Acquired taste

C’est le Chateau Changyu

In 1892 Zhang Bishi planted a vineyard in the coastal town of Yantai, Shandong province, merging his last name and the Chinese character for “prosperity” to name his new company Changyu (the character for his name and ‘Chang’ are the same – the discrepancy in English is through the shift to a Pinyin rendering where ‘Zhang’ is preferred – in case you wondered there are an estimated 88 million Zhangs in China).

Prosperity was hard won. The first vines he bought from America failed. Zhang then turned to vines from Europe, which failed too. Finally, the fruits that survived were borne from hybrid vines – a grafting of European and Chinese saplings.

Changyu wines are still flowing today, making the company the oldest winery in China (though it’s now state-owned). Its practice of fusing East and West is ongoing too, albeit taking the form of mergers and acquisitions rather than viniculture. In 2013 it bought French cognac distillery Franllet, and chased it down with Chateau Mirefleurs and the Spanish Marques del Atrio in 2015.

The Financial Times wrote that these acquisitions showed Changyu was shoring up its share of China’s booming market for wine imports (see WiC344), with plans to ship up to 20 million bottles a year to China from its European holdings by 2021. However, Caixin Weekly reports that imports have yet to become a significant portion of Changyu’s earnings, contributing under 0.1% to profits last year. Last year Changyu’s total profits declined 4.62%.

Nevertheless the firm is now strengthening its grip on the New World too, setting up a joint venture with Chilean winery Lambo just last month. The JV, called Indomita Wine Company, was founded with $40.8 million in funding from Changyu, giving it an 85% stake, and $7.2 million from Lambo, leaving it the remainder. The new venture will take control of Bethia Group’s wine business, Beth Wines.

According to the Economic Observer, Chile is the world’s third largest exporter of wine to China. Between 2014 and 2016, sales to China grew 73% in volume terms and 79% by revenue. Hu Liyuan, head of the Chilean Wine Association’s Asia Pacific region, believes the country will surpass France as China’s second largest supplier within the next decade.

New World wine has a growing following in China as it is often priced for a mid-range market, as opposed to some of the more heralded Old World labels in the luxury segment (the higher-end of the market saw declines after Xi Jinping cracked down on lavish banqueting by government officials). But the Financial Times reported last year that the bulk of Chile’s wine exports to China are not being shipped by the bottle, but rather by the container.

This “bulk wine” is pumped into plastic sacks and sold to Chinese producers and distributors who want to boost the quantity (and sometimes the quality) of their own blends. So while Chinese consumers might be drinking more Chilean wine, they might not be aware of it.

To help local consumers understand more about wine Changyu has also adopted a method of education that appears peculiar to China: the theme park. Tencent has launched theme parks based on video games (see WiC368), LeEco promised to open one centred on electric cars (albeit now doubtful given its poor finances; see WiC339 for more). Now Changyu plans to cut the ribbon on “Wine City” (WiC presumes this is not one for the kids).

Based in Changyu’s hometown Yantai, the Rmb6 billion ($880 million) project sprawls over 1,000 acres and will house three chateaux. Bloomberg reports one chateau complete with moat will be dedicated to red wine, and a somewhat stouter castle will be a temple of brandy. A nearby R&D centre will also house bars and restaurants for tastings.

But the facility isn’t just for show: it is for production as well. According to Bloomberg, at full capacity it will produce 450,000 tonnes of wine and brandy each year, which a tour guide claims will make it the world’s largest winery.

The intent is clearly to burnish its brand at home. But WiC suspects it might be a few years yet before sommeliers are making pilgrimages to Chateau de Yantai in Shandong.

© 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.