Eyeing China’s burgeoning middle class, California wineries are exploring how they can better tap into what’s becoming a major potential market.
By the next decade, more than 75 percent of China’s urban consumers will be earning the equivalent of between $9,000 and $34,000 a year, according to a demographic survey by the consulting firm McKinsey and Co. Only 4 percent of China’s urban consumer population fell into the earning category in 2000.
The country is now the fifth largest importer of bottled wine in the world. In 2000, it ranked 51st, according to USDA data.
“The millennials in China are the market of the future,” said David DeBoer, vice president of international sales at Delicato Family Vineyards.
Delicato, headquartered in Napa, owns 14 wineries. The company has been exporting wine to China for a decade under such labels as Gnarly Head zinfandel from Lodi and Napa Valley’s Black Stallion Estate.
DeBoer did not say how many bottles he exports to China, but he said the country is a growing part of the business plan at Delicato.
The Chinese market poses some special challenges. For instance, the picture and writing on the wine label may be as important as what’s in the bottle, DeBoer said.
“Horse imagery has strong connotations in China,” DeBoer said. “You have to understand the market and what your image, your name or what numbers mean before you launch a brand or label.”
And then there are the French, who dominate the wine import market in China. Much of the wine sold in China historically has been used for large banquets and official events, said Fred Gale, research scientist with the USDA. And for those events, the Chinese prefer high-status French wines.
In 2012, about 55 cents of every dollar the Chinese spent on wine imports went for French wine, USDA data shows. That compares with just 2 cents for American wine.
The Chinese wine palate may be shifting, however. Imports of French wine have slowed since the government adopted new austerity measures in 2012 that limit spending on gifts and entertainment by public officials. Some private companies in China are also adopting similar spending limits to fall in line with government policy, Gale said.
While the reduction in lavish spending for banquets also affected California vintners, they have fared better than the French, which tend to sell more expensive wines, said Linsey Gallagher, spokeswoman with the Wine Institute, an advocacy and research group. “California sells wines to China along all the price points, so we were not as impacted,” she said.
U.S. wine exports to China totaled $77 million in 2013, according to USDA data. That’s up 76 percent from 2010.
Those figures do not include wine exported to Hong Kong – which ranks fourth among nations in terms of buying U.S. wine. “About 30 percent of what gets exported to Hong Kong ends up in China,” Gallagher said.
California vintners are pinning their hopes for future sales in China on the millennial generation, those consumers born after 1990. Gallagher said that information from the Wine Institute’s Shanghai office as well as market studies done in China confirm the existence of a robust demographic predisposed to trying California wines.
“The younger millennials are drawn to wines from California. They like new wines and they do not have preconceived notions about the wine category,” Gallagher said. “They also want to discover something different from what their parents have been drinking.”
Instead of experiencing wine at banquets, many Chinese are beginning to buy wines at big box stores and on the Internet – despite that fact that the Chinese must pay a 50 percent tax on such items, she said.
The Chinese market has proved so appealing that more than 50 vintners participated in one of the institute’s trade trips to China earlier this year. The vintners traveled to Beijing, Shanghai and Guangzhou. Many of those were there for the first time and succeeded in finding distributors, Gallagher said.
While the potential is huge, the Chinese market remains a tiny one for most California vintners, said Jim Lapsley, adjunct professor in the department of viticulture and enology at UC Davis. “When you start from a very small number, almost any growth becomes exponential,” said Lapsley about China’s growth in wine imports.
The United States is the largest wine market in the world. In 2013, U.S. consumers drank 2.7 gallons of wine per capita annually, according to Wine Institute data.
The U.S. has increased consumption every year for the past 21 years, said Lapsley.
In contrast, the Chinese consume 0.34 gallons per capita annually, most of it supplied by domestic wineries.
“Unlike most wine producing countries, we have a growing domestic market and don’t come near to producing enough wine to meet our domestic demand,” Lapsley said.
Lapsley said it’s not clear whether the Chinese will adopt wine as a beverage of choice, and if any increased demand will be satisfied mostly by domestic wine production.
Regardless, California vintners are excited at the prospect of a growing Chinese market for their wines. At Delicato Family Vineyards, China will continue to be an important part of future plans.
“We want to consistently grow and develop our business, and we will be developing under a totally different environment than in the last 10 years,” said DeBoer. “The next 10 years are about the young emerging Chinese consumer market that’s embracing Western culture and Western ways.”
Call The Bee’s Edward Ortiz, (916) 321-1071. Follow him on Twitter @edwardortiz.