China Wine Market Observation: Small Grape, Big Industry

At the beginning of this year, knight frank, a well-known consulting firm, released a wealth report in 2021, which annually evaluated the investment returns of global ultra-high net worth investors in luxury assets in the context of the new crown epidemic. The survey found that individuals with increased wealth in 2020 mostly benefited from a diversified portfolio, while the top three assets on the list were luxury handbags, fine wine and vintage cars. Among them, the price of "top spot" fine wine will increase by 13% on average in 2020, and when the investment time limit is relaxed to 10 years, the price growth rate of fine wine can even be as high as 127%.

Collecting and investing in wine is nothing new. In December 2020, baghera / wines, a Swiss auction company, auctioned the "kings", a set of six bottles from the most famous romaniconti winery in Burgundy. The deal was finally completed at a price of up to 900000 Swiss francs (about 6.413 million yuan), making it the highest price fine wine sold in 2020.

The trade of high-quality wine does not stop at auction. With the mature global trading system and mechanism, such as the London international premium wine exchange (liv Ex), wine can be easily traded among international buyers, and promote pricing transparency and efficiency, making it the most "liquid" luxury asset. According to liv ex data, the fine wine market is extremely strong in 2020, with the annual trading volume reaching a record high. The key benchmark liv EX100 even reached the highest level since 2011 in January 2021.

With the development of the domestic economy, wine has gradually changed from high-end consumer goods to popular wine, which appears on the wine label of family gatherings and daily restaurants, and enters ordinary people's homes. According to the statistics of OIV, as a traditional country which drinks liquor and yellow rice wine with high intensity, the market share of wine in China is only about 10%. However, with a population of 1.4 billion, China is still the sixth largest wine consumption market in the world, although only about 3% of Chinese people say they are used to drinking wine regularly. Wine intelligence, a market analyst, estimates that 52 million people drink wine in China. As China's wine consumption motivation and population shift from investment or prestige to the emerging middle class with stable drinking demand, it is estimated that the wine market size will expand from $14.8 billion in 2018 to $18 billion by 2023. Both imported wine and domestic wine are aiming at the booming wine market in China.

Collecting and investing in wine is nothing new. Photo by Xinhua News Agency

Imported wine has a strong offensive

As far away as Europe's Iberian Peninsula, in the central part of Spain, there is a wine producing area called Castilla La Mancha. It is the largest wine producing area in Spain, covering an area of 600000 hectares. The continental climate makes Raman region cold in winter and hot in summer, and the temperature difference between day and night can reach 20 ℃. This kind of climate is a unique growth condition for grapes that need to accumulate sugar. Therefore, some people planted grapes here as early as the 12th century. In 1976, La Mancha officially became a statutory wine producing area. Local wine farmers improved the winery equipment, technological innovation and promoted wine to the outside world, which made more and more boutique wineries with export capacity emerging one after another. Now, about 70% of the grape wine of La Mancha has been sold to overseas markets.

"France, Italy and Spain are the three 'giants' of wine production in Europe. However, Spain's biggest feature is that its geographical and climatic conditions are more diverse, and there are many traditional family wineries, so the variety of wine is more abundant." At the castia La Mancha wine virtual conference held in Guangzhou on July 20, Luis noe, general manager of the Foreign Trade Promotion Association (IPEX) of castia La Mancha region, and Marisa Flores, overseas chairman, introduced the situation of Raman's wine export to China to 21st century economic reporter. "The wine production of La Mancha accounts for nearly 50% of Spain's total production, and China is now the largest export market for La Mancha except Europe," Luis told reporters

Since 2018, the domestic wine market has been relatively weak, and the total consumption of wine in 2020 even dropped by 17.4%, nearly one sixth. The imported wine accounts for about 60% of the domestic wine industry. In the past few years, the wine import volume has also been increasing, from $2.03 billion in 2015 to $2.43 billion in 2019 - subject to the epidemic situation, it still increased to $2.83 billion last year. According to the latest data of China wine and spirits import and Export Association, in the first five months of this year, France, Chile, Italy and Spain were the top four wine exporting countries to China.

Over the years, IPEX has linked Raman's wineries appropriately to the local Chinese market, while Marisa admits that many winemakers will be "hurt" in 2020. But she found that the better the quality and the higher the price, the less the impact on the market during the outbreak. "On the one hand, consumers of medium and high price fine wine will not have too much impact on the demand for good wine because of the epidemic situation," she said; Secondly, wine can be enjoyed either at parties with relatives and friends or at home; Even if the final fine wine can't be sold for a while, it's OK to keep it for a long time. "

The reporter noted that the itinerant Wine Fair sponsored by the government of castia Raman in China was held in Guangzhou and Hong Kong respectively. Marisa explains that because of the epidemic, they can only pinpoint the most important and active wine trading places. Guangdong Province is the largest consumption area of bottled wine in China, accounting for 30% of China's total wine import. As an economically developed region, Guangdong Province has a high average disposable income. Besides being adjacent to Hong Kong and Macao, Guangdong Province has also gathered Shenzhen, Guangzhou and other major first tier cities, with the largest number of importers and distributors. Therefore, Guangzhou is considered to be an ideal location. Luis also said that due to the high acceptance of social media and e-commerce in the Chinese market, in recent years, it has also tried to use these platforms and strong logistics networks to trade wine anytime and anywhere. "I believe that in the near future, the Chinese market will release more potential."

Recovery of domestic wine

And for domestic wine brands, the past few years can be regarded as very painful. In recent years, China's wine industry has not extricated itself from the development dilemma of slow climbing. Some industry insiders predicted that the decline of domestic wine will start to narrow in 2019, and it is expected to recover in 2020. However, the epidemic situation has broken the good imagination. According to the important data of China's wine industry in 2020 released by the China Wine Industry Association in the first half of this year, China had 130 wine enterprises above Designated Size, with a total liquor production of 413300kl, a year-on-year decrease of 6%; The sales revenue was 10.021 billion yuan, down 29.82% year on year; The total profit was 259 million yuan, down 74.48% year on year. The pressure of the market environment in 2020 will make the development of China's wine industry even worse.

Since 2015, China's domestic wine production has declined for five consecutive years. According to the data, China's wine production in 2020 is 35% lower than that in 2015. Some analysts believe that, on the one hand, low yield and high cost make early investors who intend to invest in this industry leave the market; On the other hand, wineries are facing structural problems such as bad climate conditions, technical constraints and low productivity, which make Chinese wine less competitive than imported wine.

But "danger" and "opportunity" are often accompanied by each other.

Since the outbreak of the epidemic last year, due to the superposition of factors such as rising international freight, international environment and policy changes, some market space has been reserved for local wine brands to a certain extent. China Wine Association mentioned in the report that with the gradual control of China's epidemic situation in 2021, the return of social activities to normal, and the people's recognition of national honor and made in China, China's wine will gradually return to normal and objective social evaluation and recognition in the future, coupled with the improvement of wine quality and rationalization of price, Chinese wine will hit the bottom and rebound. The latest data in the first quarter of this year have also verified this prediction: from January to March 2021, China's cumulative wine production will reach 84000 kiloliters, with a cumulative increase of 44.8%. Several listed companies also made great achievements in the first quarter: Changyu achieved revenue of 1.134 billion yuan, up 40.8% year on year; The total sales volume of Yiyuan winery in the first quarter was 29.433 million yuan, with a year-on-year increase of 330%.

In addition, recently, Ningxia national grape and wine industry opening and development Comprehensive Experimental Zone (hereinafter referred to as "comprehensive test area") was listed in Yinchuan City, Ningxia, marking the entry of Ningxia Helan Mountain wine industry into the national strategy. In his speech, Ma Youxiang, Vice Minister of agriculture and rural areas, pointed out that the construction of comprehensive test area should be regarded as an important opportunity to promote the quality and upgrading of wine industry in Ningxia and even the whole country, and "small grapes" should be made into a "big industry" to revitalize the countryside.

Ningxia is located in the inland plateau of Northwest China. It is located in the "golden" zone of grape planting in the world. It has a typical continental climate. Similar to the Raman region, where the temperature difference is large and the sunshine is long, the grapes planted here are very mature. Many international and domestic wine giants and well-known wineries have settled in Ningxia, making a large number of international level wine. On July 1, China won 162 medals in the 28th Brussels International Wine Grand Prix in Belgium. Among them, the wine producing area at the eastern foot of Helan in Ningxia won 80 medals, accounting for "half of the country". This shows that the strength of Ningxia is not inferior and the future is promising.

"New Chinese wine will be a great surprise to the world." To be sure, compared with the first abortion area in the world, Ningxia is not mature enough. But it can be imagined that as more and more enterprises continue to invest in improving the quality of domestic wine, advocating and popularizing the concept of "leisure wine" and providing convenience for more consumers to buy and drink wine, the revitalization of China's domestic wine is just around the corner.

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