- For years China is known for a country for dry reds. The market has been shifting dramatically with new dynamics.
- Even among pandemic, some trends are still growing. Sweet wine is one of them.
- Considering the size of China, it is worthy to find out how big the niche market can be.
In late 2019, for many producers looking for a new export market, China, with its huge population and growing middle class seemed to be a potentially very interesting market. Then came Covid and the sanctions on Australian wine that almost brought sales from that country to a halt.
Today, those sanctions are still in force but, as the lockdowns are finally being lifted, it is clear that there are great opportunities to grasp for those who are prepared to dig deeper into the nuances of the market.
Among these has been increasing interest in sweet and semi-sweet wines. Unfortunately, as in many other countries, the publicly-released Chinese customs statistics do not differentiate still wines according to their sweetness level, so it is impossible to find reliable statistics. Even so, the trend is so evident that it cannot be ignored.
Alibaba, through its Tmall online platform, is one of the biggest E-commerce retailers in China. According to Mi Zhu, head of Tmall wine, sales of sweet and semi-sweet wine have grown at an almost triple-digit rate from May 2021 to May 2022. When he explain this trend, Mi suggested “the popularity of RTD drinks in 2018 and 2019 definitely helped to supply more new wine drinkers, especially preparing them to accept the sweet wines.”
Anyone looking at the history of sweet wines in China has to consider the case study of Miss Yuan whose Miss Yuan’s Sweet Wine Shop business was founded in mid 2015 with 30,000 RMB yuan – less than $5,000 - capital. At the time the rationale was that sweet wine retailers were hard to find on Alibaba’s Taobao platform, and they were filling the gap. By 2017 revenues had risen a thousandfold to 30m RMB yuan ($4.44m). Since then, the business has continued to grow at an annual rate of 30%, to reach 42m RMB yuan ($6.5m) in 2021. Today sweet wine represents 90% of the overall sales and the business has 30 employees.
Founder Xu Yuan, aka Miss Yuan herself, described the business’s typical consumer as “young female living in first or second tier cities… the group worth focusing on due to their high acceptance of ‘new’ products”. Alibaba Taobao data also reveals that the majority of customers buying from the Miss Yuan online shop are ‘office workers.’
When it comes to specific wines and styles, Yuan said that in her shops “botrytis” and “Moscato d’Asti” have hit saturation point. “These two segments have achieved a great market share, thanks to wine education and industry competition. By contrast, from what we can see, Port is a segment that has not yet shown signs of benefiting from wine education. Perhaps that is yet to come,” says Yuan.
On the subject of Port, IWSR recently released statistics that confirm this view. According to its 2022 China Report, while the overall fortified wine category fell marginally - by 0.7% between 2016 and 2021 - within that period it grew by 43.2% from 2020 to 2021. Premium fortified wine performed far better, growing by 40.6% from 2016 to 2021 and by a striking 175% between 2020 and 2021.
Sales of Port or Port style wines, on the other hand also enjoyed a slight increase of 5.5% from 2020 to 2021, over the five year period they fell by nearly 10%.
Sweet Riesling is performing far better. Mr. Yuping Gu of Henkell Freixenet Global Brand Development China, shared sales figures of wines from the Schloss Johannisberg VDP estate in the Rheingau that is distributed by the company in China.
In 2018, just 1,200 bottles of Spätlese and above wines were sold; by 2022, sales had risen to 5,200 bottles; Gu commented that his current ‘problem’ is not having enough sweet wines to sell. “Every bottle is already sold out, with no more allocation available for 2022”. A large majority - 90% - of the sweet wines sold were Spatlese, according to Gu. “Though it is a small segment, we believe that it can drive something big with its rapid speed of growth in the market”.
Route to Market: a Determining Factor?
Even a big platform like Alibaba is unable to offer statistics that clearly reveal the ‘sweet spot’ for sweet wines in China; no one can define the ideal level of residual sugar level for Chinese consumers. It is also possible that the way the wine is purchased – and the type of buyer who chooses to use it – may be a factor.
Gu points out that 70% of the sweet Schloss Johannisberg were sold online, while the estate’s dry wines are mostly sold through traditional retail.
This may reflect the attitude of staff in retail wine shops: the gatekeepers. Jack Zhang, Export Director of Southern Wine Group (Australia) commented that while consumers prefer sweeter wines, distributors and importers are not necessarily the biggest fans of this category. When their sales network was largely relying on traditional distributors this attitude made it harder to build sales.
These gatekeepers – and possibly consumers - were also more tolerant towards semi-sweet wines than to overtly sweet ones. This is illustrated in the difference in sales of a series of three private labeled South Australia Shirazes with different levels of residual sugar: 5g/litre, 8g and 12g. Of these, the 8g represented approximately 80% of the over 400,000 bottles sold annually from 2017-2020, at FOB US$5, with a retail price of 50RMB ($7.75). A more premium sweeter red, priced at 80RMB ($12.40) retail with 70grams of residual sugar did not do as well.
Those with experience of selling red wines with residual sugar in western markets might not find these figures surprising; indeed, they seem to reflect the experience of several brands in the US.
Dangers of Cannibalization
Looking into the future, sweet wine in China is certainly a segment worth exploring further, but this will inevitably involve risks. Certain players worry about ‘trading down’ and cheaper, sweeter products cannibalizing the market for pricier drier ones. “When ‘Botrytis’ or ‘Moscato’ became brands in themselves, the communication of quality can be understated.” says Miss Yuan.
On the other hand, as the Schloss Johannisberg experience reveals, there may be a place in the market for a range of price segments, including super-premium.
In 2022, LVMH launched its global ‘Lighthouse Project’ in China with Château d'Yquem. The objective is to appoint exclusive dining venues as ‘lighthouses’ and market-influencers, within each region. This is expected to add more market dynamics for the sweet wine segment in the near future.
Any good business relies on offering the right product to the right people at the right time, through the right channel. In a rapidly growing market like China, trends can develop and evolve very quickly. Overall wine import figures in China have dropped since the onset of the pandemic, Australia has seen its shipments plummet thanks to the tariffs, and, general uncertainty is clouding the Chinese business environment as it is everywhere else. Niche segments, however, show vigour and potential and sweet wines could possibly a great card to play. Everything depends on getting the famous ‘Four Ps’ right: Product, Place, Price and Promotion, to find that ‘sweet spot’ in the market.
For anyone interested in a quick update of the current Chinese market and getting prepared for the next round, Lin Liu is running an English-language webinar about Wine Business in China, with a star line up of speakers (MWs, MS, different types of importers, trade mark lawyer, researcher, journalists and marketers and including Lady Penguin and Meininger’s Robert Joseph). Scheduled on 16th and 17th June, 2022 (tickets also allow video playback). The objective is to help producers to understand the latest information and trends, so to make the best business decision about China - even if that decision is not to export there for the moment.