Market and marketing of imported wine in China – Distribution Networks

Jul 26, 2012 1 Comment by

Market and marketing of imported wine in China – Distribution Networks

We continue the discovery of the wine market in China after getting the figures from the market, here are the distribution networks.

There are basically four distribution channels: wholesalers, hotels – restaurants (CHR or On-Trade), retail (GMS or off-trade) and direct sales (private or enterprise).

Distribution networks

Wholesalers

This is certainly today’s biggest market, with about 75% of wines distributed. This is what we called the invisible market because it is very difficult to identify the actors, and even more difficult to identify the customers. They are some Chinese companies whose main business is not wine, but who are taking advantage of the popularity of imported wine to reach the clients. Some names of giants: C & D (based in Xiamen, possesses Xiamen Airlines among other things, BTP companies …), Nanpu (based in Shanghai, imports Carlo Rossi, 800 containers per year) … and also a few companies in Shenzhen.

In general, these wholesalers sell the wines that they have bought really cheaply at high prices (sometimes very high). In this way, many table wines are found in shops of small grocers in province at exorbitant prices (300 RMB a bottle when a VDT at Carrefour costs within 20 RMB) because the intermediates are many. Some Company A imports, and sells to company B with a margin of 70%, and the latter will sell again to company C with the same percentage, and so on.

We also note that it is often these wholesalers who invest heavily in GCC (Great Growths) without knowing anything, just as one would buy an apartment for reselling it 5 years later. This is a speculative business, and its boundaries begin to hang over their head because the price of these expensive wines is now literally coming down on the Place de Bordeaux. (For the operation of the Place of Bordeaux, see this link).

Clients of these wholesalers are often companies or people from “guangxi”, more or less forced to buy these wines at high prices in order to continue to do business with the enterprise.

This distribution channel is ideal to boost sales volume by low prices, but absolutely not to create the image of brand products of high quality; those who have tried this have already suffered a setback. The real success in this area mainly engages three brands, however:

• Carlo Rossi, which is owned by Gallo (the first wine producer in the world), based in California, imported by Shanghai Nanpu and distributed by over 200 wholesalers (very low average selling price, California table wine). Success in putting Off-Trade into perspective (= GMS = supermarkets and hypermarkets) where it sells very little if the mark is present.

• Jacobs’ Creek, Australian brand owned by Pernod Ricard Group, which assures the marketing and distribution of this wine so that we can find it in all the restaurants of province. In fact, though the brand is presented with beautiful facings on the shelf of GMS, sales volumes are very low. His principal business is done in cities of second, third and fourth level, because Pernod sells alcoholic beverage and also places its wines, and in this area competitors do not really exist (in the following part of this article, in on-trade, you will understand the mode of action of the CHR distributors) because the large operators in the CHR are in major cities.

• Castel Frères has decided to sell exclusively via wholesalers. If sometimes there are Castel wines in international or national brands of GD (= Retail), it is the fact that the local wholesaler has his networks. The problem today is that Castel is copied almost everywhere in China, with counterfeiters who reproduce its labels and even a company that has registered the name Castel before Castel Frères! Castel is certainly the largest seller of wine in China.

In general, these three brands are doing well in the wholesale network, with several points in common:

1. Presence in ancient China

2. Enormous financial power

3. A team on hand to assist wholesalers, do advertising, etc.

4. Low presence in GMS or it exists without incredible sales.

The CHR (Cafés Restaurants Hotels)

Also known in English as On Trade (for the place of consumption is “on site”, ie. at the place of purchase of wine).

Dominated by U.S. companies, the market of restaurant is no doubt behind the wholesalers in terms of volume and value, and even far behind. It will maybe represent about 15% of the total market of imported wines.

In the on-trade business, we often distinguish between 5* hotels, gourmet restaurants (and often astronomical ones), clubs and high-end boxes, and the rest (small restaurants, small bars … the Chinese restaurants…).

The problem of big hotels is that they have a list of wines imposed at the global level by the groups they belong to (Accor, Starwoods …), one imposed at the country level, leaving the F & B (Food and Beverage director / manager) a very limited space to manipulate. Thus it is difficult to sell your wine.

Actually it is not so often because we are in China, and people do not take seriously global agreements!

Indeed, the hotels often have two wine lists, one “official” and the other informal, allowing them to put the wine of their friends.

The disadvantage of hotels comes from their brand image. They are obliged to have many wonderful references, but not necessarily consumed by their customers, making the storage of wines insufficient…

The big restaurants have a significant margin of decision, and their wine list provides a better rotation of wines if it is less broad.

As for small restaurants, wine bars, nightclubs, Chinese restaurants… there are so many that any suspicious guy who imports every year his 2 containers by using names that are completely unknown but, if I swear, the best wines of the world can take himself as the largest seller of wine in China on referencing its wines in a few institutions of which he knows the boss and with whom he finished three evening a week in the bar, making himself the best client of his wines….

In terms of image, the storage of hotels is not always the top. Although prices in hotels are always the most expensive, hotels do not necessarily pay the same attention as those in France as to the valuation of a brand. Because everyone knows the importance of guangxi, however, few know the wines that they have on the table at prices demented.

If I am very skeptical about the on-trade business, this is because I also sell my wines in this area. (more or less forced by my suppliers who want to bring up a little awareness for their brand in hotels 5*) and I get in touch with many people, especially young Laowai (mainly French, when you are French in Shanghai, you are bound in wine…) who know wine only through what their parents (often the owners of vineyards) have told them and who talk (more than sell) to the hoteliers that don’t really know more about it. But rebuilding the world of wine on around a very expensive wine, only talking to the elites (few Chinese can afford to have a diner or consume wine in such establishments) in the centre of Asian Pearl, Oriental Paris, these things are so exciting…!

In short, this is a market dominated as I said by U.S. companies, in which there is a strong presence of new world wines (it’s true, these wines are not known in France, did I say wine? My God, sacrilege, they are not wine, they have no land! They are just grape juice mixed with wood chips and flavored chips…). However, there appear these years some French companies offering more and more French wines (the figures have shown anyway that the market for imported wine in China is a market for French wine) … To be fair and, as we did for wholesalers, here are some names of major companies in this market.

• ASC, created over 15 years ago by an American importer of Jeep in China, today held by the Japanese giant Suntory. It is a leader in China on imported wines, especially for the CHR, with brands such as Santa Rita ( Chile), Penfolds and Wolfblass (Australia), Domaine du Baron de Rothschild (DBR) …

• EMW (East Meets West), created by two French graduates from Sup de Co Reims (Reims Management School) and a Chinese girl. It is a small rising business; it surpasses another American company Summergate in terms of market visibility of wines. (I can not predict here the returns, CA nor the volumes of each of the companies mentioned.)

• Summergate: a U.S. company which is important, but over the years it has lost many of its brands (Lanson, Georges Duboeuf, DBR …)

• Torres, a subsidiary of a Spanish giant, specializing in on-trade

• …

Some places known for their wine list:

• House of Roosevelt (on the Bund in Shanghai): More than 4,000 references, 30,000 bottles, nine floors in a building from the early century, impressive

• Napa, behind the Marriot in the People’s Square, set up by a Swiss hotel school, voted the best wine list by Wine Spectator

• Mr. & Mrs. Bund, gourmet restaurant located at 18 of the Bund, offers every night two bottles for one bottle after 22h30.

Mass distribution and the general off trade

Undervalued in France, it is however enormously valued in China. Two main reasons for this: The lowest prices on the market, and the product authenticity. Understand: these are not fakes! In a country where 90% of Chateau Lafite is deemed fake, customers who can afford it seek above all to buy the real wines. (For example, it is the same for LV products…)

This market, which has just started, represents only about 5% of the total market in China, but it is fastest-growing one. Each of the chain stores is opening every month twenty new stores…

There’re several channels, and their sales approach is not the same.

Super and hyper markets

The International channels (listed in order of importance in the sale of imported wines in terms of turnover and volume)

• Carrefour. With almost 220 stores, it is the leading brand in China on wine. Carrefour is the first to invest and develop the imported wine, the first to have created wine fairs with free tastings. All competitors take Carrefour as their model.

• Auchan. Large stores, Auchan has put priority on wine for 2 years with a selection of wines which is cheap and directly imported.

• Sam’s. Cash and Carry business of Wal Mart, with only seven stores in China, the company has made use of attraction of imported wines to develop a large radius

• Wal Mart. Left behind because each region is free to choose its suppliers, and this creates many aberrations in the products offered

• Metro. It is the only chain that imports 99% of its wines in a direct way. It is also the only one whose sales stagnate. For professionals only (in theory)

• Tesco

In short, you have understood that all world leaders of supermarkets are present here, among which some are more or less successful.

Regional channels also compete for this market of imported wines.

• RT Mart. Taiwanese brand, close enough to Auchan since the two companies in China belong to a joint holding company listed on the Hong Kong stock market, and it is owned by Auchan France and RT Mart Taiwan

• Lotus. Thai

• Ito Yokado. Japanese

The local actors, often very large, start very lately in the business of imported wine.

So it is possible that brands such as Xin Hua Du, Yong Hui, Bubu Gao, City Shop, Hualian, Market Place, Century Mart, Jinkelong, Jenny Lou’s… whose name you’ve never heard of grow quickly, very quickly.

Convenient Stores

The convenience stores are grocery stores of “Little Casino” in France, but much smaller than them. A convenient store is a little corner shop, open 7 days a week and 24 hours a day. It provides everything, including imported wine (few references, about 15 when Carrefour or Auchan offer 1600!) We can cite Family Mart, C-Store, Lawson, Keddi, Buddies, 7-eleven as examples.

These stores are mostly located in Shanghai and Guangdong. But they are not popular in Beijing.

The Department Store
Glaeries Lafayettes type of stores. These are the privilege shopping places for wealthy Chines. These department stores are all over China’s big cities, even in small towns (In China, the population for a town is 3-5 million habitants.)

The biggest group , Yaohan, is presented almost everywhere and in all forms (Hua Lian supermakets, department stores…). That’s where you can find the bottles of XO pricing more than € 15 000, thus also very great wines. Customers who come here usually have no time to lose, and it is not uncommon to see them paying more than 10 million RMB (yes, I mean millions, I have always seen this happening .)

Japanese companies are also quite noticeable in this area, for example Isetan in Chengdu.

Several points to notice about the off trade.

• A brand won’t be built only if it is presented everywhere in China. This is especially true for wine, where a reference becomes extremely well-known when the clients find it in all the stores he frequents. After all, A wine that sells well everywhere must depend on its good quality / price ratio! Moreover, it can never be fake wine!

• I admit a bit pretentiously that we cannot get to know the imported wine market in China without going through the GD. Indeed, facing those who only sell to F & B, or sometimes to elites that consume at these hotels, I am one of those rare people who organize activities on GD once every two weeks. (My God, after I graduated from business school, I ended up staying in front of the shelf of a super market tasting wine with Chinese rednecks all weekend long from 8 am to 22h, how terrible!) All over China! (Shenyang, Harbin, Qingdao, Dalian, Beijing, Chengdu, Jiaoxing, Haikou, Shenzhen, Dongguan, Guangzhou, Suzhou, Shanghai, …)

• The market for GD is controlled by a very small number of companies (see below), as the market is very difficult, the human and financial investments are numerous and high.

• It is only through the tasting and the formation of the masses (Oh my God, I have a socialist speech?) that we can promote the imported wine in China without taking consumers for fools. GD in terms of price is very low (given the number of existing taxes and costs upstream) and also makes a great choice.

• The business model of GD through the promoters, but if you know that these girls (not all young) behind you on the shelves are to sell you a particular exclusive wine. Being through a certain training, they are competent enough to have a good relation with their clients and be their counselors.

Some companies (not a lot) in this market

French Wine Paradox. Created in 1999 by a Breton, this is the only family company of its size. The company is such an anomaly compared to its competitors, whose financial strength is more than 20 to 40 times! It is the undisputable leader in retail, international channels, regional and local supermarkets and hypermarkets. In the process of becoming so in the cash and carry stores as well as the department store. But it has a low profile in the convenient store. (Distributed brands: Yellow Tail, Lanson, Georges Duboeuf, French Paradox, Montagur, Paladiana Villa, El Toro, Obikwa, Las Moras ..)

• ASC. Leader in China, ASC is in challenger of GD but far behindFWP. Owned by Suntory, it is a huge Japanese group.

• Mercuris belongs to a very large Chinese group. Launched in GD 5 years ago, it has more or less replaced DT Asia (Ballande group) who threw in the towel of all its activities in China last September.

• Torres, Jebsen, Jointek, Summergate, as many companies as we find in some brands (less and less because they are gradually de-listed.)

The wine boutiques

So here is a little mystery, I confess. There has been a test of Aussino (very strong in Guangdong) which has opened many franchises in China (lack of adequate stocks it quickly got abandoned by its franchisees). There are lots of wine shops everywhere in China, but is it profitable?

I really doubt it. The unknown wines usually cost a high price and a doubtful storage … Maybe this is a showcase for the wholesalers, an image for the brand, a way of collecting clients, making trainings…

Still, if these boutiques are located in provincial towns, I think 90% of them are not profitable. In a country of GD like China where the fake wine is omnipresent, the doubt is always with me.

By Charles Carrard for Zhongguo Wine – The wine market in China

Chinese Wine Industry, Wine Distribution in China

About the author

The author didnt add any Information to his profile yet

One Response to “Market and marketing of imported wine in China – Distribution Networks”

  1. Daniel says:

    The author’s opinions reek of French bias that goes beyond national pride and comes off as pure arrogance. Even worse, this arrogance is based on misinformation. So we are to believe the following…
    – if it isn’t French, it isn’t wine?
    – Only the French have land?
    – Everyone else uses grape juice with wood-chips?

    Opinionated dribble that has no place in a seemingly professional industry focused website.

Leave a Reply