This article was published originally on Meininger’s Wine Business International on Feb.15, 2018 (https://www.wine-business-international.com/wine/power-lists/myths-about-chinese-market).
For the past decade, everybody’s been talking about China and its potential as a wine market. Which is as you’d expect, because it’s already an important market that’s only going to get stronger. But if you’re thinking about doing business in China, or you’d like to do more, you need to know what’s good market information and what’s just a myth.
The top 10 myths, in no particular order:
1. China is a big country
Geographically, China is huge. In market terms, however, it is small. While the Chinese wine market shows impressive growth in relation to other markets, it’s still in its infancy and yet to realise its full potential. Treating it as a developed market is a recipe for frustration. China won’t be relevant to many smaller wineries until the big brands have done the work of penetrating the market fully and converting consumers to wine.
2. China is one country
In political terms, yes. For doing business? No. Instead of thinking in terms of first-tier, second-tier and third-tier cities, treat every city with a population of more than a million as a single country. There are six provinces in China that have a population of fewer than 10m, making them smaller than many European countries — and just as different. Even the differences between Beijing and Shanghai can be greater than their similarities.
3. The Chinese need to learn about food and wine matching
The Chinese drink wine for many reasons, but rarely for matching with food. Traditional Chinese dining involves offering guests the full array of food at the same time: fish, meat, vegetables, sweet, sour, savoury and spicy all come together on the table. The best pairing for such a banquet? Tea, beer or Baijiu (white spirits). This doesn’t mean there is no place for wine with dinner, but food matching won’t play a role.
4. The Chinese need wine education
Have you seen the way the Chinese — some of the best business people in the world — keep flying to Europe to teach tea drinkers not to use tea bags and sugar? For better results, teach marketing and sales people about cultural differences. This is not to say there’s no value in wine education — it’s already showing results within very specific demographic segments. But if two people are running to meet each other, they can only connect if they meet in the middle.
5. China is so big, you need different importers in different regions
You might be amazed by how persistently Chinese importers insist on exclusivity. The scale and growth of online business is enormous and it is still growing at the speed of light. The logistic efficiency is so good, it’s almost scary — 1919, one of the major alcohol companies, delivers its wine within 19 minutes. The speed of delivering is flattening the whole country, with no legal framework like a three-tier system to get in the way. This means that competition between importers for the same products can be fatal for the success of a wine brand.
Imagine your products being sold at the lowest possible price due to a price war between multiple importers — then the product being abandoned altogether once the war is over. Afterwards, your product would hold little appeal to a new importer, since it would have very little margin — its low price would still be all over the internet. Setting up your office can be a way out of this, but the additional operation costs can only be justified if you have the scale to fund it. As reported by different channels, the top five brands currently occupy approximately 80 percent of the wine market, while about 15 percent are OEM (private label), with the brand owner holding absolute control of the market.
6.Volume brands should go to the supermarket and finer wines to the on-trade
The “liquor and cigarette” stores, which can range from a few square metres to several hundred square metres, are unique to China and more wine is distributed through them than in supermarkets. This is an outlet that wineries need to consider; the Western on-trade/off-trade model does not yet apply to China, outside Shanghai and Beijing.
7.The Chinese know nothing about wine
As per points three and four, there’s no point in instructing the Chinese on the Western way to drink wine and match food. Nevertheless, wine education in China is one of the fastest growing segments of the market, though it only began recently. China has been the WSET’s biggest overseas market since 2012 and the country already has more than 20 China-based MW candidates. Underestimating Chinese knowledge is as bad as overestimating it. There are multiple Chinas co-existing in parallel with each other.
It is true that in Chinese, the word red (hong) wine (jiu) is the general term for wine, possibly to differentiate it from the word for white (bai) spirits (jiu). It is also true that red wine still takes the greatest percentage of market share. But looking at this and deciding that China is a red wine market only is like the classic story of two shoe salespeople who went to an island and found everybody barefoot. One found zero market potential while the other saw huge potential.
Bear in mind it only took years for Chinese brides to start wearing white dresses, as well as red ones — they wear both, one after the other, and often with other dresses as well during the ceremony. This was thanks to the work done by Taiwanese wedding studios and represents a dramatic cultural change, because in China white is the colour of funerals, while red represents happiness and festivals.
On a related note, when label designers advise you to use a red-and-gold label to fit with Chinese culture, give it a second thought. Imagine 100 red-and-gold labels on the shelf — what colour will stand out?
9.Fake products are bad for business
You might want to put your hands over your ears now, but fake products indicate awareness of the brand. The reality in today’s China is that your “mini me” cannot be killed overnight, any more than mice in old houses. They always come back if there’s food available. It may sound depressing, but remember that distributors of either the fakes or the authentic brands are aware of what they are dealing with. The motivations are either because it is fake and cheaper, or because it’s authentic. Like it or not, you build up the brand together. This said, make sure you get the basics right by registering your brands and trademarks in the original language. High-quality Chinese translation is essential. This may help to plug at least some of the holes.
10.Gifting is a tool of corruption
Gifting is a common social behaviour and people do gifting between families and friends. Gifting back with something of equivalent value, if not more, is a normal gesture. That is why many wine sales happen because of the price, instead of by variety, AOC, winemaker and so on. Consequently, gift packaging is far more important in China than in other markets. Consider the success of spirits companies — it might be wise to study the different packaging they use for Asian markets, particularly in the Far East.
When approaching China, the key thing to remember is that every segment of the market is growing and developing faster than many observers expected. After the big brands have finished the job of penetrating the market, the next step will be to introduce diversity, which is already gradually happening in Shanghai and Beijing. This is where attention needs to be focused, rather than on outdated myths.