By Jessie Zhang
Richard Nixon, while visiting China during the Cultural Revolution, made the undiplomatic remark to Premier Zhou Enlai that “China is good, but lacks fashionable women and wines.” His comments most likely reflected the universalism of Mao suits and his host’s preference for distilled grain alcohol, or baijiu, which is closer to grappa than Napa.
In October last year, Treasury Wine Estate launched the “2015 Penfolds Collection” in Shanghai at a gala dinner for 380 guests with a live symphony orchestra accompanying “The Story of Grange” film, narrated by Russell Crowe. This opulent corporate statement highlights China’s growing appreciation of wine, with the country becoming the world’s fifth largest wine market over the past few years, reflecting the distinct shift in consumers’ relationship with wine following years of uncertainty through the government’s austerity and anti-corruption campaign crackdown.
Foreign wine in China has traditionally been used as a symbol of luxury and extravagance reserved for high-level bureaucrats and wealthy business elite. Meaning, Bordeaux wine purchased as gifts or for display at lavish banquets, with little concern or understanding for its complex taste. However, since the government’s measures to curb conspicuous consumption in 2013, domestic red wine sales and consumption has declined by 11.3% while, conversely, foreign wine imports have increased at an annualised rate of 6.8%.
The increase in affordable imported labels and subsequent popularisation of wine culture, are leading a new generation of Chinese drinkers to engage differently with wine. This means increased demand and informed decision-making, resulting in commercial opportunities for foreign brands.
Over the next couple of years, Australia's wine industry will continue to grow on the back of increased exports to a Chinese market that is now seeking higher quality wines at varied price points. Although France still dominates China’s wine market at 44% of total import value, Australia is the second largest at 22%, and has grown in value by 47% since 2015 alone.
So what does this mean for the Australian wine industry? The answer begins with a two-fold understanding of China’s changing consumption habits.
Firstly, those high-level bureaucrats and wealthy business elite have turned their attention to quality wines at a lower price point. The Grange has been replaced by Bin 389.
Secondly, the burgeoning middle class are developing an interest in wine, in line with broader Western lifestyle aspirations. Over the next five years, China’s ‘Me Generation’ will become the most important group of drinkers due to their high consumption and increasing purchasing power, coupled with their inbuilt understanding of digital trends.
In the past, the people who bought wine didn't consume it, they bought it to build relationships and status. Now, buyers are the consumers who are looking for value and taste.
Although red wine still represents just 3% of total alcohol consumption in China, it is becoming more popular and accessible. An example is a WeChat group called ‘Wine in University’ that reaches thirty tertiary institutions across China, where students can discuss everything about wine from production and branding to tasting notes and how to become a sommelier.
These changes in the market require a new approach to China’s untapped consumer base that is only set to increase with the number of potential wine consumers increasing by approximately 32 million within the next 4 years. The perception of Australia in China as clean, green and pristine, along with the 2015 China-Australia Free Trade Agreement (ChAFTA), that promises to drop the existing 14% tariff on exported Australian wine down to zero by 2019, presents a very promising future landscape for Australian wine in China.
More often than not, the challenge for Australian wine, like many foreign products in China, is its ability to offer something that both plays to China’s deep and unique cultural traits but also appreciates rapidly changing consumption habits and avoids unsolicited opinions from former US Presidents.