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Business / Wine market

US wine's potential in China uncorked

By Chen Jia (China Daily) Updated: 2012-06-22 15:50

US wine's potential in China uncorked

A Shenyang delegation visits the Sorelle Winery vineyard in California's Central Valley. Chen Jia / China Daily

American wineries are putting a greater effort in marketing to the Chinese palate

Thanks to the booming Chinese middle class and its disposable income and preference for high quality imported red wines, California vintners are starting to cash in across the Pacific.

"We export 10,000 cases (12 750-milliliter bottles per case) of red wine to China every year," says Scott Parker, a project manager at Oak Ridge Winery in Lodi, a city known as the center of wine production in California's Central Valley. Lodi, dubbed the "Zinfandel capital of the world", grows more wine grapes than Napa and Sonoma counties combined and is known for its good, moderately priced wines.

Oak Ridge, with 600,000 cases of production a year, exports mostly to European countries such as Switzerland, Denmark and Finland. Steve Merritt, its China marketing person, says the winery has already developed Chinese business partners in major cities including Guangzhou, Fujian and Harbin, and is seeking new opportunities to develop additional distribution channels.

"We see the huge market potential in China, and we are ready to go," Merritt says.

Before 9 am on a recent Friday morning, Parker and Merritt arrived at a Lodi exhibition hall with their sales materials, bottles of red wine, corkscrew, tablecloth and an export price list. They and a dozen other local winery owners prepared elaborate booths to welcome a nine-member delegation from direct wine importers in Shenyang. Jenise Vierra, a Lodi vintner with her own brand St. Jorge, dressed up in red, a lucky color in Chinese culture.

Shenyang is the capital and largest city of Northeast China's Liaoning province, where people are famous for a culture of "toasting", in which alcohol plays a central role in work and business.

"This is a real opportunity," says Frank Gayaldo, volunteer director of international business development with the Lodi chamber of commerce. "These are real buyers who have been vetted by the US Agricultural Trade Office."

According to data from the Chamber of Commerce, 86 percent of retail wine purchases are under $7 in China but a premium market exists and is expanding. The retail price of imported California wine is usually more than 150 yuan ($24, 18.6 euros) per bottle, it said, almost three times the price for the same vintage in the United States.

To better inform Lodi wineries about their potential customers, the Shenyang delegation prepared a detailed profile of Chinese wine consumers: 30-40 years old, urban, male, from upper-middle income families.

"Their purchases account for 75 percent of the sales in total, and they believe it is good for health," the description says. "Imported wines convey status, lifestyle and sophistication, and are often given as gifts."

Imports of red wine from France and Italy began earlier and have been established in the Chinese market for years, while American red wine is only now securing recognition in the biggest cities, Beijing and Shanghai. That's according to Rex Zhang, marketing specialist for the Agricultural Trade Office at the US Consulate in Shenyang, who accompanied the delegates.

"American wineries and wine associations haven't paid enough attention to the China market before and they underestimated its market sophistication," Zhang says.

According to the Global Trade Atlas, French reds accounted for 52 percent of China's imported-wine market in 2011, followed by wines from Australia (15 percent) and Chile (7.2 percent).

The Chinese market share for American wine is less than 5 percent, Zhang says.

"More than 80 percent of wine made in the US was sold in the domestic market, so they didn't care too much about exploring overseas markets in the past," he explains.

But wholesale demand from US restaurants for wine has decreased amid economic doldrums of recent years, helping fuel wineries' interest in overseas customers.

Zhang says promoting American wine in China will top the agenda for his office in the future. Agricultural trade offices are generally attached to US embassies and consulates and tasked with introducing and promoting various US agricultural commodities, such as soy, corn, cotton, meat, seafood, fruit and wood.

In Northeast China, white liquor, or baijiu, and beer are common, but wine's popularity is limited to a small group of affluent people who have started paying attention to their health in recent years, he says.

Overall, China's wine market will likely maintain double-digit annual growth over the next three years, says Zhang Tiejun, president of the US-China Business and Culture Association.

"Currently 70 percent of wines on the market are domestic brands, and 30 percent are imported," he says. "California represents 90 percent of the wine industry in the US, and the vintners here have begun to realize the importance of the Chinese market."

China accounts for nearly 10 percent of world grape production, and 1.2 million acres designated as vineyards in 2009.

More than 500 domestic wineries are in operation - Chinese brands of Changyu, Great Wall and Dynasty account for 60 percent of the market.

China has risen to become the world's second-largest economy. And as the US Department of Agriculture has estimated, the country is on track to produce an additional 235 million middle-class consumers by 2020.

By 2015, China will be the No 1 global market for luxury goods, according to a 2010 report by McKinsey Insights China.

But to win the Chinese market, US vintners still have to learn more about their potential customers.

Andy Hicks, director of wine sales and marketing of CalNaturale, in the Central Valley, brought his vintages in Tetra-Pak flexible containers to the Lodi exhibition booth and figured the offerings would be popular in China. Instead, he learned a lesson from the visitors.

"My wine represents the very latest in high-quality wine making and innovation marketing in the US," Hicks says. "The grapes used to produce the wine are certified as having been farmed organically."

"It is good value, lightweight and very environmentally friendly," he adds.

However, Hicks was advised to change the wine's packaging, which one delegate described as resembling a "cheap soft drink".

"Chinese consumers pay a lot of attention to labeling and packaging," says Zhang Weiwen, owner of Shenyang Jiatong Trade Co.

Zhang was accompanied at the Lodi event by his son-in-law, Jerry Chen, who concurred. "Chinese consumers lack wine knowledge and they rely on packaging to get more of a branding message, especially about US wines," Chen says.

chenjia@chinadailyusa.com

(China Daily 06/22/2012 page16)

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