Yesmywine.com taps into China's bourgeoning middle class - CEO Liu Jun

As the domestic business-to-consumer (B2C) e-commerce market becomes increasingly saturated, competition has pushed companies to diversify revenue streams. A growing trend among a e-commerce sites is to expand product category offerings in an attempt to attract a larger and more diversified consumer base. Yesmywine, a Shanghai-based online red wine retailer, is determined not to follow the trend and to focus exclusively on two key categories, Liu Jun, Yesmywine.com's chief executive officer (CEO) explains why in a recent interview with Interfax.

Shanghai. June 3. INTERFAX-CHINA - China's burgeoning middle class is made up of educated, white-collar urban dwellers less focused on saving than their parent's generation. They own homes and cars, and are willing to spend money on dining, travel, entertainment, modern technology and luxury goods - an ideal target base for a direct sales wine business, Yesmywine's CEO, Liu Jun, told Interfax.

Established in June 2008 as a part of Shanghai Roadway Direct Marketing Services Co. Ltd., and later branching off as a separate entity, Yesmywine offers 1,000 categories of imported red wine from France, Italy, Spain, Germany, Australia, and Chile. Prices range from RMB 50 to RMB 60,000 ($7.33 to $8,790) per bottle.

According to figures from market intelligence firm Euromonitor International, China's middle class swelled to more than 80 million in 2007 and has continued to grow in line with double-digital economic growth. The Chinese middle class is constituted by those households with an annual income between RMB 60,000 ($8,790) and RMB 500,000 ($73,250).

"The middle class is emerging rapidly as one of the largest consumer groups in China. They have strong purchasing power and refined tastes, enjoying quality goods and healthy lifestyles, just like their Western counterparts," Liu said.

"Despite these realities, products tailored specifically for the discerning middle class consumer are rare in the domestic market. A key missing product is imported red wine in original packaging. The poor quality and taste of domestic red products leaves substantial potential for imported goods," Liu said.
"The rapid growth in red wine consumption seen in other developed markets will be mirrored in China as the economy continues to develop and consumers are more willing to spend," he said.

"Our data has showed that even during the recession, middle-to-high-end products - including wine - have sustained annual growth rates of 30 to 50 percent," Liu added.

"Though imported red wine accounts for only a fraction of the domestic wine market, there is huge growth potential, due to strong demand coming from middle class consumers," Liu said.

"Red wine consumption is an indispensable aspect of Western dining culture, but the phenomenon is still growing. Only roughly 15 percent of our users consume wine daily, but red wine is favored for special occasions and often given as a gift for both personal and business reasons within the white collar segment social strata. More than 80 percent of Yesmywine purchases are for one of these two purposes," Liu said.

"As a repeat consumer product, wine products enjoy high gross profit margins - Yesmywine currently has a gross margin of over 20 percent," he said.
Yesmywine follows a direct selling model, cutting out third party distributors completely. Liu estimates that the Web site sells approximately 3,000 bottles of wine per day to 1.2 million registered Chinese users.

"A strong logistics system is the backbone of e-commerce companies, especially for products like wine. When we first launched the business, no third-party couriers were willing to deliver wine. We had to re-design our packaging, and now we're planning to enhance our logistics network," Liu said.
The company now has logistics hubs in Beijing and Shanghai and plans to establish five others in Guangdong, Sichuan and throughout central China this year, "to ensure that all products are delivered within two to three days following the order date," Liu said.

According to Liu, the Web site has enjoys roughly 15 percent revenue growth on a monthly basis since its establishment, or 300 percent yearly. The site now accounts for more than 50 percent of online wine sales.

Yesmywine generated total revenues in excess of RMB 20 million ($2.93 million) for 2009, and Liu expects the figure to hit 100 million ($14.65 million) in 2010.

The company received a $3 million venture capital investment from Doll Capital Management (DCM) early this year.

Yesmytea.com was launched in 2009, which, as the name of the site suggests, sells tea to 300,000 registered users, according to Liu