China has just toppled the United States as the leading import market for Australian wine. Reds and whites from Down Under increased by more than half to A$474 million ($360 million) in the year ending in September, says Wine Australia, the body representing the country’s wine and grape producers.
Ten years ago Aussie wine sales to China were valued at A$27 million, so the milestone is another sign of how the wine world is changing.
WiC has been tracking this trend for some time, from predictions about how Australian producers could prosper (see WiC215) to discussion of the growing importance of middle class consumers in The Little Red Book (available to download from our website).
This week we talked to Michael Clarke, Chief Executive Officer at Treasury Wine Estates (TWE), which is headquartered in Melbourne. Under his leadership TWE has refocused on the premium and luxury end of the market, and invested heavily in fast-growing markets in Asia, led by China. The strategy is working – profits at TWE doubled last year – and we asked Clarke for more on how one of the world’s largest wine companies is growing its business.
Has TWE led this surge in Australian imports, or is it more a case that you are capitalising on the new interest in Australian wine in China?
It’s a combination of both. TWE is certainly investing much more in sales and marketing in China and we’re doing more wine education with consumers and much of it is for Australian wine. We have more brand ambassadors and more powerful marketing partnerships, and no other company delivers as many consumer promotions to the standard and quality that we’re committed to.
So it’s fair to say that, while we benefit from the quality of Australian wine, we are also leading the charge in promoting branded Australian wine in the market.
Why is Australian wine doing well in general?
Chinese consumers like Australian wine because it is very approachable. Much of it is fruit-forward, with a great balance of tannins and acidity. It is labelled clearly and it is competitively priced, and it is now helped by Australia’s free trade agreement with China.
Before the China–Australia Free Trade Agreement came into effect last December, Australian wine was taxed 14% more than many of its competitors. But about half of that duty has been removed, and the remainder will be phased out over the next two years. This helps put us on more of a level playing field with other wine-exporting countries that have benefited from free trade agreements with China for some time.
Who is your target market in China?
Primarily we are targeting people commonly described as Millennials, a huge group of at least 400 million customers between the ages of 20 and 40. Generally speaking, they are younger and they understand and frequently use the Internet and social media. They are socially active and climbing the career ladder. They have rising disposable incomes and they’re interested in brands that are authentic.
Millennials want quality but they want value too. So it isn’t simply a case of trying to sell wine as a luxury good in the way that many brands have tried to in China in the past.
We think about it more as “premiumising” and giving people more opportunity to enjoy ‘affordable luxury’. We aren’t focused on hugely expensive, one-off purchases, we’re more concerned about delivering everyday moments in which consumers enjoy a new taste or experience.
Among the top eight importing countries, Australian wine has the highest average value per litre. How much are your Chinese customers paying for a bottle of wine?
For context, we have three main tiers: what we call the ‘commercial’, or entry-level, which means wines sold to consumers at Rmb70-100 ($10.32 to $14.75) a bottle; the middle or ‘masstige’ tier at Rmb100-200; and the luxury tier, which can be priced from Rmb200 a bottle up to thousands of yuan for the very best wine.
We are focused on the more premium end of the market – that is, the high end of the commercial tier, as well as masstige and luxury. We offer choices all the way along this spectrum and many of them are Australian.
For instance, at entry level there is Wolf Blass Eaglehawk, Lindeman’s and Rawson’s Retreat; Koonunga Hill from Penfolds and Wolf Blass Yellow Label are in the masstige tier; and the iconic Penfolds Bins is in luxury, climbing up to über-luxury with Grange, Australia’s most celebrated wine.
Penfolds is easily the best-known Australian wine label in China and it has played a really important role for our wider portfolio, with a halo effect that helps to attract customers. However, all of our Australian wine across the different price points benefits from the premiumisation strategy. We are offering customers the chance to explore, and as they get more interested in wine, they are moving from the entry-level varieties into offerings at higher prices.
Can Australian imports of wine to China keep growing?
Definitely. The growth has been impressive but the opportunity is still huge. Demand has plenty of room to grow as more people turn to wine for the first time. Remember that the baijiu market is 10 times the size of the wine market, and the beer market in China is much bigger than demand for wine as well.
Even within the existing market for wine, most consumption is of domestic brands. So there is lots of scope for more people to drink wine in China, and to drink more imported wine in particular.
In fact, while we will continue to focus on our Australian brands, we see the opportunity to do something similar for wine from other countries.
Take our Napa Valley portfolio as an example. In the past, many of the best of the American products weren’t sold in China because companies kept them at home in the United States. But we now have an established route to market that is growing rapidly, as well as a range of desirable Californian brands such as Beringer, Sterling Vineyards and Blossom Hill.
We are already seeing signs that consumers are interested in trying new choices. There’s no reason why we can’t make the same progress with Californian wine as we have with Australian wine.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.