U.S. Wine and Spirits for the Chinese market

An Expert's View about Spirits in China

Posted on: 12 Feb 2013

South China is regarded as a major export destination for many U.S. agricultural exports.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Voluntary Public - Date: 2/5/2013 GAIN Report Number: CH11868 China - Peoples Republic of Post: Guangzhou South China Hidden Treasures Report: U.S. Wine and Spirits Market Profile: Uncorked Potential in South China’s 2nd Tier Cities for U.S. Wine and Spirits Report Categories: Wine Market Development Reports Exporter Guide Approved By: Jorge Sanchez Prepared By: Jericho Li Report Highlights: Summary: South China is regarded as a major export destination for many U.S. agricultural exports, with a continuous 34-percent growth from $5.1 billion in 2009 to $7.7 billion in 2011. In GAIN report (CH11809) entitled “2011 U.S. Agricultural Exports to South China Report” we highlighted trade figures of the already mature city-markets such as the first tier cities of Guangzhou and Shenzhen in the Pearl River Delta. Yet, many of the 2nd and even 3rd tier cities in South China are also flush with buyers of U.S. agricultural products, rising per capita GDPs, and overall abundant with economic optimism and strong consumer purchasing power. As market potential in China’s coastal and 1st tier cities is close to saturation, many 2nd and 3rd tier cities are becoming key battlegrounds for imported wine and spirits. Secondary cities have a larger scale of consumers moving up the economic stratum. Though there is higher consumption power, there is also less awareness of wine regions worldwide and brand recognition. People from these areas only have desire for imported alcoholic beverages with original packaging. This report provides a panorama for several of South China’s hidden treasures: secondary cities with high market potential for U.S. wine and spirit exports. General Information: Wine and Spirits - ATO Guangzhou’s priority outreach cities: Foshan Foshan is the third largest city in Guangdong Province. Geog Transportation: raphically speaking, it is a prominent link to Gua Metro: Guangfo Line connects with ngzhou through its inner city subway, and is also a key Guangzhou Metro since 2010 connecting point between Guangzhou and Zhuhai on the intercity light railway. In 2011, Foshan ranked second in Inter-city Rail: Links Guangzhou, Shenzhen, terms of per capita GDP with $14, 444. Over the past five Zhongshan and extended to Zhuhai and yea Macau rs, Foshan has witnessed a precipitous GDP growth from $48 billion in 2007 to over $95 billion in 2012, which can Air: An airport base of China United Airlines rarely be found elsewhere in China. Meanwhile, its per providing with domestic flight service capita disposal income reached $5,327 in 2011. According to official statistics from the Foshan Alcohol Industry Association, in 2012, sales revenues of alcoholic beverages reached a total of $841 million. Besides Guangzhou and Shenzhen, Foshan is the fourth largest area for imported wine circulation and consumption within Guangdong Province. Flourishing development of the hospitality industry, especially plans to increase the number of five-star hotels within the next five years, also strengthens prospects for greater on-site consumption venues and promotions of imported wines and spirits. Dongguan Dongguan is one of the most affluent cities in Mainland China with per capita disposable income of $6,271 in 2011. It is adjacent to Shenzhen and accessible through the Guangzhou-Hong Kong railway, highway or waterway. Dongguan has enjoyed a rapid growth in imported wine Transportation: consumption since 2007, and Rail: Connects Guangzhou and Hong Kong through ranks the third in terms of wine distribution and the Kowloon-Canton Railway consumption in Guangdong Province. Being a significant industrial construction hub of Guangdong, Highway: Humen Pearl Bridge connects Mainland China, and the world, many entrepreneurs Guangzhou with Shenzhen boast strong consumption power and this can be reflected in the strong demand for imported wines, especially high caliber wines. According to the Dongguan Entry-Exit Inspection and Quarantine Bureau demand for high value foreign food products has increased at double digit rates for a number of categories include wine, beer and spirits since 2007. The value of imported food items through Dongguan port nearly doubled from $11.8 million in 2010 to $22.4 million in 2011, of which wine, snacks, confectionaries and drinks accounted for the majority of the volume. For wine in particular, importation increased from 60 containers in 2010 to 90 containers in 2011. There is still a large quantity of imported wine consumed in Dongguan imported through other ports within Guangdong province’s Pearl River Delta. Zhuhai Zhuhai is a Special Economic Zone bordering Macau Transportation: and located southwest of Guangzhou. It is linked with Air: Zhuhai Sanzao International Airport Foshan and Guangzhou through the Intercity Mass Rapid Transit and a Hong Kong-Zhuhai-Macau Land: Bridge construction project (which will be completed Guangzhou-Zhuhai Intercity Mass Rapid in 2014). Since 1996, Zhuhai established a Free Trade Transit Zone with engagement of a variety of industrial Lotus Bridge between Zhuhai and Macau businesses and agriculture product importation Hong Kong-Zhuhai-Macau Bridge centers. In June 2012, an imported alcoholic beverage Sea: Two International Seaports: Jiuzhou and exchange Gaolan Ports center was founded inside of Zhuhai Free Trade Zone with an area of 5,000 square meters. There are currently around 1,500 different wine brands currently being sold through this trade platform. The local municipal government is determined to shape Zhuhai into one of the country’s largest distribution centers for imported wine. There was also a large wine tasting event launched June 1-3 in 2012 at the Zhuhai Free Trade Zone not only aimed at assisting foreign wine brands at connecting with importers and wholesalers, but also opened for local retail sales. In the last two year, the speed in which Zhuhai’s import wine market is growing far exceeds all expectations. According to the Aussino Wine Shop in Zhuhai, since 2011, an onslaught of new imported wine and spirit retail store opens every month. ATO Guangzhou can verify this development as the total value of U.S. wines imported through Zhuhai’s Gongbei Port increased from $141,340 in 2010 to $188,082 in 2012. Changsha Changsha is the capital city of Hunan province in south Transportation: central China. It is one of the country’s 20 “economically Air: Changsha Huanghua International Airport advanced” cities. In 2011, Changsha’s per capita GDP Rail: reached $79,530, and per capita disposable income Changsha Railway Station connects accounted for $4,198. In recent years, Changsha has most cities in China attracted a substantial level of foreign direct investment Changsha South Railway Station is (FDI) that has been guided by national authorities. In passenger-only high speed train 2009 nearly $1 billion worth in FDI poured into the Wuhan-Guangzhou High-Speed city’s manufacturing, food production and services Railway stops here sectors, with 28 percent of that sum originating from the Shanghai-Changsha-Kunming high- Americas. Changsha’s retail sales figures are equally speed railway under construction impressive reaching $11.7 billion in 2009. Meanwhile, the city also imports a number of agricultural commodities such as cotton, timber and livestock to support industrial operations. Changsha’s imported wine market shows a smooth upward curve in recent years. Along with the change of consumption habits, there was an obvious increase of government officials and businesspeople who have switched from tradition Chinese rice alcohol consumption to import wine drinking for official or business dinners. Few of these consumers will return to their previous consumption patterns as health concerns and the impression of sophistication weighs heavily on the mindsets of this emerging middle class. According to figures from the local alcohol association, the number of licensed import wine wholesalers in Hunan province has grown to over 440 in 2012 from the previous year, among which 60~70 percent were established in Changsha (and not franchised from another 1st tier city markets). Relying on a distributer in a 1st tier city is not enough to reap the benefits in cities like Changsha. Exporters from key wine producing regions such as Bordeaux, France, Argentina and South Africa have been visiting Changsha through outbound trade servicing missions and tasting road shows. The United States wine industry has not yet made it to Changsha, and ATO Guangzhou believes a visit is long overdue. Overall, Changsha’s wine industry is maturing with many local consumers switching from entry level wines to medium wines approximately priced around $48~127 (retail price). Another market research assessment also showed that only 29 percent of the wine consumption in Changsha is for families or friend gathering, and about 60 percent is for business entertaining and gift giving. Fuzhou/Xiamen/Quanzhou It is a fact that Fujian Province, along with Guangdong Fuzhou Transportation: and Zhejiang, are the three largest Airport: Fuzhou Changle International Airport imported wine consumption regions in China (not Rail: Shanghai or Beijing). Overall, Fujian’s per capita Wai Fu Railway connects Jiangxi Province import wine consumption volume is higher than the Wen Fu Railway connects Wenzhou jin nation’s average level (0.9 liter versus 0.7 liter). On Zhejiang Province October 15-17, 2011, Fuzhou hosted the national Fu Xia Railway runs towards Xiamen Wine and Sugar Exhibition (Tang Jiu Hui) showing Seaport: Fuzhou Seaport the province’s prominent role in the wine and spirits trade. In recent years, wine importation, particularly for U.S. wine has witnessed staggering growth especially in Quanzhou, Fuzhou and Xiamen. All three cities ranked as the top 10 in terms of GDP growth in 2011 within South China. According to one national wine association industry official ATO Guangzhou interviewed in 2010, there were only around 100 wine and spirits import companies in Fujian province, however, now the number has jumped to close to 2,000. Ninety percent of the wine entering the market is originally packaged in the producing countries. Most of these traders are located in Xiamen, Fuzhou and Quanzhou where wine promotions are also thriving in a number of venues including newly opened five-star hotels or lush seafood restaurants. Spending money on good food and drink seems to be a popular local diversion in Fujian. According to Global Trade Atlas statistics, the total value Xiamen Transportation: of U.S. wines imported through Fuzhou and Xiamen ports Road: Fuzhou-Xiamen and Zhangzhou-Xiamen reached $3.33 billion and $168,115 respectively in 2012. Express Highways within Fujian Province and Additionally, Quanzhou’s Entry-Exit Inspection and neighboring Provinces Guangzhou, Jiangxi and Qua Zhejiang, also container freight services rantine Bureau reported that during the first eight mont between Xiamen, Shenzhen and Hong Kong hs of 2012, a total of 286,900 liters of imported wine entered Quanzhou worth approximately $2 million. This Railways: was an increase of 147 percent. Many local businesses Yingtan-Xiamen Railway have diversified their core by entering into the wine Fuzhou-Xiamen High-Speed Railway importation and distribution business. The companies are Passenger Trains from Xiamen to importing private wine labels as well as branded wine into Shanghai, Nanjing, Hefei, Fuzhou the market. As many consumers become wine fans and Longyan-Xiamen Railway/Xiamen- committed connoisseurs; Fuzhou, Xiamen and Quanzhou Shenzhen High-Speed Train are witnessing an increase of top-notched wineries Air: Xiamen Gaoqi International Airport entering the market. A growing number of profitable industries are eager to splurge money on purchasing top ranking (Robert Parker scores) imported wine for gift-giving purposes or for hosting government officials which is a routine business practice in China. A number of world renowned wineries have already placed their product in these markets. Nowadays, all three cities have become some of China’s largest wine distribution centers, where a comprehensive service of custom clearance, warehouse storage and cold chain logistics and even in-country representation can be provided for a modest fee. ATO Guangzhou has partnered with in-country representatives of the California Wine Institute, and ATO Guangzhou-founded American Wine Import Association (www.usawine.org) to establish a U.S. wine brand image in Fuzhou and Xiamen with the launching of two wine promotions in 2012(Please refer to GAIN report CH11834 titled “U.S. Wine Promotions in Xiamen, Fujian Province and GAIN report CH11854 titled “South China Quarterly U.S. Wine Promotion Report” for details). Such joint forces and initial successes in opening the market to U.S. wines have lured more wineries from California, Washington and Oregon to further explore opportunities in this province. Other opportunities: The imported wine market has been prosperous in Zhongshan for five consecutive years. In 2007, there were only four trading companies handling wine, though now the number has grown to several dozen. Currently, wines from the United States, France, Germany, Italy, Australia, Chile, South Africa are scrambling to penetrate the Zhongshan market. One local wine distributor mentioned that local consumers are not too selective on producing regions or brands. Many New World wines with adequate pricing, relatively high alcohol level and smooth texture, are also very well-received and perform well in local high-end restaurants. Zhongshan has a large presence of retired Hong Kongers that have helped reshape the imported wine market. Haikou is the main port in Hainan province handling more than half of the island’s total import volume. Sanya is the country’s prime location for tourism travel and resorts attracting international groups to develop glitzy five-star properties and establish hotel operations. The thriving development projects in the hospitality industry will certainly accelerate awareness for imported wine by local consumers. Nanning, the capital of South China’s Guangxi Zhuang Autonomous region where China-ASEAN Exposition is hold its annual plenary has voraciously increased its trade, investments and tourism volumes in the last three years. According to the World Trade Atlas, the total value of U.S. wine entering Nanning port increased from $10,260 in 2010 to $46.824 in 2012. With Guangzhou Qinzhou Bonded Area shaping up as another important import wine distribution center in China, foreign wine and spirits are growing in Nanning. Conclusion: China represents the single largest growth prospect for wine producing countries around the world. Besides targeting mature markets in South China especially within the Pearl River Delta’s major hubs like Guangzhou and Shenzhen, secondary cities with flourishing economic booms and strong purchasing power are already attracting more wineries. A continued interest in U.S. wines has proven a prosperous business endeavor for many exporters that have heeded ATO Guangzhou’s advice. The outlook in South China’s emerging 2nd tier cities remains positive and it is crucial that American regional wine associations to take the initiative and challenge competitors like France, Australia, Chile, South Africa and Italy, have already visited those cities. South China’s 2nd and 3rd tier cities do not rely on suppliers from Beijing or Shanghai. Wine exporters visiting Shanghai will discover that there are few distributors there that have access and distribution channels in the Pearl River Delta or in Hunan or Fujian Provinces for that matter. The Napa Valley Vintners has made about eight visits to Mainland China and has yet to visit any cities in South China since the organization was formed. ATO Guangzhou is calling all U.S. producer associations and exporters to keep official trade statistics present when decide where to plan tastings. Including 2nd tier cities will open new paths to sales channels that will grow at a faster pace than in any 1st tier city market. Let ATO Guangzhou show you the way! Appendix: Map of Major 2nd Tier Cities in Guangdong Province: Map of Fuzhou and Xiamen in Fujian Province: Source from Foshan University International Office Source from Chinatour360.com
Posted: 12 February 2013

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