China’s wine market, part II: The Gen Z problem

    As economic growth slows in 2024 and younger consumers appear less enthusiastic towards alcoholic beverages, China’s wine industry faces an uphill battle.
    With millions of Chinese Gen Zers drinking less, or no, alcohol, winemakers must innovate. Image: Shutterstock
      Published   in Hard Luxury

    Editor’s note: This story is part of a two-part series. To read the first piece on China’s wine market, click here.

    Winemakers face a Gen Z problem#

    One problem faced by wine producers hoping to turn around their fortunes in China is that many of the country’s younger consumers are either drinking less, are teetotal, or are simply less interested in wine than their older counterparts. Compared to domestic spirits brands and breweries, winemakers have failed to keep up with the trends and collaborations that appeal to young Chinese consumers.

    During the pandemic, Rio — the Chinese alcopop brand owned by Australia’s Bacchus Distillery — amped up its efforts to appeal to sheltered-in-place urbanites in 2020. This included sponsoring popular shows like iQiyi’s I Want to Live Like This (我要这样生活) and Youku’s Not a Loner (看我的生活).

    Alcopop brand Rio sponsored homebody-centric streaming programs in China during the pandemic to reach those kept indoors.
    Alcopop brand Rio sponsored homebody-centric streaming programs in China during the pandemic to reach those kept indoors.

    More recently, traditional Chinese spirits brands have rolled out innovative collaborations to refresh their appeal to younger consumers, helping to shed their reputation as a beverage of choice for an older demographic.

    In 2022, baijiu producer Kweichow Moutai partnered with Mengniu Dairy to create Moutai-flavored ice cream, a pioneering move that generated over $5.8 million in media impact value and saw Moutai ice cream sales soar to $30,000 within just hours of release.

    Moutai ice cream was a sensation in China in 2022.
    Moutai ice cream was a sensation in China in 2022.

    This trend reflects a broader shift in tastes towards new twists on traditional drinks and low-alcohol and nonalcoholic beverages, the latter of which are booming in mainland China. Last year, an IWSR survey in China found that 46% of respondents regularly opt for non-alcoholic alternatives, up from 41% in September 2022.

    Analysts point to greater general pessimism among China’s Gen Z as a contributing factor to their flagging interest in alcoholic beverages. As Richard Halstead, COO of Consumer Research at IWSR, puts it, “Gen Z consumers are notably less positive than older generations, perhaps because they felt the impact of the pandemic at a more formative period in their lives.”

    Halstead adds, “Despite the Chinese market being more optimistic in general, Gen Z consumers of legal drinking age are more likely to have financial concerns and worries about the future.”

    While this may be true amid China’s murky economic outlook, it has not dampened demand among some young consumers for wine education.

    “When I look at our classes for Dragon Phoenix, invariably they sell out in 15 minutes in Beijing,” says Edward Ragg MW, co-founder of Dragon Phoenix Wine Consulting. “So there is a real thirst for knowledge and to learn about wine among people who are often female and have decent jobs.”

    A changed market for Australian wine#

    Upon their highly anticipated large-scale return to China following the ending of tariffs in March 2024, Australian winemakers may encounter a different market from 2020. Older, more affluent wine enthusiasts may be less interested in the relatively affordable Australian wines and continue investing in collection-grade imports to build their collections. Younger consumers may be ambivalent towards wine in general.

    Yet Ragg is optimistic about the return of Australian wine to the Chinese market. “I think it can only be good in terms of bringing to consumers one of the key wine-producing countries of the world, which makes such a diverse range of styles that can suit many different Chinese palates. I hope it will create healthy competition.”

    For now, IWSR’s consumer recalled data shows that while wine originating from Australia has a significantly lower purchase incidence compared to 2019, it remains in the top three recalled purchased countries of origin.

    This underscores that Chinese sentiment about Australian wine remains positive and may foster a quick rebound in sales once the supply chain has recovered.

    Penfolds launched a new wine for Gen Z with creative partner Nigo in Hong Kong last year. Image: Penfolds
    Penfolds launched a new wine for Gen Z with creative partner Nigo in Hong Kong last year. Image: Penfolds

    What’s next?#

    In the face of modest expected economic growth in 2024 and a younger generation that appears less enthusiastic towards alcoholic beverages, China’s wine import volumes or consumption are unlikely to return to their peak in the near term, even if the country’s economic picture improves.

    However, this does not rule out a limited recovery for wine. As Ragg points out, “China could have helpful factors. Maybe if the Chinese economy picks up, it might have an impact on consumption and could see people spending a bit more on wine, and that could lead to greater consumption.”

    This makes for a complicated picture as winemakers consider how much effort to put into mainland China. Even if Australia were to regain its 2018–2020 market share in China’s wine market, expectations should be tempered, with economist Kym Anderson anticipating only half of the peak figures in both volume and value.

    Having tapped other global opportunities since 2020 — namely Hong Kong and Singapore — Australian winemakers are likely to view the mainland Chinese market with caution given its perceived volatility.

    This could be prudent, especially when considering the long-term potential of China’s wine sector. Despite its relative lack of movement over the past several years, the market is expected to steadily grow with rising incomes and improving local wine quality, enticing a broader demographic toward wine consumption.

    One of the keys here is education, which includes the process of making wine a part of one’s wider lifestyle. According to Ragg, “I think increased wine education — there’s definitely a thirst still for wine education — can lead to quite interesting and unexpected trends, even in categories that you might not think are current, popular, or couldn’t be for in China.”

    “It’s no longer the case that one can simply say that China is just a sea of ganhong, where the majority of wine is red.”

    • Wine producers in China are grappling with the challenge of appealing to Gen Z, who are drinking less alcohol and showing less interest in wine compared to older generations.
    • Innovative collaborations and the rise of non-alcoholic alternatives are shifting younger consumers’ preferences, while traditional spirits brands refresh their appeal with unique products like Moutai-flavored ice cream.
    • Despite the economic pessimism among Gen Z, there’s a notable interest in wine education, suggesting an underlying curiosity and potential market segment for wine culture.
    • The reintroduction of Australian wines into China post-tariffs presents an uncertain market landscape, with varying interests across demographic groups but retains a positive sentiment and potential for recovery.
    • Looking ahead, the Chinese wine market faces mixed prospects due to economic uncertainties and changing consumer attitudes, yet education and quality improvements could foster a nuanced revival in wine consumption.
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