Bottled wine imports to China declined sharply in H1, and market headwinds remain strong
China’s bottled wine import figures in H1 2019 are a sharp reminder that wine imports into the market will be increasingly volatile in the years ahead.
With overall volume of imports down 14.8%, and overall value down 19.9% in the first half of 2019, the picture appears to be a fairly bleak one for China’s wine industry. It has even been reported that there were over 2,000 importers going bust in China in the first 5 months of the year, although these figures have been questioned. In a market that is still very fragmented and still rapidly maturing, the question of whether this decline in imports reflects a true softening of consumer demand still remains.
“China wine import stats in any given year must be taken with a huge pinch of salt, bearing in mind the fragmentation of brands and importers, and the frequent habit of trade loading and dumping that is so common in the region” said Nimbility Founder and CEO Ian Ford. “I have seen critics dance on the grave of the China wine market in one bad patch, only to see the market come roaring back in the year following. If anyone believes that wine consumption in China is that far down or in decline I think they are sadly mistaken. In fact I see it moving in the polar opposite direction over the next few years and beyond” said Ford.
Confusing the message of China’s wine imports, other categories of premium alcohol still appear to be thriving in China. Moutai, China’s signature ultra-premium Baijiu brand, is experiencing all-time highs in terms of sales in China and a resulting company valuation which is now twice that of Diageo. Likewise, the Cognac category in China continues to expand rapidly following a strong 2018, and is enjoying even faster growth of value than of volume, indicating a healthy premiumization of the category.
Unsurprisingly, wine from the USA has taken the biggest hit in 2019. Imports dropped by 50.4% in volume and 58.1% in value. The on-going trade war, which has American wines subject to now to a total tax of 118%, twice if not three times the taxes levied on other wine countries, is undoubtedly taking its toll on American wines’ prospects in China.
France was another big decliner in H1, down 28.3% in volume and 39.1% in value. The drop of 15.1% in average price per bottle may indicate a shift with importers more focused on the cheaper end of the spectrum.
South Africa and Spain also saw significant drops. A ray of light, perhaps, that South Africa managed to increase its average price by 3.5%. Italy was down more significantly in terms of value, 19.8%, as well as a 13.7% drop in average bottle price, suggesting, like France, a shift towards more affordable wines. New Zealand’s growth in volume but drop in value and average pricing likewise reflects this overall trend.
The positives, though few, are significant. Australia overtook France for the first time in value terms although remained flat in terms of overall growth, a result driven mainly by France’s current demise. Average pricing at US$5.03 a bottle is significantly higher than France at US$3.81.
The clear champion of H1, however, is Chile. Up 4.7% in volume and more significantly, considering the premiumisation push that Wines of Chile has been making, up 8.8% in value with average pricing up by 4%. Chile’s reputation as a country with an exceptional price to quality ratio is widely considered second to none. Although they have some way to go, Australian wine has established a market for fine wines from the New World, and Chile can ride on Australia’s coat-tails and gain significant market share in the years to come.
Market conditions are more challenging in China this year for brands and importers, but the irrational exuberance of the past few years towards China has now been replaced with disproportionate pessimism. The foundation of consumer interest in wine in China is rock solid, consumer consumption is still set to grow significantly from a very low per-capita base, and savvy producers will see this period as a chance to shore up their brand and their route-to-market and prepare for the next sustained phase of growth.