China Export Report, China's emerging middle class

China's emerging middle class

How is this driving a rapidly maturing wine market?
China Export Report, China's emerging middle class

Wine Australia’s most recent Export Report showed that Australian wine exports to the Chinese mainland grew by 40 per cent to $520 million in 2016. The latest export figures reflect three years of consecutive growth and cements China’s place as Australia’s most valuable wine export market since it overtook the United States (US) in September 2016. Supporting this value growth is the Chinese demand for premium Australian wine that continues to soar, with bottled wine exports growing 38 per cent to $490 million. Exports priced $10 per litre and more free on board (FOB) now account for 44 per cent of the bottled export value.

A buoyant Chinese wine import market is fuelling growth in Australian exports. Australia’s share of the market increased by 1 percentage point to 24 per cent compared to the previous year in value terms, ranking it number two after France. Spain, Chile and Italy also increased market share while France, the US, South Africa and New Zealand all lost market share.

Growth of Chinese middle and upper classes

The implementation of the China-Australia Free Trade Agreement at the end of 2015 gave impetus to an already strong market. Tariffs on Australian wine exports will reduce to zero in 2019 at which point the full impact of this agreement will be felt. The major factor driving growth however is the rising Chinese middle and upper classes who are increasingly interested in wine and wine culture. According to Wine Intelligence, the number of imported wine drinkers grew from 38 million in 2014 to 48 million in 2016.

Please note: Upper-middle class

  • Personal monthly income of at lease 6,000RMB before tax in Beijing, Guangzhou, Shenzen and Hangzhou
  • Personal monthly income at least 5,000 RMB before tax in Shenyang, Chengdu, Wuhan, Chongqing, Changsha, Zhengzhou and Guiyang
  • Imported wine drinkers: consumers who drink imported wine at least twice a year 

Expansion of the Chinese middle class has driven demand for wines in the entry level and commercial wine price segments. Australian wine, which is perceived by Chinese consumers as ‘authentic’, ‘exciting’, ‘sincere’, ‘strong’ and ‘reliable’ in research conducted on behalf of Wine Australia by Roberta Crouch (University of Adelaide), is especially welcomed by local Chinese wine consumers.

‘The ‘ganbei’ (bottom-up) culture is also being slowly replaced by a more moderate drinking culture. Chinese consumers are looking for diverse and high quality wines. These changes in the local wine culture and in consumer tastes is well-aligned with the Australian wine offering and it’s Australian wine that is capitalising on the development of the China wine market.’

Terry Xu, certified Australian wine educator, founder of Aroma Republic

Australia as a fine wine producer is on the rise

Not only is Australian wine strongly perceived as food friendly and good value for money, its perception as a fine wine producer is also on the rise. Bottled exports account for 94 per cent of Australian exports to mainland China. The fastest growing price segment for Australian exports (and second by absolute growth) was the $20–50 per litre FOB segment which increased by 82 per cent, followed by the $100 per litre or more FOB segment which grew by 65 per cent.

This trend is not only reflected in the ‘traditional’ retail wine market, but also online channels. According to Wine Intelligence, with approximately $630 billion of sales in 2015, China’s online retail market is now the world’s largest. China had 21 million online wine shoppers in the first half of 2016, a 31 per cent increase on 2014 figures. The internet has surpassed hypermarkets and department stores to become the second most popular channel to buy wine, after wine shops and speciality liquor stores.

‘According to our statistics, the average spending of each wine order has increased. Premium wine brands are more popular among Amazon customers. For example, the Penfolds Bin series is one of the best performing ranges across all wine brands. We’ve also seen Amazon’s direct import sales for Australian wine dramatically increase year on year.’

Joanna Zheng, Senior Director of Amazon China

As fast as the middle class is growing, mainland China’s ultra-wealthy numbers are growing even faster. According to wealth research firm Hurun, ‘China's billionaire population first surpassed the US in August 2016 and Beijing has also passed New York as the billionaire capital of the world’. These wealthy Chinese consumers are demanding the world’s finest wines and Australian wineries are taking advantage of this trend.

‘Most of my clients are in the upper and ultra-wealthy classes. In general, they are still drinking famous labels. Besides price, they are also concerned about buying genuine products and ensuring that the wine is stored correctly. People are now more willing to try new wines, and they have an increasingly positive perception of Australian wine.’

Ned Cheung, certified Australian wine educator, Senior Consultant at Hart Davis Hart APAC

Apart from wealthy individuals, many have heard of ‘corporate purchase’ – selling wines to banks, insurance companies and other big corporates – which has become a unique channel for selling premium wines in China. The austerity measures implemented in late 2012 had a significant impact on the sales of premium and ultra-premium wine by the Chinese government, however the Chinese culture of gift giving, especially in the business world has meant that corporate purchase sales have continued to be strong. 

Although a large proportion of wealthy consumers prefer drinking ‘famous’ wines, it’s becoming clear that consumer wine knowledge is increasing. Chinese consumers are more exposed to Western culture than ever before, resulting in a growing curiosity and interest towards wine. Tourism Australia data for the year ended September 2016 shows that a record 1.1 million Chinese tourists visited Australia, an increase of 22 per cent on the  previous year.

‘An increasing number of Chinese people are embracing wine. As their wine knowledge increases we see how it affects their drinking behaviour. For example, diners at hotel restaurants are becoming more aware of wine drinking culture and habits such as food and wine pairing, and ideal temperatures at which to serve wine.’

Adrian Zhang, Wine Director at Park Hyatt Shanghai

What about the second and third tier cities?

Increasing urbanisation and rising incomes combined with an uptake of wine culture will continue to propel wine consumption in China. There remains great potential for increased wine consumption among consumers in second and third tier cities who are just starting to learn more about wine and wine culture. Interestingly, consumers in the smaller cities are outspending those in the higher tier cities so it’s important that we share the Australian wine story in these second and third tier cities to secure market share for our wines as their wine knowledge and appreciation for wine grows.

Wine Australia will again host Australian wine pavilions at key trade shows in China such as the Chengdu Food and Wine Fair in March and ProWine China in November. The Annual China Roadshow will visit a range of cities in May, engaging local media and trade. It’s important that we continue to work closely with the most influential wine professionals, retailers and importers in China to introduce an ever diverse range of premium Australian wine to these key gatekeepers and to continuously showcase the ‘premium Australian wine’ message to the broader Chinese wine consumer.

Disclaimer

This information is presented in good faith and on the basis that Wine Australia, nor their agents or employees, are liable (whether by reason of error, omission, negligence, lack of care or otherwise) to any person for any damage or loss whatsoever which has occurred or may occur in relation to that person taking or not taking (as the case may be) action in respect of any statement, information or advice given via this channel.


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