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The relationship between the world’s most populous nation and the most critiqued drink is getting serious

Esther An

This article was first published in the November/December 2013 China edition of Accounting and Business magazine.

During a recent family dinner in China, my aunt pulled out some wine that she had made herself by crushing grapes, adding sugar and ageing it for over a year. Gone were the beer bottles that were the favourite of my uncle, or the hard, throat-burning spirits collectively known as baijiu that my grandparents’ generation loved to drink. Her husband had elevated cholesterol levels and she considered wine a healthier option for him.

The belief in wine’s health benefits among the baby-boomer Chinese generation, who are now nearing retirement, has contributed to an explosion of demand over the last decade. Now conscious of their own longevity, many of them still remember the heavy promotion that former premier Li Peng gave to wine, decreeing in 1996 that it be served in state banquets as a healthier alternative to spirits.

But much of the recent growth in demand, especially for foreign wines, is attributed to China’s increasing wealth. The trend began in Hong Kong, which removed import duties on wine in 2008, thereby driving down prices and increasing consumption. Now throngs of young professionals in mainland China are emulating their more Westernised compatriots, treating wine knowledge and enjoyment as a boost for their own image.

‘As the trend evolved, wine – for China particularly –became this badge of success,’ says Debra Meiburg, a Hong Kong-based wine consultant and Master of Wine. ‘It says, “I’m wealthy, I’m polished, I’m sophisticated, I have a Western international outlook”, and people drink wine to partly show that side of themselves.’

China currently ranks fifth in global wine consumption, buying 1.78 billion litres of wine in 2012, according to the International Organisation of Vine and Wine. This puts it at about 59% of the demand in France, the world’s largest wine consumer. But China’s potential is written in the per capita consumption statistic, which sat at a paltry 1.4 litres of wine per person in 2011, according to the latest data from International Wine & Spirit Research.

When compared with France’s 53.2 litres per person, there is still plenty of room for growth. The combination of China’s massive population and an increasingly consumerist outlook makes the Middle Kingdom an attractive place for wine entrepreneurs.

Serious winemakers emerge

A handful of Chinese winemakers have emerged in the past decade, hoping that a homegrown label will help make wine consumption more mainstream in Chinese society. One of the more successful of these is Grace Vineyard, led by its 35-year-old chief executive, Judy Leissner. Leissner took over the family’s vineyard business in 2002 and has worked to build a portfolio of good-quality wines, using grapes grown in Shanxi and Ningxia provinces. Grace specialises in Bordeaux-style blends, with two of its wines, the Chairman Reserve and Deep Blue, recognised as among the best from China.

The vineyard’s production has grown from only 20,000 bottles in its first year to 1.7 million in 2012.

That growth was not easy. Leissner says that China is actually not well suited for growing wine grapes, with climates that are usually either too wet in the summer or too cold in the winter. Grace sources grapes from northern China, which has winter frost that forces her farmers to bury their vines.

‘In the initial 10 years, I was just thinking about how to survive,’ Leissner says. ‘I almost think wines are like individuals. If you grow up in a very sheltered, greenhouse type of environment, you are unlikely to be exciting. I think in challenging environments like China, and like Bordeaux before, if you are able to identify the issues, overcome the problems, you will become more distinctive and hard to copy, and it will be a more distinctive style.’

With Leissner’s vineyard now making a profit, her family recently made a conscious decision to spurn scaling up and instead focus on building a prestigious and quality portfolio of wines. Standards at Grace are extremely high, with a few extra precautions tailored for China. In 2007 Leissner stopped nearly all production because the vintage that year was too mediocre – a practice unheard of in China.

Grace also provides fertiliser and pesticide for all its farmers, preventing them from buying cheaper, unsafe products elsewhere, and Leissner regularly sends her wines to France or Australia for safety testing.

That extra care means that Grace’s wines can now be found at most major five-star hotels throughout China, including Park Hyatt, Ritz-Carlton, Shangri-La and Starwood hotels. It is also available on Cathay Pacific and Hainan Airlines flights.

Cultivating the market

For now, Grace is focused solely on the domestic market, playing up its ‘locally made’ identity to win over Chinese consumers. From winemakers to traders and consultants, everyone in China’s wine industry stresses the need to educate consumers. Leissner describes her early customers as complete novices who did not even know that wine was made from grapes.

Since then, the market has developed rapidly. Hong Kong has now become the most lucrative auction market for high-end wines in the world, with a group of avid, mostly Chinese, wine collectors constantly setting record prices for French wine. In a March auction at Acker Merrall & Condit, a global wine merchant with a presence in Hong Kong, three double magnums of Petrus 1990 sold for a record HK$590,400. At that same auction, a single bottle of 1947 Petrus was purchased at the record price of HK$118,080.  

For middle-class consumers, such headlines beckon them to follow, but many do not know how to taste or what to buy. ‘In China, local clients don’t understand wine,’ says Stella Sun, the general manager of Everwines, a wine retailer with 40 outlets across China. ‘They hear that other people are drinking it, or following the trend, so they are trying it. In China, you still need to guide consumers through this introductory phase.’

Everwines’ education initiatives include a tasting programme, with a travelling service available for workplaces and restaurants and a beautifully crafted catalogue for VIP members.

Meiburg screens a one-minute wine tips programme in local taxis. She also produces a 30-minute primetime television show, Taste the Wine, and organises talks and tastings for banks. Meanwhile, Leissner also targets university students who are currently studying viticulture, introducing them to both entry-level and premium wines from her portfolio.

Much of the education is designed to correct some common misperceptions about wine that have stuck in the China market. The biggest, perhaps, is that white wine is generally not as good in quality as red.

‘There was a misconception that winemakers used the leftover grapes that were not good enough to make red wine,’ says Sun. ‘Also, when people first drank white wine, they had no idea that it needed to be chilled. If you don’t chill white wine, it won’t taste as good.’

That bias has stuck, and red wines dominate the market with a 90% share, according to Leissner.

However, she is still interested in producing a high-quality white wine.

‘I always believe everything is in motion and that the world keeps changing,’ she says. ‘In the 1960s and 1970s, most of the world consumed white wine. Who knows, maybe in 10 to 20 years, the world will change again, and we can then be out in the forefront.’

Second-tier opportunities

Meiburg believes that the market is ripe for entry by new labels, especially those that have good whites. but again, demand will take some cultivation. The portfolios of wine importers in major cities, such as Shanghai and Beijing, are already full, explains Meiburg, who recommends that new entrants should target second-tier cities with smaller importers who are open and eager for fresh products to stock.

In addition, she says, try to highlight how a particular wine goes well with local Chinese cuisine, which will require some local research.

Regional dishes can vary enormously in taste, so much so that Meiburg refers to regions as ‘different countries’ in terms of their food. The key is to convince restaurants that a particular wine will go well with what they have on the menu.

‘Restaurants could be a huge, untapped market for late entrants, and the Chinese have a culture of eating out all the time, so there’s huge opportunity there,’ she says.

Meiburg suggests that white wine traders start by looking at cold dishes, appetisers and fish – and getting the wine on the table at the beginning of the meal, before the guests have time to question its merits over red.

Labels that utilise this strategy could not only move the needle on whites, but also boost the overall industry by increasing per-person consumption, thereby raising China’s profile as an even more lucrative wine market than it is today.

Lin Yang, journalist

Last updated: 8 Nov 2013