Managing long-term growth in Asian wine markets

In the past 20 years New Zealand wines have gone from zero to hero, growing at four times the rate of all merchandise exports and finally reaching annual exports of NZ$1 billion in July 2009. Asian markets are now a key focus for New Zealand wineries as they seek to grow their business beyond the traditional markets of Australia, the UK, the United States and Canada.

New Zealand Winegrowers CEO Philip Gregan (pictured), in a presentation delivered at Bell Gully’s office in Auckland on Thursday 19 November, discussed the key opportunities and challenges in Asian wine markets, and the steps being taken by the New Zealand wine industry to ensure it develops a secure, high end, long-term position in the rapidly growing Asian markets for wine.

In his opening remarks Mr Gregan observed that while some markets in Asia for New Zealand wine are growing, opportunities in other parts of the region will always be restricted by local customs. The consumption of alcohol is forbidden among Muslims in India for example, and in parts of South East Asia, where Indonesia and Malaysia also have large Muslim populations.

Seventy percent of New Zealand’s wine exports go to English speaking markets, Australia, the UK, the US and Canada. However, over the last few years, sales into Asia have increased from NZ$10 million in 2001 to more than NZ$45 million in 2009. Japan continues to be an important market but sales to Singapore and Hong Kong have been growing rapidly are now overtaking that market. Meanwhile, the importance of South Korea is growing and, although small, India is “very much on the horizon” for New Zealand wine exporters.

China, as the world’s seventh largest wine producer, is the only globally significant wine maker in Asia. Producing 5 percent of the world’s total in volume terms, Chinese wine production ranks with Australia, and has seen a 150 per cent increase in the last 20 years. In 2005 China was the world’s sixth largest wine consumer, consuming 1.35 billion litres per annum. By comparison, Asia’s next largest consumer, Japan, consumed 256 million litres per annum. Japan is Asia’s biggest importer of wine, importing 158.5 million litres in 2005, but after Japan consumption of wine in other Asian countries is much lower.

Mr Gregan noted that at the recent Japan New Zealand Partnership forum in Tokyo, where New Zealand wine was served at lunch, “a huge interest in New Zealand wine and a hunger for information was evident.”

According to Mr Gregan, “Exports to Asia are growing and there is much more potential for growth.” Asian wine imports are up 200 percent since 2001, Japan being the biggest importer of wine by far. But these increases are coming off a low base in a region that traditionally has not consumed wine made from grapes. While in 2005, France and New Zealand consumed 55 and 20 litres of wine per person per year, respectively, the figures for Japan (two litres) and China (one litre) are much lower. “People often get excited when they look at the consumption figures for China and Japan, and ask, What if annual consumption of wine per capita in China went from one to two litres, or from one to ten in Japan?”

Fetching around NZ$14 per bottle in Asia, New Zealand wine exporters are selling at the higher end of those wine markets. While New Zealand exports mostly white wine, specifically Sauvignon Blanc from Malborough, consumers are prepared pay more for red wine. There is a global shortage of high quality red wine, including in Asia, where China is an emerging market for pinot noir and presents a real opportunity red wine producers in Hawkes Bay, Otago, and Waiheke.

The wine industry needs to learn more about Asian markets. “Although English is used in Asia as the language of business, we need to show a commitment to those markets through an understanding of Asian cultures and languages. We need to think about cultural and language training for staff in the wine industry.” New Zealand Winegrowers employs a Japanese speaker at its office in Auckland and plans to employ Mandarin Chinese speakers when it establishes an office in the Asian region.

When marketing wine in Asia, Mr Gregan observed that it’s important to consider local tastes since Asian consumers are not going to be eating New Zealand foods. “New Zealand wine styles need to fit with Asian foods” and for this reason, New Zealand Winegrowers, has produced booklets in Mandarin and Japanese with suggestions for which local dishes go well with New Zealand wine. These materials will not only be used in Japan and the Chinese-speaking regions of Asia, but also in the United States and the UK, where there are many Japanese and Chinese restaurants.

Mr Gregan concluded his presentation by discussing the various challenges and opportunities in Asia facing the wine industry.

Tariffs on wine imports are currently high, and even with the free trade agreements New Zealand is concluding in Asia, it will take time for those tariffs to come down. “While the FTA with China is fantastic, getting wine through the border controls is still difficult and requires a good understanding of the psyche of the Chinese regulators.” In addition to tariff barriers, there are non-tariff trade barriers in the form of taxes levied on wine, which is treated as a luxury product.

Noting a “global shortage of high quality red wine”, Mr Gregan emphasised the need to focus on exporting quality product rather than exporting in bulk. “New Zealand doesn’t have the same hot dry climate as Australia, allowing high production volumes, so its wines for export need to be of a high quality.” The price per litre of wine exported to Asia tends to be significantly higher than average price per litre exported globally (see his slideshow presentation) In order to promote New Zealand wine effectively, the industry needs to cultivate local wine champions, who promote New Zealand wine in Asian markets, and to leverage the activities of ‘New Zealand Inc’. Achieving success in Asian markets is “very much a long-term game” and will depend on optimal distribution channels. “[It is therefore] important that our exporters are matched with the right distributors. If consumers can’t access your product, you have no hope.”

Mr Gregan concluded with the remark that while over the last 20 years annual exports have risen steadily to NZ$1 billion in 2009, in the future the industry, by working closely with its partners and distributors, revenue could conceivably reach NZ$500 million, if not a billion dollars, in the Asian region alone.