The Chinese market is the biggest market by value for Australian wine. Exports to mainland China contributed 60% of the growth in the value of all Australian exports at $10 and above per litre FOB in the twelve months to September 2016. A huge one-third of Australian wine exported in this price segment is now exported to mainland China. This is now a market where the oft-discussed potential of Australian wine is becoming reality. One clear part of the opportunity is eCommerce in China. While online sales currently contribute just 11% of total retail sales in China, this is a much higher rate than many Western countries. And online retail sales in China are growing at a rate of over 50% every year. In this blog, we take a look at the opportunity that eCommerce in China presents for the Australian wine community, and ask how can you take advantage of this key distribution method?
‘You’ve got hundreds of millions of people coming online in terms of wine drinking, wine buying and middle class living. If you are not there, then where are you going to be?’ Robert Joseph, The Wine Thinker
An overview of the Chinese wine market
Although China is inhabited by over one fifth of the world’s population, much of this market of 1.3 billion people is currently outside the reach of wine marketers. Chinese wine consumers are generally found in the economic growth regions – Beijing, Guangzhou and Shanghai. Why is this? Well, consumption of wine in China, especially imported wine, is closely related to consumer purchasing power and these are the places where most the middle class people live. Further, studies have indicated that it is mainly young aspiring people working in these major metropolitan areas who are China’s potential wine drinkers. Current per capita wine consumption in China is only one-quarter of the world average at 0.8 litres annually. If the population of wine consumers is adjusted to reflect just the economic growth regions the consumption per capita would be around 2.7 litres.
‘What we are seeing now is the emergence of younger consumers taking an interest in wine… They are buying wine for consumption rather than gifting and they are seeing it as an aspirational lifestyle choice, and that just means there is a lot of opportunity.’ Jamie Sach, Penfolds Global Ambassador
With China’s vast and increasingly urbanised population, the continued expansion of the overall market can be expected. Recent years have seen the demand for red wine skyrocket, largely at the expense of traditional rice wine. China is now the biggest market for red wine in the world. Dry wine styles have driven much of the recent growth and have also become more favoured than sweet wines. Cabernet Sauvignon remains the most popular grape variety in the market, although Merlot has experienced rapid growth in recent times. Around 75% of wine consumed in China is red wine assisted by the symbolism of the colour red with luck, wealth and power.
eCommerce in China – what else is there?
For some, like Robert Joseph, the conversation around the importance of eCommerce in China is somewhat moot. ‘I don’t think we should be talking about eCommerce in China. We should talk about what else is there?’ While it may seem a bit extreme right now, when you consider that it is predicted that over 50% of China’s consumption will be conducted online within 10 years, then Robert may have a point. Also, an increase in middle class Chinese consumers shopping online has driven overseas online purchasing growth in China. In a particularly encouraging sign for the Australian wine community a recent Nielsen survey found 38% of shoppers in Tier 1 cities like Shanghai and 27% in Tier 2 cities like Nanjing currently make cross border purchases online. Effective April 8, 2016, wine was included on the list of products that can be traded through Cross-Border E-Commerce channels.
‘There’s a statistic I’ve seen recently that says that 85% of young Chinese people never, or almost never, go into shops. This is a country in which people are almost born holding smartphones and ready to use them. And If you are not in the eCommerce world, then you are not there. Tmall , particularly, JD… There’s a whole range of them. You’ve also got mixture now of ‘clicks and mortar’ stores like 1919.com with huge numbers of stores that are guaranteeing nineteen-minute delivery from one of their thousands of stores.’ Robert Joseph, The Wine Thinker
What are Australian wineries doing with eCommerce in China?
To assist Australian wineries looking to engage Chinese consumers in this space, a flagship Australian wine online store was launched in 2016 on Alibaba Group’s business to consumer platform, Tmall.com. Alibaba Group accounts for half of China’s online wine sales and earlier this year, Alibaba Group’s Founder and Chairman, Jack Ma, announced he expects ‘triple-digit growth’ in its wine business in the next three years. The online store, constructed and operated by Vinehoo.com, one of China’s leading online wine retailers, initially stocked 10 brands from 8 Australian wine regions, including Brokenwood, Coriole, John Duval, Pikes and Voyager Estate. Vinehoo.com will support the venture, facilitating fulfilment of all orders. It provides a new platform to build the profile of Australian wines and our key regions amongst Chinese consumers.
‘The opening of the store is a landmark moment that builds on a year of strong growth for Australian wine in the Chinese export market. It opens up another commercial opportunity for Australian wineries to tap into China’s growing appreciation for our fine wines.’ Andreas Clark, CEO of Wine Australia
Commenting on the store opening, Maggie Zhou, Managing Director of Australia and New Zealand markets for Alibaba said, ‘The partnership… will allow local winemakers to access the 434 million active consumers across our China retail marketplaces. As the domestic wine sector in China is yet to reach maturity and Australian wines are considered world-class and come at varied price points, the opportunity to sell to China’s burgeoning middle class is significant. Beyond established, well-recognised Australian wine brands, there is also strong potential for smaller producers to gain traction internationally. With the opening of Alibaba’s Australian office in late 2016, our local team will be helping winemakers of all sizes effectively market their products, navigate distribution channels and align to overseas preferences,’ Ms Zhou said.
The future’s bright, the future's eCommerce in China?
It’s exciting for the Australian wine community to see companies with the size, reach and influence of Alibaba recognising the opportunity for Australian wineries in eCommerce in the Chinese market. This will make it easier for new to market exporters to enter the market and explore new growth opportunities.
This is something that Wine Australia’s Head of Market for China, Willa Yang thinks is an important strategy for potential exporters to explore, ‘If Australian wineries are thinking of entering the market, then eCommerce is definitely something they should consider as part of their market entry strategy.’ But it’s not just important for new to market exporters, as these opportunities could also allow existing exporters to expand their reach to China’s emerging wine consumers. What makes this even more exciting is that this is currently just one of the many opportunities for Australian wineries to explore. And with the predication that over 50% of China’s consumption will be conducted online within 10 years the potential for eCommerce in China to become a vital part of the mix for marketing and selling Australian wine is almost limitless.
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