Australian Wine Trotting into 2014
Australian wine moved from a gallop to a trot into China last year, but as Nikki Palun writes, the Year of the Horse is looking promising for Australian wines in China.
The latest figures released by Wine Australia paint a very different picture for Australian wine in China compared to the past few years. Whereas even as late as September 2013, Australian wine was showing high growth in the A$7.50+ per litre category, the main growth now lies in the A$2.50 or less value per litre segment, creating a shadow over the ‘bright lights of China’.
The main reason for this rapid change is the Chinese government’s austerity measures that were introduced in 2012, which saw the curbing of excessive expenditure by government officials and state owned enterprises. Lavish banquets accompanied by cases of Lafite and Petrus are now a thing of the past as Premier Xi Jinping continues to introduce policies that restore legitimacy and trust in the government.
The result for Australian wine exports has been quite dramatic. Total exports in 2013 to China were only 37 million litres, down 16 percent. The total value also decreased by 7.6 percent to $223 million. Bulk wine exports – wine that often finds its way into local Chinese wine – was also down 3 million litres or 59 percent, indicating that the local Chinese industry has also been affected by these austerity measures.
Furthermore, Australia’s market share has decreased by 6 percent although we are still holding onto our number two position between France and Spain. France has been even harder hit with a 12 percent decrease in market share. The main winner has been Chile, who, in fourth place, has seen its market share increase by 14 percent mainly due to their FTA agreement with China and the relative affordability of its wines.
However it is not all bad news for Australian wines. The average FOB price per litre was up 10 percent to $6.05, due in part to a 3 percent increase in the $5 to $7.49 per litre category. However, not so positive was the 23 percent increase in bottled wine at the $2.50 litre or less price point, a development that indicates local importers and distributors are now readjusting their business models, and are bringing in cheaper wines that better suit the non-government channels.
“We’re planning for another tough year in 2014,” says John Watkins, chief executive of ASC Fine Wines, one of China’s leading wine importers.
Alberto Fernandez, managing partner at Torres China agrees. “2014 will probably remain difficult. There are a lot of stocks and the market is in a period of correction. The market is going back to where it used to be 10 years ago, when restaurants and bars dominated wine sales rather than the gifting and banqueting culture that has dominated sales over the past five years.”
Premium wine is now more difficult to sell leading to cash flow issues, and even bankruptcy, amongst many wine distributors, both large and small.
The second and third tier cities have been most significantly affected as the government and corporate channels until recently have dominated sales in those markets. Yet most believe that these changes will be a positive force in the long term.
“Sales of wines priced between the equivalent of US$20 to $60-a-bottle are picking up,” says John Watkins.
“Based on normal market dynamics, this mid- level is exactly where the main part of the wine market should be”.
Distributors are also now beginning to target their sales and marketing campaigns at the ‘real consumers’. That is, people who use their own money to purchase wines for their own consumption. Although these end consumers are typically more fickle and have less brand awareness or loyalty, they are increasingly seen as the key to long-term business success.
Wine distributors and wine brands alike are now working tirelessly to win them over through regular tastings events, wine education courses and the building of online sales platforms that enhance rather than compete with the more traditional on and off premise offering. So what does the Year of the Horse mean for Australian wine companies wanting to succeed in China over the next 12 months? Remembering these five points during these difficult times should help.
Speed – react fast and adapt to maintain your competitive advantage. Strength – don’t give up on poor performing partners, as they will need your support now more than ever. Teamwork – focus on your people as your relationships will help you to overcome any difficulties. Vision – identify your ‘blind spots’ and don’t get easily spooked. Create strategies that put you in front of the pack. Spirit – the ‘will to win’! Continually inspire those around you and remain positive in the face of hardship.
This is going to be another challenging year for the Australian wine industry as the market continues to adjust. However success will come to those who 再接再历 ‘Redouble their efforts to attain even greater achievements’.
Stay strong and stay in the race – the Chinese wine market is still hot! ■
*Nikki Palun is the Director of Henty Lane Wines.