wine companies, but it should be remembered that we are talking about a country with a population of between 1.3-1.5 billion people.  There is also a drinking culture that exists in China, as I have already discussed in my previous articles “The Subtle art of the Chinese banquet”( http://wp.me/pS6DN-D)  and “Ganbei: Business and ritualistic drinking in China”  (http://wp.me/pS6DN-12 ), so Australian Wine companies do not need to create a new culture, just help to adapt it to drinking of wine.  

Ignoring this market potential may result in the Australian wine industry missing one of the greatest opportunities to emerge in recent years. So with the correct branding and industry support, the Australian wine brand can be positioned as the clean green and prestigious wine product at a comparable or enhanced standard to the traditional European wines.  It may not be the sole saviour of the Australian Wine industry, but it sure will go a long way towards to helping it survive. If I was advising Australian Wine companies on their international strategy, I would advise them to seriously consider the Chinese Wine market.

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About Nathan H. Gray
Nathan H. Gray is Managing Partner of AsiaAustralis. AsiaAustralis is a stategic consulting service partnership established by experienced international management consultants to assist private and public organisations achieve their strategic objectives in trade, investment and government relations throughout the Australasian region with a particular focus on SE Asia. Based in Adelaide, South Australia, AsiaAustralis has a network of associates throughout Australia and Asia that can be called upon to assist and facilitate major projects, business opportunities and government to government trade and investment facilitation. To Contact AsiaAustralis check out the website: www.asiaaustralis.com or send Nathan an email: nathan@asiaaustralis.com

4 Responses to Ignore the Chinese wine market at your peril: How China can rescue the Australian wine industry

  1. Very interesting article, nice job.

    • Having recently been to China I have experienced first hand the potential growth opportunities that exist in China. This opportunity is available to any wine company, however it will be a case of first in best dressed at this stage. Lots of opportunities which need to be taken.

  2. Dilip says:

    Great post! I feel China can be the second point of growth the first being India. India may be a slightly easier market – the experience and learning will help too.

    • India is definetly an interesting market for the wine industry, but there are a couple of challenges for Wine producers if they want to market their product in India. Firstly there are quite high Tarriffs in India for Wine. The tarrif was recently reuced down to between 100%-150% from what was 300%. This is obviously a substantial hurdle for wine penetration into the Indian market. This compares to China, where the tarrif is much lower 10-20%.

      The other major difference between China and India regarding appropriateness as a wine market is that China is a traditional alcohol drinking country, where alcohol consumption is ritualistic in nearly every event. In India, there are obviously some strata of society who abstain from alcohol consumption for a vaireity of reasons such as religion. On the positive side though, the emerging middle and affluent classes in India are looking for something new to consume and so there is a gap in the market.

      So I would agree to you that India is another key market for growth, but I would suggest that it is the other way round. Cheers for your commentary and feedback.

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