Photo: Wine Australia

The rise of China’s online wine market

Market Bulletin | Issue 133
Photo: Wine Australia
13 Nov 2018
tagged with china , market bulletin , e-commerce
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China is undoubtedly the most progressive nation when it comes to embracing e-commerce, not only providing alternative distribution avenues for Australian wine sales, but also more direct ways of promoting Australian wine. To acknowledge this rapidly changing environment, new categories were created for the Wine Australia China Awards 2018, held yesterday (Monday 12 November), to highlight outstanding promotional campaigns for online stores and online wine communicators.

The McKinsey Global Institute has reported that between 2005 and 2016, China’s share of the global e-commerce market grew from less than 1 per cent to 42 per cent. It also handles more transactions per year than France, Germany, Japan the United Kingdom and the United States of America combined.

Online retail events such as Alibaba’s Singles Day (11/11) held on Sunday certainly demonstrates the power of e-commerce. It was reported that shoppers spent more than $US30.8 billion (gross merchandise value) in 24 hours which smashed the previous record set in 2017 of $US25.3 billion.  

When it comes to wine-buying channels for Chinese urban upper middle class imported wine drinkers, Wine Intelligence reports that online has been growing (from 45 per cent in March 2015 to 48 per cent in March 2018) and certainly closing the gap with wine purchased from a specialised wine shop (58 per cent in March 2018).

Figure 1: Wine buying channels of Chinese urban upper middle class imported wine drinkers

Source: Wine Intelligence

The domestic platforms that dominate the market for wine purchases, according to Wine Intelligence, were JD.com (42 per cent share of online or physical stores), Amazon.cn (22 per cent) and Alibaba’s Tmall (33 per cent) and Taobao (14 per cent). While online platforms were once associated with lower priced wines, retailers such as Alibaba are now focusing on brand building and improving the quality of products.

According to Exact Data (www.exactdatacn.com), in the year ending July 2018, 59 million bottles of both domestic and imported wine worth RMB5.25 billion were sold through JD.com, Tmall and Taobao. Compared to year ending July 2017, value increased by 33 per cent but volume declined by 19 per cent.

Overall results for online sales from Exactdata indicate that the growth in sales value has occurred across all price brands excluding bottles priced under RMB50.00 (roughly equivalent to A$10 a bottle) which dropped by 18 per cent in year ending July 2018. Most of the growth in value came from wines priced at RMB500 a bottle and above (roughly equivalent to A$100) to make up 42 per cent of sales value generated in year ending July 2018. High quality wines have traditionally been purchased for gift giving, and this is still the case through online channels. When reviewing the monthly patterns, it becomes apparent that large variations in retail value are being observed around the months that coincide with major events in China. Tmall’s 9.9 Global Wine and Spirit Festival saw the percentage of wines priced RMB350 and above (roughly equivalent to A$70 a bottle) increase from around 10 per cent or less in the months prior, to more than 70 per cent in September 2017. More premium wines were also sold during the Chinese New Year, which drove the proportion of retail value to rise to 63 per cent during February 2018, mostly due to gift giving as opposed to simple wine purchasing.

Figure 2: Proportion of retail sales value for price bands

Source: Exact Data

Dry reds were the dominant category purchased online, making up 88 per cent of bottles sold in the year ending July 2018. But when it comes to growth, dry red purchases grew by 5 per cent on year ending July 2017, whereas there was an increase of more than 100 per cent in number of sweet and dry whites purchased (but off a very low base).

When reviewing the origins of the top selling wines sold online in China, almost half (47 per cent) were from France while Australia provided just 10 per cent. Australia’s ranking fluctuated each month, but over the 12-month period, on average it sat third place behind France and China. In the previous twelve-month period, Australia averaged in fifth place. In moving up two places, the volume of Australian wine sold online increased by 61 per cent.

Wine Australia’s partnership with Alibaba

In May 2018, Wine Australia and Alibaba signed a Memorandum of Understanding to better showcase Australian wine on the fast growing e-commerce platform, Tmall.

As part of the MOU, the Wine Australia team in China have been enhancing the Tmall Wine Australia Flagship store – australianwine.tmall.com. David Lucas, Regional General Manager North Asia, reported at the Exporter Update 2018 that Wine Australia has the opportunity to promote the Flagship store as the route into Tmall. The Wine Australia store currently hosts 36 brands as well as enabling consumers to access other existing Australian flagship stores with the links, and it is expected that this will grow over time. Across Tmall.com, there are 150 Australian brands currently available for purchase, but with only 3 flagship stores, it appears that a number of exporters are using their distributors or some other way to get into the platform.

Photo: Wine Australia

E-commerce as a route to market

But while it appears that e-commerce is booming, it can actually be difficult to access and hard to grow. Therefore, in order to drive traffic to online channels and ensure sales, it is essential that businesses have sound strategies in place that includes promotion through both an on and off-line presence.

Businesses interested in pursuing this avenue should seek advice from Austrade and Wine Australia’s in market teams to assist in understanding the complexities of e-commerce.

Mr Lucas counsels that while online wine sales are growing in China the big picture growth should not obscure the need to develop sound brand strategies to drive people to purchase a particular brand online.

‘Just getting your wine online is not the path to the golden goose. There must be a very solid strategy to build brand recognition and consequentially drive traffic towards that online purchase decision – and that is the greatest challenge’, he said.

Recent presentations relating to e-commerce in China were delivered at the Wine Australia Exporter Update 2018. These provide detailed and practical insights for wine exporters to help understand the changing route-to-market and the critical role of e-commerce. View these now on the Wine Australia website – Insights into selling wine in China.