Chinese Investors Eyeing Vineyard Acquisitions In Land Down Under
The high end of China’s wine market may still be the domain of French (particularly Bordeaux and, increasingly, Burgundy) wineries, but as Chinese drinkers become more savvy and gradually less label-focused, New World winemakers and those from lesser-known regions in France and Italy stand to gain. According to the London-based fine wine merchants Bordeaux Index, fine wine prices retreated 7.5 percent in the third quarter of 2011, with Chinese demand for the highest of high-end bottles, particularly Chateau Lafite, showing signs of slowing after a nearly three-year-long tear. Chinese wine buyers were instrumental in the recovery at the top end of the market following the dip seen in the wake of the global economic crisis in 2008, with well-heeled drinkers and investors homing in on Lafite and other First Growths.
But now, due partly to the ubiquity, rampant counterfeiting and unsustainably high prices of Lafite and other high-profile wines, as well as interest in wine for drinking rather than hoarding, demand for mid-range wines looks set to hit new highs in China. Earlier this year, Euromonitor International estimated that wine consumption surged some 75 percent between 2005-2010, and indeed over the past several years dozens, if not hundreds, of international wineries have poured into the country, fighting to position their products in the “sweet spot” above more inexpensive domestic wines and astronomically priced top-tier bottles. Yet, of the countries currently turning to the China market as a key wine export destination, few have been as motivated as Australia.
According to WineBiz, China is currently Australia’s fourth-largest wine export market, with Aussie winemakers shipping some 55 million liters of wine to thirsty Chinese drinkers in 2010, a 36 percent rise over 2009. As the Wall Street Journal adds, Australia already has 20% market share of the Chinese imported wine market, only trailing France at 40%. And China is Australia’s largest market for wines that are sold at more than US$10.
Though China has become an increasingly reliable export market for major Aussie wineries, Australian vineyards — much like the country’s coal and iron mines — are increasingly catching the eyes of cash-rich Chinese investors. As BusinessWeek notes, despite a much-cited “wine glut” in Australia brought on by the swelling number of new wineries in the country, declining sales and increasing competition is translating to tough times for many Australian winemakers. And when these tough times hit, it seems that China is becoming the default emergency lifeline. From BusinessWeek:
Australian vineyards such as Ferngrove, facing a wine glut, slumping exports and rising competition from countries including Chile and Argentina, are turning to China for salvation. Chinese buyers are proving receptive as they seek to meet surging demand among the nation’s rich, who are developing a taste for grape wine and the expression of wealth it conveys.
In the Hunter Valley, where grapes were first planted in the 1820s, Chinese investors have bought six wineries in the past three months and three more sales are in the works, said Cain Beckett, director of the region’s biggest winery broker Jurd’s Real Estate. The Chinese influx is helping revive values of the Semillon and Shiraz-growing region’s 126 vineyards, which had slumped as much as 20 percent since May 2008, he said.
“Some vendors have been on the market for four years, and expansions haven’t happened since the 1980s,” Beckett, 28, said in an interview. “Now, things are looking much more positive with Chinese investors interested and actually able to invest. We’ve even achieved sales above the asking price.”
While much of the motivation driving Chinese investors to get involved with the Australian wine market remains purely pragmatic — distressed wineries in Australia (and even in Bordeaux) need cash, and many Chinese investors want to get in while prices are low — many are betting that growing demand in China for mid-range bottles will really pay off in the long run. As Stephen Strachan, chief executive officer of the Winemakers’ Federation, said, “The Australian wine industry is going through a period of adjustment…Some assets are worth a lot more in the long term than what they’re being traded for and that’s being recognized by a number of Chinese investors.”
While Australian wines may never reach the same status or prestige as their French counterparts, their aggressive pricing, relative fruitiness and accessibility makes them, and will continue to make them, great entry-level imported wines for Chinese drinkers. As Jack Xu, a 35-year-old Shanghai-based shipping broker, put it to BusinessWeek, “Sometimes you can buy a bottle of mid-level Australian wine at 100 yuan. But I couldn’t hope to taste French wine at the same price. And Australian wine is sweeter with a richer flavor compared with wines from other countries.”