Australian wine exports to China are booming. In 2015–16 they surged ahead with the total value increasing by 50% to over A$419 million. Headline figures like these give the impression of a bonanza, however, business is rarely that straightforward. Across the country similar questions are being asked by businesses who feel they are missing out on the opportunity that China presents. ‘Why aren’t my sales growing at that rate?' is a common question I hear. A dig behind these headline figures sheds light onto why this may be the norm, not the exception... Drill into the Chinese numbers and we find that the picture for Australian wine exports is nuanced and exciting. in the second half of 2015–16 exports actually slowed while in the last 6 months the value increased by a whopping 33% compared to the first half of 2015. Comparatively, this figure is less than half the rates recorded in the lead up into the 2016 Chinese New Year (see Figure 1). With over a quarter of wine exported to China in the two months leading into the festival, this period has an over-weighted effect on the annual figures. Add to this the fact that there is a higher base rate in 2016, then increasingly large absolute growth is required to maintain the rate of growth. However, the slowdown in absolute growth is a much larger factor than the higher base rate.
Figure 1: Chinese growth rates by period length Source: Wine Australia export approval database
There are two other major factors at play here, ones that have reduced the average rate of growth recorded for the bulk of individual wine export businesses. These are the additional levels of competition that have entered the Chinese wine market and an element of consolidation amongst Australian exports. Figure 2 shows the exporter category that is driving growth in the Chinese market. Each exporter to China has been classified as; businesses with Chinese equity, major wine exporters (top 10 Australian exporters), medium wine exporters (top 11 to 30 exporters), traders, new exporters (enter), exiting exporters (exit) and other (the bulk of Australian exporters).
Figure 2: Growth in exports to China by exporter category Source: Wine Australia export approval database
Australian wine exports to China: growth through consolidation
What the figures clearly demonstrate is that consolidation among Australia’s major wineries has been responsible for the largest segment of growth. This is illustrated by the ‘major’ segment, which contains Australia’s 10 largest exporters to the entire world. As a group, their wine exports increased by a staggering 105% during the past year. These 10 wineries now account for 35% of the value of wine exports to China – up from 29% the year prior and 20% in 2013–14. Although strong growth has been recorded by these businesses, there has been an element of artificial growth as some of them have taken a more direct route to market. This is also a major factor in the tapering of export growth in Singapore and Hong Kong in particular. As a group, the medium sized exporters (defined as Australia’s top 11 to 30 exports) recorded growth at a slower rate but sit was still up 26% through the year. The second largest contribution to growth in Australian exports is the net effect of additional exporters. New Australian wine exporters brought in an additional A$61 million worth of revenue and if you factor in the effect of businesses exiting the market, the net effect of exporters entering the market was an additional A$38 million in exports. In this group, 512 exporters joined the ranks while 266 exited the market for a net increase in exporter numbers of 246. This surge in exporter numbers inflate the headline figures and means that the existing exporters would need to outperform their peers to meet the headline growth figures. Chinese equity commonly makes the headlines in Australia and these strengthened relationships would logically be beneficial for those wineries’ exports. Although by no means an exhaustive list, nine wineries with some form of Chinese equity were identified. As a group, their exports increased by 41% during the year. Another group identified has been categorised as ‘traders’. These exporters have been identified as those that export big brands, but do not own those brands. This trade is commonly known as ‘grey trade’. Again this is not an exhaustive list but gives an indication of the size and performance of this cohort of exporters. These products can be sourced as simply as purchasing online or through the domestic retail channel. The 70 exporters that were identified shipped A$45 million (up 40%) worth of wine during 2015–16. This leaves the bulk of the Australian wine exporters, which have been labelled as ‘other’. These exporters have been in the market for at least two years and are the small to medium enterprises (SMEs). There are 589 exporters in this category and as a group their exports increased by 14% to A$163 million. There is also a large distribution of export performance in this group with 330 recording an increase in revenue while the remaining 259 recorded a decline in export revenue. For an SME, this would be the most relevant growth rate for bench-marking purposes.
Australian wine exports to China: the future is bright
A standalone statistic can rarely tell the full story, no matter how good a headline it makes. But in the case of wine exports to China, Australian wine does have an awful lot to cheer about. Yes the sector growth is still dominated by the big brands whose sales are simply flying at 105% growth, but with traders seeing 40% growth and the anonymous yet crucial SME set, 'other' seeing 14% export growth, the wine sector as whole is enjoying quite spectacular growth in China. The opportunity for Australian wine in China is in no doubt and with Australian wines moving to meet the growing Chinese demand for premium wines, it is an opportunity that looks set to grow.
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