China’s Wine Market Looks “Corked” for Importers and Retailers in 2019

After well over a decade of unbridled optimism, China’s wine market appears to be facing a much more uncertain road ahead. According to a recent piece by Jim Boyce, the 9 percent slide in demand for bottled imports in 2018 has continued into this year, with imports down 14 percent by volume and 20 percent by value in the first six months of 2019. This, China Business Network recently pointed out, means the thousands of wine importers who sprang up throughout the country in recent decades have been slashed from 6,400 in 2018 to fewer than 4,200 this year.

Despite positive outlooks and heavy investment by major global winemakers who expected the China market to go from strength to strength for the foreseeable future, it’s clear that the wine market is not following a similar path to spirits. (Which continue to boom — powered largely by baijiu consumption.) China’s spirits market is expected to grow around 2.6 percent this year, reaching a projected US$134 billion, according to Statista.

Much of the recent weakness in the wine market comes from two main sources: economic uncertainty, and a “Wild West” atmosphere that perhaps was overdue for a correction anyway.

In particular, the ongoing U.S.-China trade war has made for a very murky future for U.S. winemakers and importers in China. According to the LA Times, since 2018, China has placed retaliatory taxes on US$110 billion in U.S. imports, and taxes and tariffs now amount to a 93 percent surcharge on every bottle of American wine that arrives in China. (Double that of French wine, and more than triple that of Chilean or Australian wine, taxed at only 26 percent.)

Last year, mainland China was the fifth-largest market for US wine exports — 95 percent of which hails from California — after the EU, Canada, Hong Kong, and Japan. But this year, it’s a very different story. In the first half of 2019, U.S. wine imports were down 33 percent compared with the same period two years ago.

It is expected that, as the U.S.-China trade dispute drags on, Chinese importers will simply move on to other countries’ wines, leaving U.S. winemakers out in the cold — and, if and when imports do rebound — leaving them fighting for what is expected to be a less enthusiastic, tougher market.

But the other — perhaps more pressing — knock-down effect of the trade dispute for some consumers is a concern that the economy could be doing more poorly than it is, or that it will get worse soon. This will hurt all winemakers, not just those from the U.S. As one wine importer told Jim Boyce,”The economy isn’t necessarily doing bad, but people have it in mind the economy is bad… I can see when my clients do dinners, they are having more trouble getting people to come.”

This is a major concern in the wine market in China, because wine — unlike in France, Spain, Italy or even the U.S. — is not a necessity for affluent consumers. Much of the wine consumed in China is still purchased for celebrations, rather than at-home consumption, and just like we saw when Xi Jinping kicked off his well-publicized anti-corruption campaign in 2012, high-end wines were a quick casualty, as cash-flush cadres cut back on extravagant dinners. At any sign of economic weakness, higher-end imported wines will take a hit.

As Alberto Fernandez, managing partner of importer and distributor Torres China, noted, China is experiencing a “double whammy” at the moment, with many importers being overstocked and on-trade sales (at restaurants, bars, and hotels) being particularly vulnerable due to uncertain corporate spending. Said Fernandez, “Expense accounts amount to half of on-trade sales. These are the customers who buy expensive wines or host pricey dinners that feature ganbei [bottoms-up] drinking.”

But it’s not just imports that are seeing demand slide in China this year. Despite gradually increasing quality, foreign investment, and global contest medals, domestic Chinese winemakers have not stepped up to fill the gap in this year’s weaker wine market. Domestic production has dropped this year to 2012 levels, just half of its previous peak and a continuation of the decline seen for the past six years. This indicates that demand for domestic Chinese wine has declined quickly but also consistently, and perhaps the enthusiasm that many saw in that market following the global economic crisis of 2008-2009 was overly optimistic.

While one upside of the ongoing flatness in the China wine market is that opportunistic importers are being shaken out, and companies that use wine as a side-business are also falling by the wayside, for major importers the market will remain a tough slog for the medium- to long-term.

As Torres’ Fernandez told Boyce, there will be no “quick fix” for the market, and it will remain flat for two to three years, with zero percent growth expected for Torres this year. This echoes a sentiment from other importers, who expect either flatness or a decline, as well as a general lack of optimism.

This will definitely be the case for U.S. producers, stung by tariffs and outpaced by their Chilean and Australian counterparts, and the big question is whether — upon an eventual rebound — they’ll see the same demand they did in the relative boom years earlier in this decade.


Market Analysis