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Master thesis for MIEB Zhenzhen WANG 2012/2013

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Université de Strasbourg

École de Management Strasbourg

Master Grande École

Market analyses and marketing strategies for

imported wine in China market

Zhenzhen WANG

Directeur du Mémoire: Thierry LOREY

Année 2012/2013


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Contents

Abstract ............................................................................................................................................... 4

1. Introductory ............................................................................................................................. 5 1.1 Background of research ........................................................................................................................ 5 1.1.1 General knowledge of wine ................................................................................................... 5 1.1.2 History of wine ........................................................................................................................... 6 1.1.3 History of wine in China ......................................................................................................... 7 1.1.4 Global supply and demand of wine .................................................................................... 8

2. Market analyses ....................................................................................................................... 9 2.1 General situation of China’s wine market ..................................................................................... 9 2.1.1 Status quo of China’s wine industry .................................................................................. 9 2.1.2 Varieties of wine in China ................................................................................................... 10 2.1.3 Regional structure of China’s wine market ................................................................. 11 2.1.4 Distribution of wine in China ............................................................................................ 11 2.1.5 Wine consumption in China ............................................................................................... 12 2.1.6 Imported wine in China ....................................................................................................... 13 2.1.7 Luxury wine in China ............................................................................................................ 16

2.2 Main characteristics of China’s wine market ........................................................................... 17 2.2.1 Tremendous potential .......................................................................................................... 17 2.2.2 From product consumption to brand consumption ................................................ 18 2.2.3 Different groups of Chinese wine consumers ............................................................ 18 2.2.4 Trend for luxury wine ........................................................................................................... 21

2.3 Investigation of consumer behaviors for imported wine .................................................... 23 2.3.1 Main consumer groups ......................................................................................................... 24 2.3.2 Characteristics of main consumers’ occupation ........................................................ 24 2.3.3 Percentage of different age groups’ drinking different wines ............................ 24 2.3.4 Frequency of drinking and price choosing .................................................................. 25 2.3.5 Place to buy and drink wine ............................................................................................... 25 2.3.6 Consumer psychology ........................................................................................................... 25 2.3.7 Characteristics of consumption structure ................................................................... 26 2.3.8 Population distribution of imported wine consumers ........................................... 26 2.3.9 Views from imported wine consumers ......................................................................... 26 2.3.10 Knowledge level of origin of imported wine ............................................................ 27

2.4 Competition situation of China’s wine market ........................................................................ 27 2.4.1 Analysis of wine industry in China .................................................................................. 27 2.4.2 Comparison of domestic and imported wine market ............................................. 32 2.4.3 Analysis of main substitutes of wine in China ............................................................ 34 2.4.4 SWOT analysis of importing wine in China market ................................................. 35

3. Marketing strategy for imported wine companies ................................................... 40 3.1 Channel strategy ................................................................................................................................... 41 3.2 Experience marketing ......................................................................................................................... 41


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3.3 Trace marketing ................................................................................................................................... 41 3.4 Database marketing ............................................................................................................................ 42

4. Conclusion .............................................................................................................................. 43

5. References .............................................................................................................................. 45


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Abstract

China is a rapidly growing wine market in the world. Currently, the annual

growth speed of global wine industry is less than 1%, however, the figure is

more than 40% in China. China, even the whole Asia, has been the most potential

wine market in the world. By 2012, sales of wine in China have reached 50 billion

RMB, so the huge market has attracted a lot of imported wine companies to

secure their own market shares. In this vast potential market, both foreign and

domestic wine companies are facing great challenges and competition.

In order to help foreign wine companies to know more about wine market

in China and to be aware of their position and status in the market, this article

firstly provides a big picture of wine market in China. Then it analyzes the

market from different dimensions by diagrams and charts according to a survey

done by the author. Afterwards, some marketing strategies and advice are put

forward to show a bright way to imported wine companies.

Key words: wine market; China; imported wine; competitive analysis; strategies


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1. Introductory

1.1 Background of research

1.1.1 General knowledge of wine

Wine is an alcoholic beverage made from fermented grapes or other fruits.

The natural chemical balance of grapes lets them ferment without the addition

of sugars, acids, enzymes, water, or other nutrients. 1 There are many

classifications of wine, which can be done according to various methods

including place of origin or appellation, vinification methods and style, colors,

sweetness, etc. European wines tend to be classified by region

(e.g. Bordeaux,Rioja and Chianti), while new-‐world wines are most often

classified by grape (e.g. Pinot noir and Merlot). (McCarthy, 2005) Wines may be

classified by vinification methods. These include classifications such as red or

white wine, sparkling, semi-‐sparkling or still, fortified and dessert wines. It can

be also divided by color: red wine, white wine and rosé. Red wine can be

subdivided into dry red wine, half dry red wine, half sweet red wine and sweet

red wine. White wine is subdivided into dry white wine, half dry white wine, half

sweet white wine and sweet white wine. The dry type wine (dry white wine, dry

red wine) only refers to the sweetness of wine and has nothing to do with “dry”

or “wet”. According to the standard, the sweetness of dry wine is under 4.0g/L.

Due to the low sweetness, this type of wine is not that sweet. So, it shows more

character of grapes or other fruits and wine flavour of fermentation and aging.

The traditional wine is sweet wine and its sugar content is about 50g/L. Word

"dry" in dry wine is borrow from a word in champagne brewing, which means

never adding any additives such as water, spices, alcohol and directly brewing

wine with pure juice. (Johnson, 1989)

Ingredients: wine is not only the solution of water and alcohol but also the

other rich connotation. (Alig, 2010)

A. 80% of the water that is biologic one coming directly from the soil by the

1 Johnson, H. (1989). Vintage: The Story of Wine. Simon & Schuster.


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vines.

B. 9.5% to 15% of ethanol, that is, the main alcohol. Achieved by sugar

fermentation proceeds, it is somewhat sweet and releases a mellow flavor.

C. Acid. Some comes from grapes, such as tartaric acid, malic acid and citric

acid; some of them are the result of alcohol fermentation and lactic acid

fermentation, such as lactic acid and acetic acid. These main acids play an

important role in the acid flavor of wine and the balanced taste.

D. Phenolic compounds of which 1 to 5 grams per liter. They are mainly

natural red pigment and tannin that decide the color of wine and structure.

E. 0.2 to 5 grams of sugar per liter. Different types of wine content different

degree of sugar.

F. Aromatic substances (hundreds of milligrams per liter). They are volatile

and of many kinds.

G. Amino acids, proteins and vitamins (C, B1, B2, B12, PP). They affect the

nutritional value of wines. So it is beneficial to human body health to drink wine

moderately. It can protect blood vessels, prevent arteriosclerosis and lower

cholesterol.

The main producing area of the world wine states: France, Italy, Spain, the

United States, Chile, Australia, South Africa, etc. The s great development of wine

industry has taken place in nearly hundred years. Now, wine industry has sprung

up all over the world. Wine production power is no longer limited inside

Western Europe. Some countries in the americas, Oceania, Africa and Asia also

rise some wine producers. According to the habits, people call those wine made

in the European countries as old world wine and the wine produced in the

southern hemisphere and places such as North America is called the new world

wine. (Campbell & Guibert, 2006)

1.1.2 History of wine

The production of wine was originated in the area between the Black Sea


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and the Caspian Sea in what is now the country of Georgia around seven

thousand years ago. Afterwards it was spread to other districts like Egypt and

Greece due to ancient wars and immigration. Thanks to the powerfulness and

prosperity of ancient Greece and ancient Rome at that time, wine production

started to flourish in the whole Europe. In 15 and 16 century, Burgundy

produced wine was considered to be the finest one in the world. And meantime,

viticulture and winemaking techniques were introduced to North Africa,

Australia, New Zealand, Japan, Korea, America, etc. (Phillips, 2001)

Nowadays, wine-‐producing area is usually classified into two

categories—the old world and the new world. The old world represents the

European countries who has been producing wine for more than one hundred

year, like France, Germany, Italy, Spain and Portugal while the new world stands

for those who lately learnt the viticulture and winemaking techniques from

Europe, like the U.S.A, Australia, New Zealand, Chile, Argentina and so on. The

majority of the new world countries produce wine in a manufacturing way and

by contrast the wine from the old world is mostly handcrafted. (Campbell &

Guibert, 2006)

1.1.3 History of wine in China

Winemaking history in China can be traced back to Han Dynasty when

emperor Wu intended to expand the land and defeated Hun. In around 138-‐119

B.C. there was a famous Chinese adventurer called Zhang Qian who had the

diplomatic mission to Xiyu (the Western Regions of China) and traveled as far as

Rome Empire. Thanks to this long journey he brought grape weeds and

winemakers from Tashkent to China. Since then, China emerged the wine

producing industry. However, this traditional Chinese wine hasn’t an important

role in people’s daily drinking. And the real time for wine in China should be

traced back to a hundred years ago. (Yiping, 2005)

In 1982, Cheong Fatt Tze established Yantai Changyu Pioneer Wine

Company that was the first modern wine company in China. However, the


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development of wine industry hadn’t been pushed forward until 1954. The

number of wine companies grew up to over 100 in the late 1970s and the

production of wine rocketed from less than 200 ton in 1949 to 64 thousand ton

in 1978. The production continued to rise rapidly afterwards: it reached to 933

thousand ton in 2002 and 3.3 billion ton in 2005. (Jenster & Cheng, 2008)

1.1.4 Global supply and demand of wine

Wine is second to beer in the world of alcoholic beverages. The world's wine

production in the early 1980s reached its highest peak (33.36 million tons), and

then it gradually decreased to 26 million tons year by year. (Anderson,

2004)Since the 1990s, global wine production fluctuated between 25 and 29

million tons per year. In the past 15 years, the global wine industry has always

been an oversupply situation and 2012 was an exception. According to the

international wine organization OIV, however, due to poor weather affecting the

main grapes producing areas like France and Argentina, global wine production

in 2012 was the lowest in the past 37 years, nearly 24.8 million tons. The

consumption of 2012 was around 24.9 million tons, which was a basic balance

between supply and demand. Europe is the world's major areas of production

and consumption of wine, from perspective of both the total consumption and

per capita consumption. Luxembourg is the one that owns the highest per capita

consumption in the world (in which most are bought by the tourists and per

capita consumption is in accordance with the domestic population statistics so

that there is a gap with the real per capita consumption). The followings are

France, Portugal, Italy and other countries in which the annual per capita

consumption is more than 50 liters. (Anderson, 2004)


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2. Market analyses

2.1 General situation of China’s wine market

2.1.1 Status quo of China’s wine industry

According to the research of the world wine organization, the annual

consumption of wine per person in China is one litre, less than 1/7 of the world

level. (Hong & Qiang, 2010) The consumption of wine is mainly concentrated in

the southeast coastal economic developed city and white-‐collar class with

medium income. Chinese market development space is great.

In the beginning of 2012, China's imported wine industry alliance included

1865 imported brands in sale in Mainland China wine market, in which Shanghai

is the largest market for the imported wine, followed by Beijing and Guangzhou.

There were 24137 enterprises selling imported wine on commission and doing

flow business in Mainland China and those who mainly engaged in the French

wine accounts for about 73% of the total number. About 600 domestic wine

enterprises were above designated size, of which those whose production

capacity of less than 1000 tons accounts for 70% of the total while those whose

production capacity of 1000 to 5000 tons took up 20% and only 10% have its

capacity more than 5000 tons. Top 10 domestic wine enterprises owned 61.8%

of the market share.2

Based on the data released by Vinexpo3, 1.9 trillion bottles (amounting to

1.43 billion ton) of wine were consumed in China in 2011, which made China the

fifth largest consumer in the world. In addition, according to the statistics from

International Wine Research Institute: In 2012, the consumption of wine in

China exceeded 2.16 billion bottles, representing a 13.68% increase compared

with that of 2011. It is estimated that the number can be reach 3.024 billion in

2016. With the improvement of popularity of wine, some experts said that it was

probably that the wine market space in China could be ten times more than the

2 Annual Report from National Statistics Bureau in 2012 3 The world's leading wine and spirits business trade association, created in 1981, by the Bordeaux Chamber of Commerce and Industry.


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one now.

Nevertheless, the imported wine has been far from fashionable and popular

in comparison of the local produced one, which is an interesting phenomenon.

Data from National Statistics Bureau shows that the volume of imported wine

was 360 thousand ton in 2011, with year-‐on-‐year growth of 65%. Moreover, the

speed of imported wine has grown at rates more than five times the growth rate

of domestic wine.

Vinexpo also forecasted that wine market in China would continue to

increase by more than 10% in the couple of years and that by the end of 2015 the

annual wine consumption in China would rise by 54%. From prospect of

consumption volume, China is going to become the world second largest

consumers. Especially, the demand of imported wine will remain a high speed of

increase to meet Chinese consumers’ needs of diversified wine. In 2012,

imported wine accounted for 28% of the total wine consumption in China and

French wine ranked first in proportion to 56.6%, which will both continue to rise

in the future.

2.1.2 Varieties of wine in China

According to the <Management methods of wine production> issued by

formerly National Light Industry Bureau in 2000, wine means an alcoholic

beverage made from fermented grapes or grape juice and the one that is made

from other fruits or added water is not allowed to be called wine. Usually wine in

China is categorized by general wine like normal dry red wines and special wine

that is processed in a special way in the process of picking or fermentation

including sparkling wines, fortified (aperitif) wines, and fragrant wines.

At the moment, the most common varieties of wines are dry red wines, dry

white wines, rosés, sweet wines, champagnes and Brandy. Since data are still

made according to the China Wine National Standard issued in 1994, I still use

the original concepts of wine.


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2.1.3 Regional structure of China’s wine market

The main wine market in China is concentrated in the east coastal area and

metropolises like Shanghai, Beijing, Chengdu, Fuzhou, Xiamen, etc. The reason

why the consumers are mainly come from big cities and in the middle class and

class of bourgeois is that as for Chinese people wine culture is a new-‐coming

foreign one and the price of wine is relatively high comparing with other

alcoholic beverages like beers and Chinese traditional white spirits. (Yancai,

2012) In spite of the fact that wine culture has been spread into lower-‐tier cities

and rural areas, the popularity of wine drinking is far from enough up till now. In

addition, people from metropolis like Shanghai and Beijing have a higher

purchasing power and mainly consume middle-‐high class of wine while for those

from second or third-‐tier cities and rural areas low-‐middle class of wine are their

first option. (Hong & Qiang, 2010)

2.1.4 Distribution of wine in China

Generally speaking, the circulation of wine from the factory to consumers go

through distributors, dealers or restaurants and hotels, although at present

many wine producers have started self-‐built wine shore in the main cities.

According to statistical data of DATAMONITOR4, 47.7% of wine consumption is

through on-‐trade places like hotels, bars, clubs and so on; 52% of wine

consumption is through specialist retailers and supermarkets/hypermarkets on

behalf of the consumption model of drinking in family/party occasions and

BYO(Bring your own) in hotels. All in all, wine producers can hardly involved

directly in wine sales and wine will pass through a complex circulation before

reaching consumers. (Huaju, 2005)

4 An international information services company.


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Figure 1: Channel process of wine in China

Figure 2: Share of different wine channels in China

2.1.5 Wine consumption in China

Wine consumption in China is given priority to fortified wine; still wine and

sparkling consumption is a small proportion. Data from National Statistics

showed that fortified wine accounted for 63.5% of alcohol consumption in China

while international level is only 4.8%; still wine consumption accounts for 31.4%

of alcohol consumption in China while the international average of 73.5%.

China's wine consumption per capita is low, much less than the world's

25%

48%

27%

0%

Share of wine channels in China

Stores, supermarkets

Hotels,Bars

Specialist Retailers

Others


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average level. China's wine consumption per capita in 2012 is 1 liter which is

13.4% of the world average level. There are two reasons for that: One is that

eating habits of Asian and European are different. Asian has no tradition and

habit to drink wine in a meal or with friends and family. Instead, rice spirits and

beers are more preferred. The other reason is that Chinese’s income level is far

less than people in developed countries. In addition, wine consumption concept

is not mature so brands occupy main influencing factors. (Huaju, 2005) Foreign

consumers choose to focus on origin of wine and taste of wine; Chinese

consumers are more easily affected by brands. As for consumption occasions,

drinking at home with friends and family occupy 74% of the total share. (Yancai,

2012)

Figure 3: Shares of different types of wine in China

2.1.6 Imported wine in China

In the past two years, China's wine consumption has maintained annual

growth rate of 30%. In 2011, China's wine consumption has amounted to 45

billion RMB, becoming the world's fifth largest wine consumer. China's

spectacular performance not only provides development space for domestic

wine market but also attracted a large number of imported wine producers.

64%

25%

11%

Wine consumption in China

Fortified wine

Still wine

Spinkling wine


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Imported wine expansion rate is as high as 65% a year. At present, the imported

wine market in China has accounted for about 30% of the market share, and

however five years ago domestic wine occupied more than 90% of the market.

(Zhang Xiying, 2012)

"Domestic wine enterprises focus on selling products rather than the brand

shaping and wine culture cultivation, which gives the imported wine a large

elbow space. In the short term, the domestic wine can still keep some ‘home

advantage’ in the market, but along with the imported wine pouring into the

market and effect of wine culture promoting, imported wine and domestic wine

will have equal shares in 3 to 4 years." Said by Guo Songquan5 in the interview

by Guangming Daily.

Statistics by National Statistic Bureau show that in the first quarter this year,

China imported 6.44 million cases of wine, with year-‐on-‐year growth of 15%.

Over the same period, the cumulative yield of domestic wine industry was 279.1

thousand tons, with year-‐on-‐year growth of 6.82%. Statistics from Boston

consulting group show that the number of China's overseas travel has accounted

for 8% of the world, and it will become the world's second largest overseas

tourists exporting countries in 2013. Most destinations for them are Europe and

the United States, so that they are gradually cultivated by western food and

culture. By 2015, Chinese’s annual average consumption of wine will amount to

1.9 liters.

France, Australia, Spain, Chile, Italy and the United States are the leading

imported wine producers. (Jenster & Cheng, 2008) From 2002 to 2011, the

annual average import volume from the above six countries accounted for 90%

of the total imports of wine. French wine occupies the absolute dominant

position in the Chinese market from both aspects of imports and import volume.

In 2011, China imported about 117.9 thousand tons of wine from France, with

year-‐on-‐year growth of 74.15%; the imports was 706 million US dollars, with

year-‐on-‐year growth of 108.26%. (Yancai, 2012) 5 Guo Songquan, famous Chinese wine expert


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The movement of American wine has always been very stable in China

market: the import volume rose from 820 thousand litres in 2002 all the way up

to more than 13 million litres in 2011, which has increased by 15 times; the

imports has been surged from more than 1 million US dollars in 2002 to 62

million US dollars in 2011, increased by 60 times. (Ming, 2012)

Over the years, Chile has been one of China's largest suppliers of bulk wine.

According to the Chilean wine industry association statistics, Chile exported

65.266 million US dollars of wine to China in 2011, increased by 74.6% from the

previous year. The number of bulk wine (more than 2 litres capacity) accounts

for 35% of the total wine imports. At the same time, Chilean bottled wine was

imported 3.5 million dollars, with year-‐on-‐year growth rate of 53%.

According to Italian statistics department in 2011, Italian wine imports

increased 80% in China market. According to data from administration of

Australian wine in 2011, Australian exports grew by 32% to 181 million

Australian Dollar to China and China has become the fastest growing export

market to Australia. In terms of quantity, Spain is China's second biggest wine

exporter. According to data from Spanish wine market supervision committee, in

2011, the Spanish wine export volume to China increased by 56% and the

exports doubled to 78 million euros. The New Zealand wine exports to China

grew from 20.13 million dollars in 2010 to 32.96 million dollars in 2013, which

increased by 64%.; export volume climbed also from 2317 tons in 2010 to 3440

tons in 2013.

In addition, South African wines boom in the China market. In 2011, the

bottled wine exporting to China grew by 80%. South Africa wine, Australian wine

and New Zealand wine are three countries whose exports to China increased

significantly, in addition to geographical advantages, it has also something to do

with its young and dynamic wine industry development and vigorous promotion.

(Zhang Xiying, 2012)


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2.1.7 Luxury wine in China

As far as most foreign wine producers and distributors are concerned, "If we

are not in China, we are on the way to China." In 2008, Chateau Lafite Rothschild

produced its label differently-‐-‐ Chinese word "eight" was specially printed in red

on the label, in addition to standard year of Arabic numerals. (Wenjun, 2012)

Since 1945, the famous Chateau Mouton Rothschild has invited a great artist

drawing label for it every year. The 2008 vintage wine label was designed by the

Chinese artist Xu Lei, with the subject of chateau landmark sheep in Chinese style.

It is not a coincidence that these brands of luxury wine have made some

connections to China. Moreover, it is not difficult to find that the focus of

high-‐end wine market has transferred from Britain to China in the recent

Bordeaux wine auction and En Primeur trading. And thus, many luxury brands

customize the products for the “rich” Chinese. (You, 2012)

Today, the "Lafite"(Chateau Lafite Rothschild) has become the symbol of

wealth and status. Chased after by the blindly passionate Chinese fans, the price

of the “Lafite” has rise by multiple in a few years. Even the price of the so-‐called

"Small Lafite" Carruades de Lafite has been higher than the other top wine.

(Ailing, 2011) In some metropolises like Beijing and Shanghai, there is also a

group of people who buy fine wine as an investment. In recent months, there has

been a trend of price rising among those Secondary wines of those famous

French villages such as “Small Latour”, “Small Mouton Rothschild” and “Small

Margaux”. (You, 2012)

A senior Bordeaux En Primeur trader said in an interview of a Decanter

magazine that in accordance with the past practice, as for En Primeur, there will

be a wave of price increases after bottling of wine, followed by several years of

steady period or decline slightly, and then five to seven years later, there will be

a second wave of price rising when the wine is ready to drink. However, Chinese

investors completely disrupted the previous period -‐-‐ a sharp and explosive

demand for fine wine is much larger than the quantity that a village can supply.

The buyers even don't care about whether the wine is ready to drink. They will


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invest any wine only if it is a household name.

Some experts exclaimed that the "Lafite Phenomenon" is just a bubble in

China. But the former chairman of the Federal Reserve Alan Greenspan once said

that we know whether it is a bubble if only the bubble burst.6 Chinese people

have gradually become wealthy and more and more young people began to have

strong interest to red wine, and they also have sufficient financial resources for

wine investment. (Wenjun, 2012)

The richness and generousness of Chinese wine lovers have surprised

foreign auction houses. Even some of them go all the way to some wine auction

house for wine, full loaded and back. One of the two biggest international auction

houses Sotheby's announced that Hong Kong has surpassed New York and

London and became the most important wine auction in Sotheby's line area.

At the same time, the wine culture in the mainland also develops rapidly:

new wine museum is built in Beijing; wine cabinets have already become the

basic configuration in some new senior apartments in Shanghai... Wine

producers from France and Italy come to China just for promoting and marketing

campaign; Some times they also invite medias and sommeliers each year to visit

their vineyard, with these subtle influence, so as to cultivate Chinese consumers

percipient for wine. (Ailing, 2011)

2.2 Main characteristics of China’s wine market

2.2.1 Tremendous potential

Wine production in China accounted for only about 1% of the national

alcoholic products, and thus domestic wine market is still promising. This can be

proved by data from CMMS (Chinese Media and Market Research), which

showed that although in the past year the number of the consumption of beer

and liquor are both higher than the one of wine drinkers, from 1999 to 2010,

only the wine market has been expanded rapidly while at the mean time beer

and liquor market have been wither or in a slow growth. 6 Alan Greenspan said it when talking about causes of the United States housing bubble.


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2.2.2 From product consumption to brand consumption

In 2012, the wine brands which Chinese people bought most last year were

Changyu, Dynasty and Tonghua investigated by China industry research

association. In the wine industry, Yantai Changyu has the history of 100 years,

and it ranks first in China and Asia, it even has the reputation as national wine

for China. The Sino-‐French joint venture Dynasty wine has more than 20 years of

history, while Tonghua wine caters to Chinese people’s special taste. These

famous domestic wine has formed a common brand and taste of Chinese

consumers, at the same time, them also set up the stable grape base in order to

meet the needs of consumers with their high quality, elegant taste and rich

cultural connotation. (Yan, 2013) This suggests that the modern consumption

concept has made the Chinese people’s wine consumption gradually transform

from "product consumption" to "brand consumption" stage.

Obviously, people from Beijing, Shanghai and Guangzhou have different

favorite brands, China Red, Dynasty and Changyu respectively. Wine, it seems, as

a kind of culture of alcoholic drinking, has a strong regional characteristics. This

is not just the different performance of recognition but also the different

preferences in different cities. Due to the difference taste between the different

brands of wine, the popularity of different brands is not the same in different

cities.

2.2.3 Different groups of Chinese wine consumers

In a survey study, Wine Intelligence Organization divided Chinese Wine

consumers into six groups, 42% were in 30 to 39 years old, 32% aged 18 to 29

years old and 26% aged 40 to 49 years old. Those connoisseurs with

adventurous spirit are confident high-‐income consumers while those who

pursue name brands are always willing to take high price to buy wine, especially

those from Chateau de Bordeaux. But these wines are often used for business

occasions. (Wine Intelligence Organization, 2013)


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New young sociable young people like drink with family and friends at

casual occasions or at home, they usually choose wine of mainstream prices, and

the purpose of drinking is to enjoy and relax. There are some people drink wine

only for the reason of health care, but these people account for a small

proportion and are very sensitive to price. The last group of people makes low

investment on wine: They seldom drink wine except for special occasions and

they usually buy wine for low price.

Imported wine producers blindly aim at China market and they drop all

kinds of western brands of wine unlimitedly, which is actually self-‐deluding,

"China is not a easy market to conquer". Big companies such as Kraft and VW

invested a lot of time and efforts to understand Chinese consumers: research on

local tastes, culture and values. Imported wine, in fact, still haven’t entered into

the mainstream China wine market, although many of the imported wine are

promoted in the Spring Festival and the Mid-‐Autumn festival, but consumers still

don't know how to drink wine. More than one-‐third of the Chinese consumers

don't understand wine label and nearly a quarter of the people find it hard to

appreciate the taste of a wine.

"Preferences and behavior of Western countries are always misguided in

China, and thus it leads to brand cost rising and marketing mistakes," said by

Wine Intelligence sales manager Maria Troein. "The China market is still in the

primary stage of development, for example, in the case of many consumers, wine

is a new thing to them. So it is too early to determine their relationships with the

wine." But she added, "Although still in the early stages of market development,

there emerged a lot of different customers."

The two most important groups -‐ at least from the point of view of their

influence on the market now-‐ are known as “Adventurous Connoisseurs" and

"Prestige-‐Seeking Traditionalists". These two types of groups account for 65% of

the total number of imported wine consumers, but only take over one thirds of

the total number of Chinese wine consumers. Adventurous Connoisseurs are

wine lovers of high consumption and confidence, and they like to buy a series of


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imported wine from the wine importers rather than choosing retail channels. For

them, the wine is essential to their life. These consumers are mostly men over 30

and they believe that wine is part of the delicate way of life and a new symbol of

the new Chinese people.

Figure 4: Groups of Chinese wine consumers

But they like wine for their own reason: it is not just a symbol of social

status. Adventurous Connoisseurs want to learn wine knowledge by attending

local tasting exhibitions or participate in the discussion in Weibo (Chinese

verison of Twitter) and other social network channels. To them, the brand name

is not so important, and they might be inclined to have European wine and not

refuse to try high-‐end products from the New World. As for Prestige-‐Seeking

Traditionalists, they are in a wealthy and conservative group and they have a lot

of chance to meet wine in their business life. They tend to choose the wine from

Bordeaux and Burgundy, because these wines prove their social status. People

often complain that it is this type of wine consumers that have bid up the price of

fine wine. But Troein said: "this group seems to peak and will soon drop in the

Characteristic of consumption

Types of wine Percentage of

wine consumption

Adventurous Connoisseurs

• Quality • Culture

• Professional imported wine

15%

Prestige-‐Seeking Traditionalists

• Focus on brand and advertisement effects

• Prefer to expensive wine

• Important vintages

• Famous Chateaux 50%

New rich

• Well educated and of high income

• Chase for fashion • Pay attention to life

quality

• Well promoted wine brands

• Fashionable and popular wine

25%

Middle-‐aged and elderly people

• For the sake of health care

• Sensitive to price

• Low-‐middle ends of wine

10%


21

importance of the market ". If so, then who will be the next focus group?

Two other groups belong to “new groups”: one is young group “new rich”

accounting for about 25% of the total consumers, and the other is middle aged

and elderly group accounting for about 10%. Troein points out that the number

of the two groups will be growing fast under right incentives driving. Incentives

also have a variety of different forms. Many Chinese consumers have the wine

regarded as the symbol of modern and sophisticated life, and they consider it has

health care function. As for the new rich, usually they a group of people well

educated and of high income and they chase for high life quality and fashion, so

that they are likely to choose well-‐known names and popular wine. However for

these middle aged and elderly wine consumers, they are most drink wine for the

purpose of health care and are sensitive to price level and they tend to prefer to

low-‐middle ends of wine. Since the alcohol level of wine is far lower than the one

of Chinese rice spirits, wine has replaced the role of white wine on many official

occasions in China these years. At the same time, those who can only afford low

alcohol level also convert from rice spirits to wine.

Wine education will also play a very important role, especially to those

high-‐end consumer groups. The data shows that many consumers like learning

wine knowledge and eager to get information and education related to wine. For

Adventurous Connoisseurs, wine tasting helps them to discover new styles and

region of wine while Prestige-‐Seeking Traditionalists can learn some detailed

information of the wine grading system of Bordeaux, Burgundy and other

districts.

2.2.4 Trend for luxury wine

Just like all the other luxury brands, a lot of expensive top wine is consumed

by only a small number of people because of high price and low output. But most

high-‐end wine is drunk by most middle to upper class people. (Zongsheng, 2012)

With the further spread and popularization of wine consumption concept and


22

wine culture and with the further standardization and development of high-‐end

wine market in China, more and more consumers will become loyal customers of

luxury wine and there will be more and more industry development and

opportunities for luxury wine. (Yingxing, 2012)

• Multi-‐polarization of luxury wine brands

Nowadays luxury wine in China market is basically provided by some

famous French Chateaux; however, we also see the rise of luxury wine brands

from other countries. With wine quality no less than the one from famous French

Chateau, more production and more effective marketing strategies, their brand

competitiveness will be further strengthen. (Hong & Qiang, 2010) We can expect

in the next few years, premium luxury wine from other countries will further its

rapid growth and may even repeat the development momentum of French

chateau wine in recent years. In the contrast, the advantage of luxury wine from

French Chateau will gradually fade away in Chinese consumers mind in the next

3 to 5 years. (Yanyan, 2012)

• The emergence of dealer brands

Today China's luxury wine dealers are in an awkward situation, in which

most consumers value the wine brand rather than the dealer brand. In the entire

circulation of luxury wine, dealers have almost no voice. But in fact, the market

needs professional wine dealers of a certain advisory function, they should have

a certain influence in the consumption of customers and they can truly

recommend luxury wine of high quality to consumers. The role they play shall be

not only as dealers in the circulation but also as professional adviser. (Ailing,

2011)

• Industrialization of wine training

Wine culture and etiquette has become one of the most basic ways of upper

class’ life, which naturally lead to the development of wine training industry. In


23

the near future, wine culture and etiquette will be basic knowledge and life skills

that everyone must master, especially among rich and powerful in China. (Hong

& Qiang, 2010) We have reason to expect China will spring up hundreds of wine

training company. The rise of luxury wine consulting market will company the

flourish of wine training industry. More and more investments are made on wine

industry such as Chateau buying, wine cellar buying and corporate hospitality.

(Ailing, 2011) They all need professional guidance and advice, but at present

most luxury wine sellers lack professional knowledge and training, so that luxury

wine consulting market development space is huge. It is certain that wine

training and consulting will bring up a huge commercial market of value not

lower than the current one.

• False wine will gradually lose market

In the field of luxury wine consumption, 90% the luxury wine from some

channels is false and for some other channels it can even be 100% false, which

seriously affected the normal development of luxury wine market and also harm

the interests of luxury wine brands and distributors. However, with trends of all

above further to be a reality, particularly the emergence of channel specialization

and multi-‐polarization of luxury wine, false wine will gradually lose their market

space. (Yanyan, 2012) And with the rise and development of wine training and

wine consulting business, the increasing ability of distinguishing genuine wine

from false of the consumers can also help to kick false wine out of the market.

2.3 Investigation of consumer behaviors for imported wine

In order to study the preferences and behaviors of Chinese wine consumers,

I made an investigation by questionnaires. Through 50 questionnaires survey, I

found that Chinese consumers show obvious characteristics in the consumption

of imported wine. I will analyze in detail from 10 aspects below (major consumer

groups, characteristics of main consumers’ occupation, percentage of different


24

age groups’ drinking different wines, frequency of drinking and price choosing,

place to buy and drink wine, consumer psychology, characteristics of

consumption structure, population distribution of imported wine consumers,

views from imported wine consumers) to explain these characteristics in

imported wine consumption in China.

2.3.1 Main consumer groups

Overall, the young and middle-‐aged, highly educated, high income people

are the main groups of imported wine consumption. More men than women

prefer imported wine, and the majority of consumers aged 25 to 54. So we can

see, young and middle-‐aged male consumers are the main body of the imported

wine consumers. At the same time, with the improvement of level of education

and the increase of personal income, the tendency to drink wine is rising. The

average month disposable income of the main imported wine consumers is

between 5000 RMB to 7999 RMB (average month disposable income of all

residents in China is 1353 RMB). This illustrate that the high-‐income group is the

main group of imported wine consumption.

2.3.2 Characteristics of main consumers’ occupation

Imported wine consumers are mainly divided into three levels and have

characteristics as followed:

A. Enterprise owners and executives are the mainstream of the imported wine

consumption crowds

B. Company staffs who have a certain consumption ability and pay attention to

high quality of life

C. The general public who have a certain economic strength

2.3.3 Percentage of different age groups’ drinking different

wines

As for consumers who reach the legal drinking age and are within the


25

29-‐year-‐old, 59% drink red wine, 23% drink white wine and 19% drink rose

wine. And for consumers between 30 and 39 years old, about 62% of them

choose of red wine and the proportion of white wine and rose wine are 21% and

17% respectively. As far as people of 40 to 50 years old are concerned, the

proportion of consumers to choose red wine accounts for about 62%, and the

proportion choosing white wine and rose wine are 22% and 13% respectively.

Relatively speaking, elderly consumers prefer to drink red wine while young

consumers would like to drink white wine and rose wine.

2.3.4 Frequency of drinking and price choosing

Through the survey, the frequency of imported wine consumption is not

high. In general, those who drink imported wine more than once a month

accounted for only about 50%. And thus, it can be seen that the frequency of

Chinese’s current wine drinking is generally low. In addition, the price range of

imported wine consumption is mainly concentrated in 50 RMB and 200 RMB,

especially within 50 RMB to 100 RMB.

2.3.5 Place to buy and drink wine

According to the consumption inertia, in general, most of the wine

consumers buy wine through most common channels like supermarkets. In

Shanghai, for example, more than 73% of consumers choose to buy wine in

supermarkets and 13% consumers may buy in cigarette and wine shops. As for

consumption places, most people may drink wine in the KTV, bars, clubs and

other entertainment places. It is worth noting that at present wine consumption

is increasing for wine to act as a kind of holiday gifts, drinks in family/friends

parties, wedding banquet, etc.

2.3.6 Consumer psychology

Although there are still some consumers choose imported wine

consumption for the sake of “Mianzi”(face), with the development of wine


26

market in recent years, Chinese consumers are getting more and more

knowledge of wine. So imported wine consumption is tend to be rational. Brands,

origin of wine, product ranges and prices become standard for consumers to

choose wine.

2.3.7 Characteristics of consumption structure

There are more and more consumers preferring high-‐ends wine at present.

Most consumers participated in the survey said that under the comprehensive

consideration fine wine would be their main choice.

Data supporting: In Chinese wine consumption structure in 2012, the

proportion of wine consumption of high-‐ends wine, middle-‐ends wine and

low-‐ends wine are 50%, 40% and 10% respectively, in which year-‐on-‐year

increase rate of high-‐ends wine sales has been more than 50% over the past

three years. This suggests that high-‐ends wine consumption group is

increasingly growing.

2.3.8 Population distribution of imported wine consumers

Overall, most imported wine drinkers are in the first-‐tier cities. But in recent

years, the number of second and third-‐tier cities consumers is slowly rising,

especially in second and third-‐tier cities in Jiangsu and Zhejiang provinces like

Wenzhou and Ningbo. For example, as far as consumers between 30 and 39

years old are concerned, there are about 30% of the consumers of this age in

Beijing, 45% in Shanghai, 16% in Guangzhou and 9% in Wuhan.

2.3.9 Views from imported wine consumers

In the eyes of most of the imported wine consumers, drinking wine for

health care is the main reason, and the second reason is to relax and have fun.

What’s more, wine drinking represents elegance, fashion and romance.

Additional, alcoholic degree of wine is lower than spirits so it is not easy to be

drunk. Last but not least, most consumers consider that under the same price the


27

quality of the imported wine is higher than the one of domestic wine.

2.3.10 Knowledge level of origin of imported wine

According to the survey, the most familiar origin of imported wine for

Chinese consumers is Bordeaux, and people between 30 and 39 years old have

the highest level of understanding of Bordeaux wine, followed by those between

40 and 50 years old. And on the understanding level of Provence wine,

consumers within 29 years old and those between 30 and 39 years have the

same understanding degree of Provence wine. In terms of the purchase of wine,

consumers choose Bordeaux wine most. Of course, a new trend is emerging at

present, from the geographical point of view, the main consumer groups are

focusing on the wine of new world countries such as Australia, USA and Chile,

Argentina, etc. They would like to experience different tastes and different brand

concepts brought by different wine culture.

2.4 Competition situation of China’s wine market

2.4.1 Analysis of wine industry in China A. Life cycle stage of China wine industry


28

Figure 5: Life cycle stage of China wine industry

Industry life cycle refers to the total period of time for an industry from

emergence to complete withdrawal from social and economic activities. Industry

life cycle consists of four development phases: introduction period, growth

period, mature period and decline phase. Industry life cycle curve ignore specific

product types, quality, specifications and other differences, and it only considers

from the perspective of the whole industry.7 The industry life cycle stage model

is summarized as shown in the chart above. According to the theory, China wine

industry is still in the growth period. Reasons are as follows:

1) There is still great space for wine industry to develop in China. China's

current wine consumption per capita is 1 litre which is only 6% of the world

average level. And thus, the industry has a larger growth space.

2) The economic indicators show that China's wine industry is in the second

period of industry life cycle stage model, that is, growth stage. Enterprises in the

7 http://www.inc.com/encyclopedia/industry-‐life-‐cycle.html


29

wine industry are continuing to increase and industry profits are increasing. In

addition, industry revenue and profit growth begin to have a significant decline

but profitability is still in a high level. These indicators are consistent with

characteristics of the growth stage. B. Porter’s five force model for wine industry in China

Figure 6: Porter’s five force model

(Porter, 2008)

(a) Bargain power of buyers

There are many brands on the market so space for choices is large, which to

a certain extent, reduce the bargain power of buyers. With the gradual

integration of wine culture into Chinese culture, it has huge potential for future

development. On the analysis of the wine industry in China buyers should be

represented by wine distributors as wine dealers and retailers, since sales of

retailers account for 52% of market share while hotels, clubs and other trade-‐on

places accounted for 48%, mainly mastered by dealers. (Linsen, 2010) Moreover,

Competitive Rivalry within an industry

Bargain Power of Suppliers

Bargain Power of Buyers

Threat of New

Entrants

Threat of Substitute Products


30

food and alcoholic beverage retail market in China are scattered, which reduces

bargain power of buyers. In addition, wine can not only be differentiated by

vinification (e.g. dry wine, sparkling wine, etc.), but also by origin, grape variety,

taste style and so on, and such differentiation makes the wine distributors

provide wine as much comprehensive as possible for their customers, which

reduce bargain power of buyers to some extent. However, conversion cost of

choosing another product is not high and it greatly increase bargain power of

buyers. As a word, threats from buyers are neutral. (Aijie, 2006)

(b) Bargain power of suppliers

The main investment of wine producers is grapes and wine bottles. With the

rapid expansion of vineyards in recent years, domestic wine production industry

is developing fast. The manufactory scale of main producers is big, even if their

own or rent the vineyards, they still can't satisfy the demand. And thus they need

to buy grapes or grape juice from other producers. Most of the time, producers

use grapes from its own vineyard to produce high-‐end products while using

grapes or grape juice bought from a third party to make low price products. The

number of grapes or grape juice suppliers is large, which weakens the bargain

power of suppliers. (Xingyu, 2012) But many independent suppliers can find

other substitute market, such as fruit market, fruit sugar market, etc. All of these

factors strengthen the bargain power of suppliers. In these areas, the quality of

raw materials is critical and the quality of the finished products determined

greatly by the quality of grapes. All in all, threats from suppliers are no higher

than neutral.

(c) Threat of new entrants

The high speed of growth of wine industry in recent years will attract new

competitors to enter. The way can be establish a new company, diversify oneself

into the wine industry and increase imports for imported wine producers. (Ying

& Yu, 2012) Government regulations such as tag management constitute main


31

barriers to entry. In addition, although the import tariff has cut a lot after China’s

entering WTO, the value-‐added tax and consumption tax is still very high

accounting for about 50% of the total importing cost. (Wei, 2011)

High quality wine can be sold in a high price in the market, so it is possible

for small companies to enter market on a small scale producing high end

products. However for large companies, they produce not only high-‐end

products but also all kinds of popular products, which surely reduce company's

gross margin.

Wine producers need a wide range of distribution channels to sell products.

For example, supermarkets are buyers of strong bargaining power, and they may

reduce the ex-‐factory price of the products so as to reduce profits of producers.

(Aijie, 2006) The scale effect has as an important role in these markets and it is

another barrier to entry. For example, the high capital expenditure of the

construction of the factory, looking for a trusted third party to buy grapes or

grape juice and various other expenses for the construction of marketing

channels are all expensive. Not a sound distribution facilities also enough

barriers to entry into a market. (Yingxing, 2012) Although many distributors in

China, but the quarter lack of preserved wine must temperature control device,

which means that the manufacturers need to convince the supermarket, store,

and gene places to store their products. In general, new entrants threat is

neutral.

(d) Threats of substitute products

Other alcoholic beverages are all substitutes for wine. For retailers and

on-‐trade places, conversion cost between different products is very low, price of

unit volume may be higher (such as liquor) or lower (beer). It is hard to

determine which one is better of wine and its substitutes. The best storage

condition for white wine, champagne and beer is to be preserved in the freezer

(often impossible) making a high preservation cost. (Huaju, 2005) More than

often, liquor provides more benefits than wine and beer to sellers. However,


32

noting selling wine will be a competitive disadvantage in a certain places in big

cities in China. For consumers, they have different consumption habits to drink

different kinds of alcoholic beverages. Business negotiations in China often

involve luxurious banquet, and "cheers" is a popular culture. (Yancai, 2012) So

on this occasion, wine becomes more and more popular and begins to replace

rice spirits for the sake of health care. But most of the time, the choice is decided

by personal taste, so wine is vulnerable to the threat of other kinds of wine. In a

word, substitution threat is high.

(e) Competitive Rivalry within an industry

The concentration of China's wine industry market is relatively high, in which

the top three enterprises occupy nearly 50% of industry sales and about 70%

share of the profits. Powerful wine enterprises in the industry establish strong

brand effects, and buyers may have a relatively low switching cost between

different products, which intensify the competition. (Huaju, 2005) In addition,

major producers not only produce high-‐end products but also low-‐middle-‐end

products, and this means a higher investment in fixed assets deepening

competition in the industry. All in all, competition rivalry with industry is

neutral.

2.4.2 Comparison of domestic and imported wine market

Since the end of 1995, wine has been popular and touted in the China

market, which has given rise to high price of wine. For one hand, previously

grapes planting area for wine making was small which has caused to low

productivity and raw material supply tensions and eventually has led to a

perpendicular rise of price of wine. (Wenlong, 2012) For another hand, the

sudden popularity and fashion of wine has made a shortage of wine in the

market and a rapid growing price. To some extent, the increasing price of wine

has also stimulated the demand of wine consuming. As a result, in general


33

demand has been exceeding supply in China wine market. (Difei, 2012)

China's wine market includes two parts -‐-‐ domestic wine and imported wine

market. Chinese wine market is not independently existed; the opened Chinese

market has been connected to the world wine market.

In terms of domestic wine, according to the national bureau of statistics data

released in January in 2012, wine production in 2011 is 1.16 million tons,

achieving 13% of the growth rate. Since 2009, the production of wine began

leading in the alcohol industry in China, for the first time growing faster than

Chinese white spirit.

In the aspect of imported wine, China reduced wine import tariffs in January

in 2005 in order to promoted the growth of imported wine. Tariffs of imported

bottled wine decreased from 43% to 14% while on part of the bulk wine from 43%

to 20% in addition to the fixed value added taxes and consumption taxes. Wine

imports in 2011 were 361.6 thousand tons, with year-‐on-‐year growth of 27. 6%

and the import amount were 1.39 billion US dollars, with an increase of 80. 9%.

It is worthy noting that total amount of bottled wine was 1.27 billion US dollars,

with year-‐on-‐year growth of 94.05% while with the same total amount the

bulked wine fell 20% year on year in 2011. And thus, China’s imported wine

market is shifting from low-‐end to high-‐end. (Difei, 2012)

When it comes to the demand, we can find some clues in the following chart

of China’s per capita consumption of wine from 2002 to 2011 sourced from

China National Statistics Bureau.

The compound growth rate of wine consumption per capita in China over

the past five years was 23.79%, the number reaching 1.06 liters in 2011,

according to the data from national bureau of statistic. Comparing with the

global wine consumption per capita (3.47 liters in 2011), this number was still

less than one third of the global one, which indicated that it remained a large

developing space for wine market in China. Given that the economy in the

following five years is continuing booming and increasing rate is 25% every year,

the consumption will be three times as much as the current digital, which means


34

according to 50 billion RMB (around 8 billion US dollars) of wine consumption in

China in 2012, the number in 2017 can reach 150 billion RMB. From the data, the

growth rate of consumption per capita is 23.79% that is higher than the growth

rate of production (16%).

2.4.3 Analysis of main substitutes of wine in China

As far as wine industry in China, the main substitutes are white spirits, beer

and yellow rice wine.

A. White spirits

White spirits is a typical alcoholic beverage in China history of 5000 years and

has long-‐term influence in people’s tradition of drinking. It is actually a kind of

distilled liquor, generally about 40–60% alcohol by volume (ABV). According to

marketing and investment analysis and forecast report of Chinese white spirits

industry, the average growth rate of annual sales of white spirits has remained

30%, from 97 billion RMB in 2006 to 270 billion RMB in 2010. The growth rate

of 2011 even reached to 40%. What’s more, white spirits has the biggest share in

the China alcoholic beverage market. It is a strong competitor to wine. (Pingping,

2012)

B. Beer

According to data from China's wine industry association, the output of Chinese

beer industry continued to maintain a steady growth, up to 48.98 million tons in

2011, with year-‐on-‐year growth rate of 10.7%. Compared with white spirits,

beer industry has a lower growth rate relatively. But in the world, beer

production in China has maintain number one in the worldwide for four years in

a row, and China has been one of the world's fastest-‐growing region of beer

industry.

C. Yellow rice wine


35

Chinese yellow rice wine production was more than 1.5 million tons in 2012

while less than 700 thousand tons was used to drink directly. On the contrast,

most yellow rice wine was used for cooking wine and medicinal liquor of

traditional Chinese medicine. Of the total consumption of 700 thousand tons,

three quarters of the number comes from Jiangsu, Zhejiang, Shanghai and Hong

Kong. And it was consumed very limitedly in other regions. (Yan, 2013)

All in all, except for the slow growth of yellow rice wine, white spirits and beer

still have a large production and sales space. White spirits, in particular, still

maintains a growth rate higher than other alcoholic beverages in spite the fact

that national policy does not encourage white spirits drinking, which shows

white spirits has a strong vitality in China.

2.4.4 SWOT analysis of importing wine in China market

In order to understand and analyze the prospect and status quo of

importing wine in this emerging market, we need to use SWOT analysis to make

it clear.

SWOT analysis is a structured planning method used to evaluate

the strengths, weaknesses, opportunities, and threats involved in a project or in

a business venture.8 It involves specifying the objective of the business venture

or project and identifying the internal and external factors that are favorable and

unfavorable to achieving that objective. The technique is credited to Albert

Humphrey, who led a convention at the Stanford Research Institute in the 1960s

and 1970s using data from Fortune 500companies. The degree to which the

internal environment of the firm matches with the external environment is

expressed by the concept of strategic fit. The strengths and weaknesses are

internal to the organization while the opportunities and threats are presented

external to the organization. (Jyothi, Babu, & Krishna, 2008) 8 Humphrey, Albert (December 2005). "SWOT Analysis for Management Consulting". SRI Alumni Newsletter (SRI International).


36

A. Strengths

a) Quality and flavor

Most imported wine producers have advantageous natural environment and

conditions to make the imported wine of incomparable value. As an output of

agricultural by-‐products, imported wine has strict production standards and

grading system in most countries. In addition, when going across the Chinese

customs, those imported wine is conducted test for a second time by the National

Sanitary Sector. (Wei, 2011) In this way, imported wine is advantageous and

price worthy in either quality and flavor way or from the aspect of health

concept.

b) Maturing business model

These couple of years, foreign wine companies have growing interests on

the Chinese wine market, determining the general agents and dealers in China

and even setting up sales offices in China directly in order to combine sales and

production closely on the basis of China's national conditions. Moreover, they

view the Chinese wine market from the prospective of sustainable development,

constantly strengthen the contact with the market and offer professional

guidance and lead of imported wine culture.

At the same time, the professional level of domestic dealers are also in

unceasing increase and they focus on and made in-‐depth study of the sales

network, sales channels and sales mode which are the necessary directions they

have to strive on. Such competition and thinking also make the Chinese wine

market toward a healthy and sustainable developing obit. (Yan, 2013)

B. Weaknesses

a) Lack of knowledge of wine culture

For most European and American countries, wine drinking is just benign

fast food consumption since their consumption concept of wine is an


37

indispensable "food" or "drink" on the dinner table. However in China, due to the

lack of wine knowledge and culture as well as the influence of domestic spirit

culture, most people don’t have the habit of drinking wine with meals and how to

taste and appreciate a good wine. In other words, no mass base no real market.

b) Difficulties of brand promotion

In reality, there are few imported wine companies and their domestic

agencies or dealers that can support huge expenses of brand publicity and

promotion. (Wei, 2011) Since the reform and opening up of China, fast food

culture has occupied the mainstream position in people's life, which leads to

consumers’ value more on brand name other than real functions and effects of

products. Surrounded by overspread advertisement effect and strong market

support, the imported wine is suffering an eclipse and has no choice but to avoid

the traditional channels.

Most of imported wine is sold in direct sale stores, which brings about a

high cost of maintaining the operation of the company and the stores. Thus, there

is no price advantage for imported wine in the market. (Huaju, 2005)

c) Nonstandard wine regime

In recent years, there are more and more exposures of the food industry as

far as the unwritten rules are concerned, which make the standardization of

wine regime an urgent matter. For the moment, the Chinese wine market hasn’t

made connection to the international market, so the middle and lower market is

occupied mainly by some domestic wine brands and even fake wines. Without

supervision and administration of the wine industry, the development of the

market can be stemmed.

C. Opportunities

a) Frontier markets

With the improvement of living standards of Chinese people and with the


38

pursuit of higher quality of life, the imported wine becomes first option in this

huge market. Even under the shadow of financial crisis, the whole Chinese wine

industry is still booming by 15% of growth rate a year.

b) Appreciation of RMB

With the improvement of comprehensive national strength, in recent years,

the Chinese currency is rising and foreign exchange rate is continuously reducing

accordingly, which makes the cost of imported wine fall along with the drop of

settlement currency exchange. Consequently, it makes imported wine more and

more competitive in price.

c) Healthy development of the wine industry

The healthy development of the wine industry has also created a good

development space and opportunities for imported wine. Have sprung up in

recent years, a number of imported wine brand were introduced in the Chinese

wine market in spite of the fact that the market is still in the competition melee

situation. In the beginning stage of wine industry, a certain degree of disorder is

unavoidable. But in general, this young industry in China is still growing healthily.

As for integration, it is an inevitable step when the market develops to a certain

stage.

D. Threats

a) Industrialization and high-‐end orientation of domestic wine

Recently, one of the famous domestic wine brands is integrating its own

market, subdividing channels, setting up special departments in view of different

groups of customers. Besides, it is also busy enhancing the brand value and lay

emphasis on the high-‐end market. This case uncovers a fact that domestic wine

brands have already begun to change their marketing strategy from making

shoddy wine to guiding the industry development orientation and raising up the

level of the brand value. (Wenlong, 2012) For the imported wine, this can


39

obviously be a serious challenge. The stereotype image is collapsing that

domestic wine is in low quality while imported wine is in high quality.

b) Vicious price wars

Due to the fierce competition in the market, the buyers gain more and more

power of pushing price down, which finally lead to a price war between wine

suppliers. (Yancai, 2012) In this way, enterprises only pay attention to the

present market and their bases, regardless of the overall brand value and the

added value of products, and finally tends to be a lose-‐lose game. Once the

vicious price war starts and the normal profits of products are sacrificed,

although a number of dealers will be eliminated and forced to leave the market,

it also can make sales embarrassed and be harmful to the long-‐term strategy.

c) Overflow of false wine and pirate imported wine

Price wars are mentioned above. Actually because of price wars, many

importers choose to subpackage the wine in China with the low cost of labor and

raw materials while pretending it to be imported with original packaging.

Besides, consumers have a more cordial abhorrence of false wine that is

emerging in endlessly. The significant example is wine of Chateau Lafite

Rothschild. It is reported that in 2012 the total annual output of Chateau Lafite

wine was 240 thousand bottles and 50 thousand bottles were imported into

China. However, the total domestic sales of Chateau Lafite wine were 2 million

bottles. That is to say, 90% of Chateau Lafite wine sold in China was false.

(Yanyan, 2012)


40

3. Marketing strategy for imported wine companies

There are more and more imported wine brands introduced in China

market and under the comparison of similar products, the differences of flavor

and taste are not so obvious. So under such circumstance, it remains a big

question how to guarantee the market share and maintain customer loyalty.

The concept of “survival of the fittest” can also apply to the wine market. In

the current environment of fast growth of wine consumption, the first step to

enter market and attract investment is not so difficult. For example, bills are

easily signed in many imported wine promotion and tasting exhibitions.

However, it is somehow difficult how to transfer products from warehouses of

domestic agents into the consumption value of the domestic market. Because, at

least at this stage, the cultural cognition of imported wine for the vast majority of

Chinese consumers is limited to origins of wine; Combined with the language

differences and numerous brands of imported wine, it is difficult for Chinese

consumers to have clear brand recognition from those foreign wine labels. (Wine

Intelligence Organization, 2013)

So for those brands that want to survive and develop in the Chinese market

for a long time, how can they influence consumer loyalty so as to gain larger

market share under the difference of consumption culture? Whether to make a

price war, advertising campaign and terminal war just like what domestic spirits

have done? Although marketing pattern is varied when exploring the market-‐-‐

the so-‐called marketing without set, the essence of marketing is constant, i.e. the

process of finding value, finding demand, creating value and meeting demand.

For imported wine, the nature and essence of marketing is to focus on the

core value of the origin of wine’s culture. French sell wine by selling romantic

culture and thus bring their wine to all over the world. However, not all wine

regions can sell wine by selling romantic culture, such as British and Germans

who are famous for their conservative and traditional image. Every origin of


41

wine’s culture is full of characteristics, and therefore, what most attract Chinese

consumers are the differentiation of cultural features of origin of wine and the

asymmetric marketing strategy.

Therefore, under the guidance of this direction, the following strategies are

feasible and effective.

3.1 Channel strategy

There are many kinds of channel models but there are few that can adapt to

the resources and culture of a certain imported wine and its operators.

Traditional selling in supermarkets are just a survival mode of imported wine,

which is an inevitable channel terminal for the enterprises’ existing resources to

achieve at a low cost. However, most channel terminals like supermarkets are

selling products rather than brands, and therefore, it will be more attractive to

sell imported wine in channel terminals that are able to show culture amorous

feelings of origin of wine. So the first option is to create channel terminals that

are associated with culture amorous feelings of different origin of imported wine.

3.2 Experience marketing

Culture needs communication process to affect and influence more people.

For example, periodical culture communications of origins in the form of tasting

exhibition are one of important processes to loyal customers and guide them to

fully understand and accept the wine culture. Actually, selling imported wine is

same selling domestic wine and white spirits, which is absolutely a process of

culture marketing. And it is a promotion mode in success rate at present.

3.3 Trace marketing

Trace marketing includes two kinds of way cultural trace and origin trace.

Its aim is not just to experience different amorous feelings, but also to solve the

unanswered and curiosity from domestic consumers for imported wine, since

the cultural nature of wine is not just a kind of alcoholic beverage but an


42

extension of the culture of grapes. In addition, field trips and cultural tours to the

origin of imported wine can not only satisfy the desire of Chinese people to travel

abroad but also a brainwashing process to the target customers, and it is also

effective to dealers.

3.4 Database marketing

China's wine market and wine consumption culture remains in the initial

stage. Since traditionally Chinese people love the taste of sweet, it makes

difficulty for Chinese wine consumers to form the consumer loyalty for dry wine.

Market is made up of countless consumers and their consumption behaviors. For

example in terms of selling dry wine, first of all, it is essential to identify

consumers and potential groups who have preferences and acceptance for dry

red, then find them and influence them, and finally form the basis of market

resources-‐-‐ making them loyal consumers and disseminators for dry wine.

Therefore, building database of targeting customers is necessary for imported

wine of individualized consumption in the present stage. And in fact this job is

now the focus of many domestic wine promotion agencies to promote imported

wine.


43

4. Conclusion

Wine, as a popular alcoholic beverage with a long history in the European

countries, is relatively new to China’s consumers. Although the first appearance

of wine in China’s history was 2000 years ago, wine was always standing outside

of mainstream. It was not until 100 years ago that the first domestic wine

producing company was set up and it was not until 1990s that wine was formally

walking into Chinese people’s eyesight and become one of daily alcoholic

beverages on the dinner table.

At the moment, global wine industry annual growth rate is less than 1%

while the annual growth rate in China is more than 30%, especially for imported

wine the number reaches to 65%. In such an attractive market, there are

opportunities and challenges. With the population of imported luxury wine—just

like “Lafite phenomenon”, there has emerged false wine that is harmful to both

wine brands and consumers. In spite of fast speed of expansion of wine, today

average annual consumption per capita in China is still in a low level—almost

one seventh of the global number, which to some extent shows the great

developing space for wine. With the popularity of wine knowledge and the deep

influence of wine culture, Chinese people will gradually get used to wine and

consider it as daily drinking as European do. For the moment, the majority of

wine consumers in China are Prestige-‐Seeking Traditionalists who has high

social status and high income. They have a lot of chance to meet wine in their

business life and tend to choose the fine wine from Bordeaux and Burgundy.

In a word, imported wine has a bright prospect in China market. However,

with more and more imported wine brands introduced in China market and

under the comparison of similar products, the differences of flavor and taste are

not so obvious, it still remains a big question for every imported supplier how to

guarantee the market share and maintain customer loyalty. Under this

circumstance, there are four marketing strategies provided for imported wine

producers—channel strategy, experience strategy, trace strategy and database


44

strategy. The main purpose of channel strategy is to set up new channel

terminals that show culture amorous feelings of origin and brand of wine rather

than selling wine in supermarkets without any personality. Experience strategy

is mainly focus on taking place culture communications of wine like wine tasting

exhibitions to make customers experience the culture and taste at the same time.

Trace marketing includes cultural trace and origin trace, in which field trips are a

good idea to “brainwash” potential customers. As for database strategy, the

objective is to identify and target potential customers for the brand and

afterwards build database for targeting customers to make appropriate

marketing campaigns.


45

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