What has changed for Australian wines in China since the two countries signed the Free Trade Agreements a year ago? Decanter spoke exclusively to Wine Australia, Chinese importers and wine experts to grasp the momentum.
Image: Australian Trade and Investment Minister Andrew Robb and Chinese Commerce Minister Gao Hucheng signing the China-Australia Free Trade Agreement in Canberra on 17 June 2015, witnessed by Prime Minister Tony Abbott. Photo: DFAT/Andrew Taylor
The latest of tariff reduction
The latest tariff reduction after the China-Australia Free Trade Agreement came to effect on 1st January 2016.
The second stage of the tariff reduction mean that Australian wines now enjoy a tax rate of 8.4%, as oppose to the original 14%, when entering China, according to Explanatory Schedule of Chinese Tariff Commitments published by Australia’s Department of Foreign Affairs and Trade.
What has changed so far – Trade body
‘The change mainly lies in the way people see Australian wines,’ Willa Yang, head of trade body Wine Australia in China, told DecanterChina.com.
‘The Australian wineries and importers are much more confident for the market as their products are expected to become more competitive price-wise,’ said Yang.
During the 12 months until September 2016, the export value of Australian wines to China has increased 51% to reach 474 million AUD, while the export volume has increased 52% to hit 90 million litres, according to Wine Australia.
‘The increase is evident to the positive effect of the Free Trade Agreement,’ said Yang.
Image: Eden Valley, credit Chris Mercer
Importers
For the importers, the actual effect comes more gradually.
‘We are seeing more and more Australian wineries or brand owners coming to build their online shops, or joining big online wholesalers on Tmall International,’ said Huang Jing of the New Media Department of Alibaba, adding that they are currently working with supermarket and wholesaler groups including Woolworths and Metcash.
‘We saw great growths in sales of Australian wines,’ agreed Joanna Zheng, Senior Product Director of Amazon China.
‘It (Free Trade Agreement) is good news to the market in China but so far its impact on the cost is limited, consequently on the market overall,’ said Matthew Gong, spokesperson of ASC Fine Wines.
‘However, it will eventually give more competitive edge in pricing to Australian wines for their long term development in China.’
Although there’s no significant influence on sales yet, ‘we saw more attention and investment to the Chinese market from producers’, said Wang Xiaoshan, Market Director of Joyvio, wine importer and subsidiary of IT giant Legend Holdings, which also owns Lenovo.
‘The tariff reduction can eventually help merchants to reduce 20% of their costs,’ explained Marcus Ford, General Manager of Pudao Wines and Head of Wine Langton’s East Asia, ‘though it’s still far from the tax-free Hong Kong market.’
Therefore the benefit of the bilateral trade agreement is ‘mainly to attract more attention and investment to Australian Wines,’ said Ford.
Image: Australian cellar, credit Chris Mercer
Consumers
For consumers, the reduced tariff has brought more ‘minor’ or ‘lesser known’ Australian wines to China, said Christian Zhang, head sommelier of Shanghai Yacht Club On The Bund.
‘Consumers have started to recognise Australian wine brands other than Penfolds. They have started to realise that Australian wines may be a more value-for-money choice than French wines.’
The challenges
The Free Trade Agreement has attracted many to set their feet into the wine industry ‘before getting fully prepared for it,’ warned Ford.
‘The most important thing is how you can get the wines sold,’ he added, ‘It’s not enough just shipping the wines over to China.’
‘For the top-end Australian wines, besides a few famous brands, the vast majority still need an enormous amount of marketing to make them known to consumers,’ said Gong.
The use of screw caps on the more expensive Australian wines is another challenge for consumers to make the decision to buy.
‘Although professional buyers would not mind screw caps, some consumers would still doubt the quality of the wine, especially when they need to pay a higher price for it,’ said Wang Xiaoshan.
Image: Chinese wine lovers at Decanter Shanghai Fine Wine Encounter
The potential
While Chilean, Argentinian and Spanish wines are fighting for market share in the price bracket under 100 RMB (10 GBP), ‘in the price bracket between 150 to 200 RMB (15 to 20 GBP), you can already find many value-for-money Australian wines,’ said Marcus Ford.
‘This should become the mainstream for Australian wines,’ he said, adding that Australian wines are no longer synonym to ‘cheap wines’, and the top brands are responsible for raising the general image of Australian wines in China.
However, to ensure a long-term development of Australian wines, how to better tackle fake wines is crucial, said Christian Zhang.
‘For example, among the top Australian wines brought by consumers to our restaurant, half or even more can be fake,’ he said.
‘This is seriously damaging to the good name of the producers and their future in the Chinese market.’
In addition, Australian producers should consider adjusting their offering based on market preferences, said the sommelier.
Half-dry Riesling, for example, will be more welcomed by Chinese consumers than the widely available bone-dry style, he said.
As the next step, Wine Australia plans to ‘bring more events to second or third-tier cities in China’, said Willa Yang.
‘The mission is to make consumers feel less distant to (Autralian) wines, and make them feel that this is something they can enjoy casually.’
*This article is an abstract of the original interview.
Eighteen months after being purchased by Australia’s Woolworths, Pudao Wines spoke exclusively to DecanterChina.com about its next steps forward.
Image: Marcus Ford at Decanter Asia Wine Awards judging week
The new investor
More than a year and half ago, the news broke that Pudao Wines, together with its sister firm Summergate, was purchased by Woolworths, one of Australia’s largest wine retailers.
Marcus Ford, general manager of Pudao, said the business ‘has benefitted greatly over the course of the past 18 months in establishing more sophisticated systems and processes.’
‘When Woolworth’s acquired Dan Murphy’s in Australia it too was a small retailer with a very few shops, [and] now it is the dominant wine retailer in the Australian market,’ said Ford, hinting at the retailer’s potential in Greater China.
The post-austerity period
As a fine wine retailer that initially put great emphasis on the corporate gifting sector, Pudao has had to adapt to a new reality.
‘Very few companies now use wine as a gift and those that do are more focused on value offerings than the super premiums of years gone by,’ said Ford.
Currently, most of Pudao’s consumers are buying wines at between 100 to 500RMB (£10-£50) per bottle. ‘Our customers are very open-minded about region and style.’
Amid general changes in the market, ‘we have continued to grow at a healthy and sustainable rate’, said Ford.
Try before you buy
For Pudao Wines, which owns an online store and two offline shops, ‘try before you buy’ is the key in promoting wines to Chinese consumers, said Ford.
The retailer therefore actively invites customers to try wines in their flagship stores in Shanghai and Beijing, and organises hundreds of tasting events, he said.
Offering a specialised service is also important, said Ford. ‘The majority of our staff came from a service background.’
Fake wine: ‘Not just a China problem’
Another concern that’s stopping Chinese consumers from buying wines is the risk of getting fake wines.
‘I would point out though that the fine wine market has problems globally and consumers need to be aware that this is not just a “China problem”,’ said Ford.
‘We work with established importers and have great relationships with many, we are 100% focused on sourcing from the best.’
China in the next 5 to 10 years
‘I think over the past 10 to 15 years the wine market in China has been through some very exciting and sometimes over-heated times,’ said Ford.
The next 5 to 10 years will see a ‘more stable market’ develop as consumers grow in confidence. A key element will be how domestic wines perform, and whether they can compete on quality and value against imported wines, said Ford.
He added that Pudao Wines ‘aims to open more stores over the coming years’, but won’t be rushed.
‘Imported wine is really only a decade old in the China market so whilst we are ambitious we are also in no hurry to open a huge network of stores.
‘In Hong Kong we have re-branded our business under the Langton’s banner (part of the Group) and we are very excited about our fine wine brokerage service that is now up and running there.’
Word of advice for people new to the wine business
‘Wine is a complex business with many layers- some wines are commodities, some are like fast moving consumer goods, some are boutique productions and some are like luxuries and collectibles.
‘You need to be very precise about understanding your customers, what they are looking for and how as a retailer you can add value to their experience.’
(Published on DecanterChina.COM, Chinese version of Decanter.)
Amazon China speaks exclusively to Decanter China about the scale of their wine business and who are their key consumers.
Image: Shi Jianjun, vice president of Amazon China, credit Amazon China
The scale of Amazon China’s wine business
The number of wine brands sold directly by Amazon China has ‘quadrupled’ in the last three years, with sales increasing by more than 100% every year, SHI Jianjun, vice president of Amazon China, told DecanterChina.com.
Amazon China launched its wine business in August 2012, followed by a direct import business from September 2013. Now the online shop directly sells wines from the US, France, Australia and Italy, covering more than 130 brands and nearly 800 wines and other fruit-based alcohol.
The wine sector is becoming one of the ‘focal points’ of the online retailer’s direct import business, said Shi Jianjun. ‘As the population of white collar workers increases in China, and the market’s wine knowledge inproves, we are very confident in growing wine sales in China.’
Who is buying the wines and for how much
‘90% of wines sold on Amazon China are imported wines,’ said Shi.
Currently around 3,800 wine products (‘stock keeping unit’ SKU) are sold across the platform.
Wines priced at between 100-300RMB (11 to 34GBP) are currently the most popular on Amazon China, with France being the best-selling origin of wine, followed by Australia, Chile and USA.
Consumers buying wines from Amazon China are mainly aged between 23-40 from first-tier cities including Beijing, Shanghai and Guangzhou, second-tier cities on the eastern coast and provincial capitals, according to the vice president.
Recent Wine Intelligence research found that 48 million consumers from the ‘urban upper middle class’ are now drinking wines at least twice a year, up by more than a quarter than 2014.
Image: Shi Jianjun, vice president of Amazon China, credit Amazon China
Choosing the right suppliers
Amazon China’s advantage ‘lies in the Amazon group’s globalised presence’, said Shi, comparing the business to domestic players.
The buyers of Amazon China share information on wineries with Amazon buyers around the world. After an initial selection of producers, the buyers would visit producing areas and wineries to taste and choose the products. ‘We look for value-for-money wines that are suitable to Chinese consumer’s palate’, said the vice president.
In June 2016, Amazon China established its own wine club. The online retailer plans to invite wineries to hold tastings for wine club members so as to ‘double check’ if these wines will be liked by a wider group of Chinese consumers.
The provenance of the wines sold by Amazon China, said Shi, is ‘protected at the origin’ as all brands sold by Amazon China come either directly from the wineries or the distributors appointed by the producers.
‘We don’t only sell those big global brands, but also the less famous wineries which have their unique features and can well-demonstrate the local terroir,’ he said.
2016: year of expansion
Unlike many of its peers, Amazon China has been comparatively low-key about its wine business.
This year, the online retailer seeks to further utilize its ‘global resources’ to sell more fine wines directly from around the world, said Shi.
Last month Amazon China launched an Australian direct imports wine section, featuring fine Aussie wines including those from the Langton’s classification.
The move will lead to a second and more extensive Amazon China International Wine Festival later this year, said the vice president, during which the online retailer will launch an ‘International wine pavilion国际红酒馆’—a major update from its current wine section.
A heated wine sales contest against its domestic peers seems to be around the corner.
-The founder and Chief wine editor of WineOnline.CN since 2005
-The founder and Chief wine educator of WineSchool.CN since 2006
-The founder and main contributor for WineBlogChina.COM since 2011
-Wine Judge for international wine competitions: Decanter Asia Wine Awards 2015(Hongkong) , Wines of Portugal Challenge 2014(Lisbon) , Radici del Sud 2013 ( Puglia ) ,and some domestic wine competitions.
-A contributor for Decanter China(Chinese version of Decanter.com)，Prowine China（Prowein branch） and for main stream media on fashion, finance , food and wine.
-The consultant of Wine Collection.
-The consultant of wine companies.
