15 March 2019 Open with your browser  
 
 
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Industry Focus:China- A Rapidly Expanding Market with Great Potential to be Further Developed

Written by: Mr. Tom Huang and Mr. Max Chu– Business Advisory Consultant

China is about to overtake Britain and France to become the world’s second largest grape wine (“wine”) consumption market by 2020 in dollar terms, according to the estimation of the International Wine & Spirit Research (IWSR) organization. Given the immense market potential for its new and wealthy middle class emerging as an eager market, the lucrative Chinese wine business has certainly attracted both domestic and overseas winemakers to tap into the market over the years. Today, the local production of wine has ramped up in both quantity and quality, and China is one of the fastest growing producers of wine around the world.

China, One of the Major Wine Producers and Consumers Around the World
The map below illustrates the World’s Top 10 wine consumers in 2017, as well as the respective wine consumption and production volume:

Note: *wine production volume for the U.K and Russia is not available.
Sources: International Organization of Vine and Wine; ShineWing

China was ranked 7th worldwide in 2017 in terms of wine production volume. Although China hasn’t historically known for winemaking, the recent production volume of wine has grown rapidly, catching up to New World countries such as Chile and Australia.

The chart below sets forth the percentage of the major consumers in 2017:

Sources: International Organization of Vine and Wine; ShineWing

To everyone’s surprise, China was actually ranked fifth around the world in terms of the wine consumption volume. According to the International Organization of Vine and Wine, China together with the other top four wine consumption countries accounted for about half of the world wine consumption volume. Given the rising middle-income family along with the active encouragement of the Chinese government for nation-wise consumption, market for wine consumption has grown substantially.

Great Potential for Long Term Market Expansion
Although China is one of the major wine consumption countries in the world, its immense market potential is yet to be fully unleashed. In comparison to other major wine consumption countries, consumption volume per capita in China is significantly lower than that of the others. The wine consumption volume per capita in China was 1.5 liters in 2017 as opposed to 50.7 liters in France and 12.4 liters in the U.S, per the estimation of the International Organization of Vine and Wine. With the wine culture continuously thrives, we anticipate that the wine market in China still has room for growth and remains robust in the long run despite the recent economic headwinds that chill the wine demand.

The following charts compare the total wine consumption volume and consumption volume per capita in different countries in 2017:

Note: *Population aged 15 or above is counted in the calculation
Sources: International Organization of Vine and Wine; ShineWing

A Glimpse Back at 2018 and Looking Ahead to 2019
When we look back to 2018, it is a good year for the winemakers in France given the favorable weather for grape production, but sales performance of the wine retailers in China flagged due to domestic economic weakness. Both domestic production and import volume of wine declined as compared with that of 2017, highlighting the plunge of wine demand caused by the economic headwinds in 2018.

The chart below illustrates the production and import volume of wine in China from 2013 to 2018:

Note: *refers to the provisional figures published by China Customs
Sources: Wind; China Customs; ShineWing

The production volume of wine in China witnessed a sharp drop in 2018. Part of the drop can be partially explained by the long term competition raised by imported wine. However, we believe the slowing economic growth and its impact on consumption market play a bigger role on the drop because the import volume of wine slipped slightly in 2018 for the first time in the past five years. Both figures plunged in 2018, highlighting the many and varied ways that the economic downturn affects the wine market. It is certain that the repercussion of the cooling economy in China and trade tension between China and the U.S has extended to the wine market which is struggling with weaker demand amid the low consumer confidence toward the economic prospect.

The chart below sets forth the import volume of wine in China in 2018 by month:

Sources: Wind; China Customs; ShineWing

Looking forward to 2019, the uncertainty over the path of the Chinese economy has gripped the attention of wine retailers in China. Wine market will be continuously affected by the macroeconomic environment. Weaker market demand coupled with the fear of worsening trade battle with U.S. cloud the overall consumption atmosphere in wine market. We have seen the deceleration of the economic growth in 2018 and it is expected to further deteriorate in the first quarter of 2019 if trade battle is not resolved yet, which would result in a continuous impact on the import volume of wine.

Although China is facing a slow economic growth, optimism over the wine market in China remains because China still recorded a GDP growth above 6% in 2018, far surpassing many countries. Hence, the country’s massive population size as well as the rapidly growing middle class can still lead to a robust development of the wine market in the long term. As for wine retailers, it is important to continue in investing wine education toward customers, capturing customers’ evolving preferences, focusing on the promotion of wine appreciation culture as well as differentiating their service offerings among other wine retailers. The wine market is not expected to bottom out anytime soon in the first half of 2019 but it is anticipated to gradually gain momentum in the second half of the year if the trade conflict dissipates.


If there are any aspects which we may assist, please do not hesitate to contact:

Assistant Manager - Mr. Tom Huang
Business Advisory Services
Tom.Huang@shinewing.hk (Tel. 3748 8231)

 

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