Know about The OEM Private Label Wine, a New Term that's Attracting a Lot of Attention in the Fast-Growing Chinese Wine Market.
For any overseas winemaker thinking of doing business in the fast-growing Chinese wine market, there’s a new term that’s attracting a lot of attention: the OEM wine. These OEM wines are what is known in the rest of the world as a private label wine. In China, the demand is so great for these OEM wines that Meininger estimates that there are nearly 1 million different wines available for sale in China. By way of comparison, the U.S. wine market has approximately 100,000 different wines for sale.
The term “OEM” is a reference to “original equipment manufacturer,” which is a company that makes key parts or components for a product that is later assembled overseas. The term is common enough in the tech industry, where Chinese OEM companies mass-produce parts for computers worldwide, or the automobile industry, where Chinese OEM companies mass-produce parts for cars worldwide.
And now China is flipping the script, applying the label to overseas wineries that produce a wine that can then be “assembled” within the Chinese mainland, branded, and then sold to the Chinese consumer at a significant markup. In this business model, an Australian winery might be the OEM, producing red wine in bulk that can then be shipped to China and “assembled” into a premium wine offering for an upscale retailer.
Why OEM wines are taking off in China
The primary appeal of these OEM wines is that they truly do represent a “one in a million wine” – the type of wine that nobody else has. Every shop, every retailer and every online e-commerce store now can have a private label brand that they can offer to consumers. If these OEM wines can also be marketed as luxury wines, then the business model is even more enticing. In fact, one Chinese wine insider has noted that there are really only two wine brands in China – Lafite, and Penfolds – and everything else might as well be a private label (i.e. OEM).
In the mindset of the Chinese consumer, the ability to get a truly unique luxury brand with a custom-made label is leading to a fundamental change in the wine market. At one time, Chinese consumers would only buy the most prestigious red Bordeaux wines from the most famous winemakers in France. Now, they are shifting their attention to these OEM wines that are produced overseas in bulk wine destinations like Australia, South Africa or Chile. Bulk wines are shipped to China, where importers and distributors handle all the labeling, branding and merchandising.
The first OEM wines that shipped to China nearly a decade ago were low-quality bulk wines that could be sold to Chinese consumers at the equivalent of less than $3 per 750 ml bottle. Since Chinese consumers already struggled with reading the label of foreign imported wines – especially the complex system of classifications and appellations from countries such as France and Italy – it was easier to convince Chinese consumers that they were getting a real bargain on these wines. As long as they saw the name of a foreign country on the label, they were willing to try it.
Fast-forward 10 years, though, and the Chinese wine market is shifting to the premium end of the OEM market. As Chinese consumers become more knowledgeable about wine, and as they become more adept at reading and understanding the labels on wine, the focus is now on OEM luxury wines offered by their favorite retailers.
And it’s not just Chinese consumers that love these OEM wines – Chinese importers, distributors, and retailers also love these OEM wines. For one, it’s a lot easier to maintain relatively high margins on these wines. Chinese consumers are notorious for scanning the barcodes of wines and checking to see if they can find a better price somewhere else. With “one in a million” wines, though, that’s simply not possible – there is no competitor to check, and no rival to compete with because private label wines are completely unique.
Moreover, the OEM market has very much shifted its focus to appeal to importers and distributors that only want a relatively small quantity of a product. Or example, in Europe the minimum order size for bulk wine is typically a mixed container containing two different styles of wine. In China, the minimum order size is just half a pallet. That allows much greater customization.
Putting the Chinese OEM market into context
While the term “OEM” is new, the experience of the Chinese wine market is largely similar to what is happening in Western consumer markets. Within the UK, for example, all the big supermarket chains – think Tesco or Sainsbury’s – now have their own private label wines. In some cases, these supermarkets specifically market them as store brands; in other cases, though, the consumer needs to be relatively sophisticated to figure out that a bottle of wine is actually produced in bulk and then sold to the supermarket to become part of an exclusive brand. (Sainsbury’s, for example, specifically created a private label brand for Chilean red wine – Camino del Angel – that was intended to compete with the famous Chilean brand Casillero del Diablo).
And, just like in China, business considerations such as profits and overall margins are behind the growth in private label wines elsewhere in the world. In short, it’s a lot easier to make a profit on a store private label brand bottled in a country than on an expensive bottle of wine imported from abroad. Moreover, consumers appreciate the greater diversity in product offerings possible with private label wines.
What is really different about the Chinese market, though, is the extent to which Chinese consumers exhibit a marked preference for foreign wine, especially when it comes to special occasions or gift giving occasions. If given a choice between two wines, one Chinese and one foreign, the Chinese consumer will almost always choose the foreign wine. At the current time, foreign imports now account for 70-80% of all wines sold within China. Domestic producers such as Changyu are looking to get ahead of the so-called “craze for imported wine” by creating their own labels and brands that stand for quality and prestige.
The opportunity ahead
Clearly, there are enormous opportunities for foreign winemakers and bulk wine suppliers eyeing the Chinese wine market. The size of the consumer market, coupled with the rapid pace of economic growth within the country, has made China a key market for winemakers. By 2021, China could become the second-largest wine market in the world as measured by consumption, according to Vinexpo.
Now, with the development of the OEM business model, it’s easier than ever to gain access to this Chinese wine market. The same bulk wine and private label wine market that has grown dynamically in the rest of the world is now coming to China, even if it’s known by a different name and different label.
About IBWSS China
In November 2020, Beverage Trade Network will host the second International Bulk Wine & Spirits Show (IBWSS) in Shanghai, China. The two-day event (November 9-10, 2020) 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.