China’s alcoholic beverage market bears characteristics of both emerging regions and well-established market economies. The sheer scale of the market, along with upwardly mobile demographics and the country’s transition towards a consumption-driven economy, makes China’s wine and spirits market an exceptional area of opportunity and growth in 2021.
Imported red and white wine is an established market in Mainland China, with immense long term potential. China’s wine market has been predicted to overtake France as the world’s second largest by value, and while the recession may have slowed growth during the first half of 2020, leading industry analysts maintain that the trend is still on track, albeit on a delayed timeline.
In the context of the overall alcoholic beverage market in China, the traditional grain liquor baijiu (Chinese White Wine) is by far the most widely consumed product, followed by beer. According to Qianzhan statistics, the baijiu market was worth USD113 billion in 2019, while wine was worth USD14.5 billion. The market for spirits other than baijiu was valued equivalently to wine, at USD14.5 billion. The overall market for alcoholic beverages other than baijiu grew by 100% between 2009 and 2019. Considering the size of the baijiu market, there is room for exponential growth for imported liquors and spirits.
As the rate of urbanization continues to increase across the country and middle-class incomes continue to rise, the market for imported alcoholic beverages is set to considerably expand over the upcoming decade, particularly as digital-native youth demographics become the dominant purchasing force. Aside from baijiu, the five most popular alcoholic beverages are whiskey, vodka, brandy, rum and gin, according to taosj reports.
Single malt whiskey is growing in popularity in China, and major international conglomerates have taken notice. Pernod Ricard, which owns Chivas Regal, Jameson, Ballantine’s and The Glenlivet is developing a destination distillery in Emeishan, Sichuan. The USD 150 million project will feature an ‘immersive visitor center’, and the location was chosen for its scenic views, renowned cultural heritage and proximity to a natural water source, ideal for distillation purposes.
Such projects are notable for the broader trend towards developing brand-oriented travel experiences in order to engage audiences, raise the brand profile, and nurture the consumer culture. According to research surveys from the Hong Kong Trade Development Council, Mainland Chinese consumers of liquors and spirits mainly consume these drinks on special occasions and during gatherings with groups of friends or colleagues. Mainland Chinese consumers of liquor also tend to favor mixed drink cocktails at restaurants and specialty bars, rather than drinking the liquor by itself.
The China liquor and spirits market is relatively underdeveloped compared to the country’s thriving red and white wine culture. 92% of survey respondents rated themselves as ‘beginner level consumers with limited knowledge about spirits’.
By comparison, the proportion of survey respondents who rate themselves as ‘beginner level consumers’ of red and white wine is 75%, with 24% rating themselves and ‘intermediate’ wine consumers.
Nonetheless, given the depth of the market and the potential represented by middle class youth demographics, and a rapidly developing nightlife culture, the timing is optimal to begin the process of establishing imported liquor brands in China. Leveraging the depth and reach of Chinese social media is key to developing awareness over the long term, while ecommerce platforms are essential sales channels.
Although branding plays a vital role in marketshare, Mainland Chinese survey respondents indicate that they do currently purchase spirits at a variety of price points, especially as gifts.
41% of Mainland Chinese respondents to the Hong Kong Trade Development Council’s survey on wine consumption habits indicated that they drink wine once a week. Wine culture is relatively well established in China, compared to liquors and spirits.
Survey respondents indicate that the most important factor driving their wine purchase decisions is taste. The second most commonly cited factor is brand, followed by region of production, and grape variety. While French wine is the most popular, Mainland Chinese wine consumers also indicate interest in wines from Spain, Italy, Australia, Chile and New Zealand.
China does produce red and white wine domestically, although imported wine has a much higher marketshare. 54% of survey respondents considered the taste of imported wine superior. Wine consumers in China also favor imported wines because they consider the advantages of the climate, agriculture and production processes in Europe, South America and Australia to be important factors in their purchasing decisions.
Wine distributors in China should therefore emphasize cultural narratives surrounding vineyards, while detailing the individual characteristics of grape varieties, climate and soil conditions.
Imported wine is a luxury product, and at the higher end of the market, brand storytelling is a decisive factor. As China’s luxury products market continues to gain momentum, wine is set to emerge as one of the more lucrative sectors for distributors that can adapt to the region. To this end, distributors should consider wine label design for the China market.
Wine enthusiasts in China are mostly concentrated in tier-1 cities, such as Shanghai, Guangzhou, Shenzen and Beijing. 1/3 of China’s wine market is in the Guangdong region.
The Hong Kong Trade Development Council Surveys indicate that Chinese consumers commonly cite health benefits as a reason for drinking wine, and in contrast with other alcoholic beverages, drink it most often while at home. As a luxury market commodity, vintage fine wines also carry substantial value as an aspirational lifestyle product.
In addition to product positioning and brand narratives, Chinese consumers respond to Key Opinion Leader marketing. Key Opinion Leaders (“KOLs”), also known as influencers, are social media celebrities who are able to efficiently mobilize their base of followers when they endorse products. The most popular KOLs in the China wine market are generally not wine specialists, although there is a sizeable sub-culture of influential wine experts who engage the connoisseur-consumer demographic.
KOLs generally offer their services through social networks and media platforms such as WeChat, Douyin (TikTok) and Sina Weibo. Chinese social media networks are generally well integrated with ecommerce platforms, and audiences can access online retail channels directly from social media posts and videos, which means social media posts can instantly translate to sales. It is generally advisable to work with a digital marketing agency when launching or distributing consumer products in the China market.
With China’s consumer market set to drive global growth over the next decade, fueled by the momentum of the luxury products sector this year, imported wine and spirits is a prime opportunity for businesses and enterprises everywhere. Should you have any interest in exploring China’s alcoholic beverages market, we are always available for a free initial consultation at any of our offices.
In an upcoming issue, we will be publishing a guide on importing wine to China.
About the Author:
Mr. Philip Yu
Mr. Yu holds a Bachelor of Commerce (Hon.) from the University of Toronto and L.L.B. (Hon.) from the University of London, and is a member of the American Institute of Certified Public Accountants, Certified Public Accountants of Australia and the Hong Kong Institute of Certified Public Accountants. Philip is experienced in handling cross border taxation issues, corporate restructuring and other cross border business solutions. He undertakes additional posts as Company Secretary, Authorized Representative and Independent Non-Executive Director for several listed companies on the Hong Kong Stock Exchange. He joined our firm in 2001 and currently the Managing Partner of the firm.
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