Uncorking China's Wine Market(2)
Regardless of the product category, Chinese customers often have enduring "country-of-origin" biases, and wine follows this pattern. The association between wine and France is particularly strong, with domestic brands mimicking French imagery on packaging and vintage naming conventions. On the import side, French labels account for almost half of all wine imported into China. When pressed about their perception of brands and vintages, many consumers said their perception of France as the leading wine country is a primary factor in their purchase decisions. According to the manager of Scarlett, a prominent wine bar in Beijing, "The Chinese are big fans of Bordeaux and not very curious about other wines."
In response to changing customer perceptions of wine, domestic firms have begun to adjust their marketing strategies. While domestic wine brands have traditionally focused on lower price tiers, producers are increasingly looking to move further up-market, investing in world-class equipment and seeking out international best practices. Some Chinese-produced wines have already received international recognition for their efforts, with one producer recently winning Decanter magazine's "Middle East, Far East & Asia" category for red wines. At the same time, with the increasing spread of wealth beyond the largest coastal cities, China's wine market is now expanding into smaller markets across the country.
Both Chinese nationals and foreign investors are seeking ways to capitalize on the booming Chinese wine market. Within this market, the relative unsophistication, yet increasing purchasing power, of the Chinese consumer presents tremendous investment opportunities with multiple means of entry. Recent examples of entries into this sector include Chinese purchases of foreign vineyards, full-service distributors catering to the unique qualities of the Chinese market, and high-net-worth Chinese investing in wine as part of their wealth management strategies.
Investing in Terroir
Most attention-grabbing among these modes of market entry, however, has been Chinese investors' acquisition of foreign vineyards. Among the first was the 2008 purchase of a Bordeaux chateau by the Cheng family of Qingdao, China.
After an extensive search, the Cheng family chose Chateau Latour-Laguens, a 150-acre property in southeast Bordeaux. Although the Chengs had been historically involved in importing wine from other global wine centers, such as South Africa and Australia, their search for property focused exclusively on Bordeaux. Family member Daisy Cheng noted France's strong reputation in the Chinese market as the key factor in the selection: "The Chinese consider French wine to be the most authentic."
Since purchasing Latour-Laguens, the family has transformed the vineyard's strategy to focus exclusively on exporting to the Chinese market. To drive name recognition back in China, Cheng said that the family has done extensive newspaper advertising in target markets. In addition, the winery received a tremendous amount of attention within both the Chinese and international press for the acquisition, providing significant exposure. The family has subsequently worked to upgrade the winery. As Cheng noted, "we have invested in the most advanced equipment in order to produce the highest quality wine. We have also restored the historic premises."
Following the 2008 acquisition and with the continuing strength of the Chinese economy, other Chinese parties have made foreign purchases. Perhaps most significant was the 2011 purchase of the Bordeaux property Château Viaud by COFCO. This RMB100 million (US$15.2 million) deal, by the owner of China's high-volume Great Wall domestic wine brand, was seen as legitimizing overseas acquisitions. Property agents in Bordeaux report an increasing number of inquiries from potential Chinese investors, sparking talk of a wave of Chinese purchases in coming years.
While Bordeaux has received the greatest attention, Chinese entities are broadening their scope to other major wine-producing regions. COFCO also purchased a high-volume Chilean winery in 2010. In addition, deals have taken place in other wine production centers such as California's Napa Valley and New Zealand. In 2010, Dynasty Wine announced plans to spend up to RMB900 million (US$150 million) to acquire vineyards overseas, although it has yet to make a purchase. After the Chilean and French acquisitions, Wu Fei, COFCO's wine and spirits branch head, discussed the company's commitment to additional purchases, noting that "the next purchase might happen in Australia or the United States, and we are also eyeing other places."
While this growing trend of overseas purchases shows no sign of abating, some wonder if resistance to Chinese ownership will grow. Past peaks in foreign acquisitions elicited significant protectionist concerns. In the Chinese context, however, issues have thus far appeared relatively muted and limited to minor cultural challenges, e.g., a misunderstanding between Chinese investors and a French vineyard over which nation's property laws should apply to the acquisition. Instead, Chinese investors -- and, even more importantly, Chinese consumers -- were cited as the "saviors of Bordeaux" by The Financial Times, helping to revive a region struggling through declining demand from recession-battered developed markets as well as increasing New World competition.
