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Current situation of import wine in China

2006-03-23       CRIENGLISH.com 

Sharing China's market, how should you expand ?


After China¡¯s entry to the WTO, the import tariff was reduced gradually. and it is thought that import wine would flood in China's market. Most people believe that domestic wine company would face high pressure by the import wine with lower price. However, it was not true, only the variety of import wine was increased in the China¡¯s wine market. This article try to explain and discus the competitive situation of import wine by SWOT (strength, weakness, opportunity and threat) analysis. 

The Analysis of the  advantage of import wine

1.Countries of good reputation 
At present, the major import wine countries to China are France, Spain, Italy, German, USA, Chile, Argentina, Australia, New Zealand and South Africa. French wine enjoys good reputation in China and around the world. Other countries, such as Australia, Italy, German and USA all have good countries¡¯ image among Chinese customers. A distributor of import wine said that the demand for import wine increased dramatically in Beijing. The growth rate maintains 30%-40% annually. The most popular import wine countries are France, Italy, Spain, Australia and USA. Since the wine from ¡°new world¡± and ¡°old world¡± own their unique characters, which will help import wine enter into China¡¯s market more quickly.

2.Good quality 
Most of wine producing country from ¡®new world¡¯ and ¡®old world¡¯ such as France, German, Italy, Canada and USA issued some legal regulations to ensure the quality management for wine production. There are relatively stable customers for import wine in China, which because of their good quality. Though little import inferior wine was regarded as the high quality wine, which could not affect the main sale situation of the high quality wine, in the same time, some marketing conceptions about import wine are spreading, but the premium quality of import wine is the basis of marketing in China¡¯s market.

3.good prospect of wine industry 
From worldwide aspect, the supply of wine is higher than the demand. Since 1980, the world wine consume volume was declining. In 2002, there was about 6.2 million over production of wine in the world. According to the research result from biggest wine exhibition company Vinexpo, there will be 10 million wines over production by 2005. The major wine producers have to find the new market to overcome this problem. China¡¯s wine market keeps over 10% growth rate in recent years. The low-end, middle-end and high-end wine occupied 50%, 40% and 10% market share respectively. The profit rate of low and middle end wine only keep 11 %, the profit rate of high end wine is from 30% to 50%. The middle and high-end wine are the major import wines in China market. 

The Analysis of the disadvantage of import wine

1.Lack of outstanding brand
In 2003, import bottle wines were 4.605 million liters in China, which was increased 7.2% compare with 2002. It concentrate on France, the following are Australia, USA, Italy and Spain. At same time average import price was increased from $2.4/L to $2.7/L. It shows that import high quality bottle wine was increased. Although many wine import countries have good reputation, brands from many countries are various. There is no single brand that leads in the market. Therefore it is hard to build the brand loyalty. 

2.Lack of support for market promotion
At present, import wine only occupy 10% market share in China¡¯s wine market. Most of dealer are the distributor of foreign found company, joint venture company or small domestic trade company
, Just like domestic wine company, import wine will not only restricted by high cost from market expanding, market cultivation and channel operation, but also the cost from high entry fee (hotel, supermarket, bar, KTV and club) and all kinds of promotion expense. Since import wine chosen high quality and high price pricing strategy, and market share is relatively small, plus lack of brand loyalty, foreign producers cannot offer strong support for market promotion.

3.Huge differences of marketing strategy 
Consider the above difficulties, many foreign companies chosen joint venture with Chinese wine company to enter the market. However, since understanding about China¡¯s wine market trend and the marketing strategy are different between the domestic and foreign stakeholders, many corporations were failed finally. Such as Allied Domecq PLC withdraw investment from Qingdao Huadong winery Ltd, Peter & William Co withdraw investment from Qingdao Peter & William wine Company, Pernod Ricard withdraw investment from Beijing Pernod Ricard wine Company and Beijing Dragon Seal Company. In Feb 2005, Changyu transferred 34% interest to an Italian company ILLVA. Although Franch V S O P cooperates with Tianjin Dynasty, SELLA&MOSCA company and Hardy Wine Company cooperate with Beijing Dragon Seal Company. For the foreign wine company enter into China wine market, they have to face the challenge about public communication, culture adoption, organization management and marketing promotion. 

Analysis import wine opportunity

1. Lack of wine culture in China
The health increase of china¡¯s wine beginning with the popularity of "dry wine" from 1990.the booming market of wine is caused by success of advertising concept. People heard "dry wine" from advertising frequently. Actually, most Chinese customers don¡¯t understand what "dry wine" is. Although some Chinese companies hold some education or other activities to improve the popularity of wine, the potential consumer still increased slowly. At same time, some foreign organizations (such as SOPEXA, china information center of German wine) have implemented many activities to promote their wine and the culture of wine. For example, SOPEXA held food festival, wine tasting activities and wine forum, trained sales, held wine exhibition, cooperated with involved department of Chinese government in technique and legal aspects, launched advertising in media and so on. Although the high-end customers are growing and maturing, except high quality of wine, personal service and culture value-added characters are the main driven for the purchasing. Therefore, foreign wine companies attached importance about wine culture and other promotion activities will help them to enhance their brand image in China market.

2. Short-term market activities of domestic companies are flooding ¡¡ 
Many Chinese companies choose the similar marketing promotion activities. For example, many of them advertise their estate wine, ice wine and age wine frequently in a short term. It is hard to build a long-term brand image for using similar marketing strategy. However, foreign wine company could take their advantage of their capital, brand, technique and marketing to penetrate their product in China market.

3. Compounding of import wine accelerate marketing penetrate¡¡¡¡ 
At present, most of import wines are bulk wine and bottle wine in China market. However, from 1990, many Chinese wine companies imported bulk wine (most are dry wine) to compound domestic wine, and then produce similar taste wine with their product. Recently, import volume keeps 40,000 tons (including bottle wine and bulk wine). The import bulk wine account 85% for total import volume. In 2003, import volume was 41.179 million liters, and increased 23% compare with 2002.The bulk wine was about 36.574 million liters. The major import countries are Chile, Argentina, Spain, France, USA and others. Chile and Argentina are ranked first and second in import volume. Although the taste of compound wine is similar with domestic wine. In some case, it help Chinese customers adapt foreign wine taste slowly.

Threat analysis for import wine

1.Brand barriers is deeper 
After the price war and quality war, China wine market enters into a new stage, which is brand war. At present, Changyu, Dynasty, Changcheng, Tonghua, Fengshou, Weilong are the major brands. In this period, for any new competitors which are not well-known brand will face this barrier. It will decide fate of foreign wine in China market. 


2.Brand concentration are expanding 
There are 200 wine companies in China. In 2004, the total production volume was 36.73 million KL. The sale revenue reached 7.437 billion RMB, and the profit reached 845 million RMB. At present, there are 7 companies which the production volume exceeds 10 million liter and 7 companies which sale revenue exceeds 100 million RMB. The tax payment of Changyu, Dynasty, Changcheng, Weilong and Huadong account for 87.66% of this industry. As the wine expert prospect, by 2010, the wine demand will reach to 60 million. Changyu successfully launched several high-end product, and opened a new wine estate in 2005. Changcheng invested 100 million RMB to a wine estate in Yantai, Shandong in 2004. Dynasty is listed on the stock market in 2005. Those activities that lead by those major wine brand companies will accelerate the brand concentration in this market. 

.Brand consciousness are increasing for Chinese wine company¡¡¡¡ 
Changyu launched the first wine estate in 2002. Wine estate become the new marketing strategy which promote Chinese wine development, increase wine quality and lead wine consume direction. It shows that Chinese companies are more concern about wine quality to enhance their brand image, in order to compete with foreign competitors. At same time, government issued some new national standard for wine. It will promote Chinese wine company produce more competitive product.

If the wine has good quality, good taste and reasonable price, Chinese customer will choose it no matter it is domestic or foreign wine. In the future, wine will be popularity in China. Foreign wine company could attend the exhibition and get suggestions from distributors, choose favorable partner, enhance the strength for cultivate customers, prepare marketing supporting activities, formulate adaptable marketing strategy. Foreign wine will benefit from above activities for improve their market performance in China¡¯s wine market.