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Inside the Rapid Growth of China’s Domestic Wine Industry [A special report from IBWSS China]

China ranks as one of the top 10 wine markets in the world for the total wine consumption and the no. 1 market in the world for red wine consumption.

26/06/2018

While China has a long history of winemaking and alcohol production that dates back centuries, it is only in the past two decades that the country has emerged as a new up-and-coming giant in the global wine industry. China already ranks as one of the Top 10 wine markets in the world for total wine consumption, and as the No. 1 market in the world for red wine consumption. But what has been singularly impressive has been the growth of the country’s domestic wine industry – including the ability of several Chinese wineries to produce internationally-recognized wines.         

New Chinese winemaking regions

Over the past ten years, we have seen the emergence of several prominent winemaking regions within China and the growth of domestic Chinese wineries creating wines of international acclaim. The search is now on for the specific regions within this vast nation that will yield the best grapes for domestic production.

The one wine region that has attracted the most attention from Chinese winemakers is Ningxia, an autonomous region (located nearly 1500 kilometers from Beijing) with a cool, dry, semi-desert climate that has already produced some award-winning Cabernet Sauvignon wines. While some have likened Ningxia to a warmer, sunnier Bordeaux, a more apt comparison might be the warmer, nearly arid regions of Washington State that now produce some of the world’s best Cabernet Sauvignon wines.

This climate is remarkably good for producing Cabernet Sauvignon wines. Most famously, in 2011 the Ningxia winery Helan Qingxue won the top award from Decanter World Wine Awards for Best Red Bordeaux Varietal for its 2009 Cabernet Sauvignon blend, beating out contenders from Bordeaux itself. That win – which some have likened to the 1976 “Judgment of Paris” that resulted in the rise to global prominence of California wines – was solidified when a follow-up blind taste tasting just three months later (the so-called “Bordeaux Against Ningxia” event) also resulted in 4 of the 5 top red wines being awarded to Ningxia.

Another important wine region is Yantai (in Shandong province), which is the location for more than 140+ wineries. Yantai now accounts for 40% of all Chinese wine production and is also home to Changyu Pioneer Wine, one of the three domestic wine companies (together with China Great Wall Wine Company and Dynasty Wine) that dominate domestic production. Based on the phenomenal growth of the wine industry within Shandong, some are now calling it China’s version of Napa Valley.

Solidifying Yantai’s position on the global wine stage has been the launch of wine industry events, most notably the upcoming 2019 International Bulk Wine and Spirits event in China (IBWSS China), to introduce Western winemakers, distributors, and exporters to the true potential of the Chinese market. Another prominent event is the Yantai International Wine Expo, which attracts a global audience of wine buyers and sellers.

But it is not just Ningxia and Yantai, however, that are producing world-class wines. For example, globally recognized winemakers have identified the Loess Plateau in Shanxi province (northern China) as a particularly noteworthy region capable of supporting world-class vineyards. China’s Chateau Rongzi, for example, recently partnered with classicist winemaker Jean-Claude Berrouet (of Petrus fame) to create world-class wines from the Loess Plateau. In 2017, Chateau Rongzi hosted the first-ever public U.S. tasting of its wines at the USA Trade Tasting event in New York City.

Another wine region of particular note is Xinjiang, especially the Yanqui sub-region. Some wine experts have already referred to Xinjiang as “the most promising wine region in China.” In addition, Yunnan province, with its high-altitude location, is now producing remarkable wines – similar to the way that Chilean producers are embracing high-altitude winemaking as a way to draw out the attributes of the unique mountainside terroir.

Unique partnerships with foreign winemakers and producers

Unquestionably, one major stimulus for the rapid growth of the domestic Chinese wine industry over the past 20 years has been an extensive network of partnerships and relationships with some of the world’s top winemakers. Given the Chinese preference for high-quality red wines, especially those from Bordeaux, it is perhaps no surprise that several high-profile Bordeaux winemakers have become notable supporters of Chinese domestic wine production efforts.

From Bordeaux, Chateau Lafite Rothschild and Chateau Mouton Rothschild have both contributed their know-how to domestic Chinese producers. For example, Domaines Barons de Rothschild (Lafite) now has a 10-year vineyard project in Shandong province. The first vintage, which will be known as Domaine de Penglai, has been eagerly anticipated.

Other partnerships, including one with Torres of Spain (which partnered on a joint venture in Shanxi province), have significantly expanded the quality of wine production within China. Along with improvements in viticulture, we have also seen significant improvements in winemaking ability and expertise. As a result, some emerging wine trends – such as the growth of organic and biodynamic wines – now have the potential to take hold in China much more quickly than ever before.

Patterns in Chinese wine consumption

It is impossible to talk about the Chinese wine industry without mentioning the dominance of red wine consumption, and especially the dominance of two red wine varieties – Cabernet Sauvignon (which accounts for 76.5% of domestic production) and Merlot (which accounts for 12% of domestic production).

There are several factors at work here. One of these is the importance of the color red within Chinese culture and society. This means that any major holiday or event will be celebrated with red wines. Another is the marked Chinese preference for expensive, high-quality reds. And, finally, there is the fact that French wine producers were the first to enter China during the much-heralded economic reforms of the 1980’s, giving French winemakers a notable head start in winning over Chinese consumers.

Together, these three factors can help to explain the Chinese preference for red Bordeaux wines from premium producers within France. In fact, China now accounts for a staggering 40% of all Bordeaux wine exports.

A more recent trend, though, has been the Chinese embrace of premium-quality red wines from New World destinations, such as Chile. On a leading Chinese e-commerce platform like Tmall, for example, Chilean red wines will often be featured alongside French red wines. In fact, China is now the No. 1 export market for Chilean wine.

It is easy to see how this red wine trend will continue to have a marked impact on Chinese domestic wine consumption. Italy, for example, is now looking for ways to enter the Chinese market to promote its premium-quality red wines. And Australia has already partnered with Tmall on a dedicated e-commerce portal to sell Australian red wines direct to Chinese consumers.

Not surprisingly, local Chinese producers have also looked for ways to get ahead of this important trend. One interesting development has been the rise of Marselan (a French cross of Cabernet Sauvignon and Grenache) as the new “signature grape” of China. Much as Malbec has become the signature grape of Argentina, Marselan could become the most important Chinese grape, surpassing even Cabernet Sauvignon. Marselan is especially prized for its deep color, rich and complex flavors, and soft tannins. In 2017, Grace Winery of Shanxi province won the “Best Red Single Varietal” medal in the Decanter Asia Wine Awards for its 2015 Marselan.

The unwavering Chinese demand for world-class red wines is what has led to the need for events such as IBWSS China 2019, which seeks to bring together members of the global industry to see how they can enter the expanding Chinese market. Clearly, there is tremendous demand for red wine within China, as well as significant brand-building opportunities to position new red wine brands as prestigious, up-market options for consumers.

Future trends in the Chinese retail wine market

So what can we expect going forward? One major trend, of course, has been the growing premiumization of the Chinese wine market. The Chinese government has supported this push for quality by awarding 16 Chinese vineyards the prestigious “Estate Wine” trademark. And foreign wine producers continue their wine education programs about the best ways to consume wine. Gone are the days when Chinese wine drinkers would drop ice cubes into a glass of award-winning red Bordeaux (although the preference for serving red wines chilled still persists).

The starting point for expansion to China for many winemakers is simply figuring out how to get their wines on retail shelves at supermarkets, especially the large big-box retailers that run very sophisticated private label programs. In China, for example, Western retailers like Walmart, Carrefour, Auchan and Metro have already started to expand across the nation, and all of them have robust private label programs. Moreover, China has a growing number of its own national retailers, such as Lianhua, Wumart, Jingkelong and Vanguard, all of which also need private label products.

However, wine retailing in China is not just about creating a brick-and-mortar presence. Another major trend is the creation of new distribution models for reaching the Chinese consumer. The “Tmall/WeChat model,” which uses a combination of social media and e-commerce to reach Chinese consumers on their Internet-connected mobile devices, is one that is worth watching.

And, finally, another major trend has been the integration of China into the global bulk wine industry. China is now a player, not just in terms of consumption, but also in terms of production. Consider for a moment that the 2016 production level of Chinese vineyards was 11.4 million hectoliters – that’s more than Bordeaux, Germany or Portugal! Or consider the fact that Changyu Pioneer Wine, based in Yantai in Shandong province, is now the third-largest wine brand in the world. This Chinese wine company now produces as much wine as legendary California producer E. & J. Gallo.

Over the next 24 months, we can expect the continued growth and expansion of the Chinese wine industry. Many have already compared the nascent wine industry of China to that of Chile or Australia before these New World winemaking destinations burst into mainstream prominence. Already, we are seeing the appearance of Chinese wines on the shelves of wine retailers in California and Western Canada. As U.S. consumers become more familiar with Chinese wine brands, and as the reputation for quality of Chinese wines grows, it is possible that China might just become one of the top winemaking regions in the world, rivaling any in France or California.

About IBWSS China

In November 2019, Beverage Trade Network will host the first-ever International Bulk Wine & Spirits Show (IBWSS) in Shanghai, China. The two-day event (November 5-6, 2019) will include an exhibition trade show floor for buyers and sellers to meet in a central marketplace, as well as a series of speaker presentations, panel discussions, and Q&A sessions designed to offer practical, actionable advice about the Chinese bulk wine and spirits industry.

Mark your calendars now for IBWSS China. To see a full program of the two-day IBWSS China event, Sign up here.

To sign up as an exhibitor or sponsor of the event, please visit here.