Deal of day: China goes to Napa Valley

Stories of Chinese tourists paying £25,000 for a bottle of French wine at Harrods should be enough to inspire any Chinese entrepreneur: wine consumption in the Middle Kingdom is on the up. But is there enough demand to justify Goldin Financial’s $40m acquisition of a 40 acre Napa Valley vineyard this week?

The Hong Kong-listed financial company seems to think so. It says despite overall consumption being lower still than its European counterparts, the table wine market is becoming increasingly popular in China.

To add value in an increasingly competitive local market, Chinese winemakers are choosing to invest in foreign vineyards, says Louis Wong Wai-kit, a director at Phillip Capital Management (HK). Dynasty Fine Wines (828:HKG), Great Wall, and Changyu, China’s three major players that command over 70 per cent of sales by domestic producers, have all engaged in overseas buying ventures, he said.

Other Chinese winemakers are looking to acquire vineyards overseas too. China Tontine Wines Group (389:HKG) which listed in Hong Kong in 2009, has expressed interest in looking for overseas M&A targets or joint ventures, a consumer analyst said.

“In the last two to three months, I’ve heard of two to three individuals going with their financial advisors to Bordeaux,” said Roddy Ropner, founder of Wellspring Wines and previous Director at Christies in charge of running the Asian market wine auctions. For any winemaker who looks at Bordeaux, Napa is just a natural progression, he added.  As for the price? A million dollars per acre is “not outrageous”, he said. Land in Napa Valley isn’t infinite.

With rising incomes, Chinese consumers are expected to trade up to more premium spirits and wines. Great Wall is beginning to target these consumers; it has phased out its low end products and is expanding high end selections. The sales growth of the Chinese wine market has increased 15-20 per cent per year.

Goldin Financial is a financial investment company and it’s major business is providing factoring service to medium-sized enterprises. It also manages a Japanese restaurant business.