China Takes a Shine to Aussie Wine
Did you hear about the Australian hotel manager in China who removed the labels from his country's wine? He said customers would "look askance" if they knew the bottles' origin. If that sounds crazy, especially given the popularity of Australian wine here, rest assured the anecdote – found in a Sydney Morning Herald story unearthed by history site China Rhyming – dates to 1911.
A century later and nothing punches up in China like wine from Down Under. Last year, Australia had 19 percent of the imported still wine market by volume, trailing only France at 39 percent. More impressively, it had 27 percent by volume at $682 million, two-thirds the value of France, up from just one-third in 2013. And it had a higher declared value per bottle than other leading sources like Chile, Spain and Italy. As whipped cream on the pavolva, Australian imports cracked $800m year-on-year in March. Rather than hiding labels in China, Australians seem set to keep them front and center.
What explains such numbers? There are a bunch of obvious reasons, some subtler ones and an "x factor". Let's cover them in that order.
Australia tends to use grapes consumers are most likely to know, like Shiraz, Cabernet and Chardonnay, and bottle them as a single variety. That makes Australian labels easier to understand vis-a-vis those from Italy and France.
Those labels front "bottled sunshine" that people new to wine typically enjoy. While France's rise is largely tied to status, Australia's is more about people liking what they taste.
"[The wine] has sweet tannins and a full body, which both young drinkers and old people like," says Alberto Fernandez, managing partner of Torres China, which handles five Australian brands.
Frank Pan, owner of distributor Wollemi, also cites consistency.
"Most Australian wines have a good quality standard. It's easy to drink, very upfront and you don't need to cellar it a long time," he says, though he cautions that most Chinese still drink little wine.
As for those seeking something beyond standard Barossa Shiraz, Australia offers a world of choice, from Hunter Valley Semillon to Tasmanian Pinot Noir to Margaret River Cabernet.
The country also has key brands flying the flag. The biggest, of course, is Penfolds from Treasury Wine Estates: If Lafite heads the "old world" in China, Penfolds stars in the new, especially labels like Grange and Bin 389 aka "baby Grange".
And Australia has increasingly benefited from its free trade deal with China. Since 2015, it has whittled tariffs to the point they will disappear January 1, giving Australia a 14 percent edge over nations without an agreement. The annual volume of Australian wine entering China has quadrupled in that time.
Those are all pretty obvious factors.
Chinese also get exposed to Australian wine during trips. With 1.39 million visits, China was the top source of guests for the year ending February 2018, according to official Australian stats. It ranks first in international students, with 31 percent of nearly 550,000 attendees, according to ABC News. And it vies with the UK and US for winery visitors, underscored by the growth of Chinese-language signs and sites, not to mention Mandarin-speaking salespeople.
Pair this with Australia's reputation for food safety, a major concern of Chinese consumers. There are tens of thousands of personal shoppers in Australia who send everything from vitamins to milk formula to China, a situation that helps wine.
And there are the resources poured into promotion. Take Wine Australia, which does everything from master classes to trade shows. Its current package earmarks $23 million for the US and China alone, including the "Australian Wine Made Our Way" campaign. It's hard to quantify the sales impact but such efforts raise the status of Australian wine within the trade.
"Around 2000, I visited the London Wine Fair, and the person from the Australia wine bureau was already talking about a 20-year marketing strategy," says Jim Sun, an industry observer who runs the site Wine China.
So, what's the downside? A major one is imports versus sales, namely, how much wine enters China and how much is sold.
In May, Australian Financial Review cited TWE clients in China who predicted a "disaster" due to excess wine. AFR's Angus Grigg wrote that "distributors report they are sitting on up to three years' worth of low-end stock."
The argument went that Importers only desire a few top-end Penfolds labels but must buy entry-level Rawson's Retreat and hard-to-move TWE labels like Wolf Blass and Beringer to get them. Those wines started showing up in retail at extremely low prices.
TWE swiftly cautioned against "reliance on feedback from selected customers in China," saying it had a "disciplined and rigorous approach" to selling a portfolio in all its markets.
Peter Dixon, TWE's managing director for Asia, addressed the issue when full-year results were announced: "In Q3 this year, we took quick and decisive action on some trading behavior on Rawson's Retreat… by significantly reducing shipments and consolidating our customer network for this brand in China."
The case not only highlighted the "imports versus sales" issues but also the outsized role of a single company. TWE lists exports by region, not country, and Wine Australia says it doesn't release such info, but trade people think TWE's share of Australian wine here is above 50 percent.
"Only a few big [Australian] wineries and importers represent the volume and value," says Frank Pan. "Most established companies, and I mean exclusively holding a label for more than five years, haven't increased their volume in the last five years."
And TWE isn't the only case that raised concerns about excess stock.
"There are lots of new players, or importers swinging labels," says Pan. "Many bring in one or two containers and it sits in a warehouse."
There is also the issue of wine investment tied to residency visas.
"If you are rich enough, you can invest in a container of [Australia] wine and that helps with immigration," says Jim Sun. He said this became popular ten years ago "even if [the investors] only drank the wine themselves."
Indeed, Sydney Morning Herald covered the phenomenon in 2009.
"Wine trading is an increasingly popular occupation choice for Chinese visa-seekers," it cited one lawyer as saying. "Other winemakers report Chinese businessmen appearing at cellar doors for tastings, followed by immediate offers to purchase bulk quantities."
Two China-based trade sources with 10-plus years of experience, including with Australian brands, believe anywhere from 15 to 30 percent of wine fits this category. It is unclear where all that wine ends up.
Andrew Caillard, fine wine principle for Endeavour Drinks Group, downplays this. Yes, Australia's success is partly tied to residency, he says, but "most investors have purchased going concerns." Indeed, the steady flow of purchases includes those by heavyweights like Changyu and Wei Long as well as smaller players.
What Caillard sees as a concern is those who might leverage Australia's hard-earned success for speedy returns.
"[Investment] has the potential to undermine our image," he says. "The proliferation of cheap brands riding on the success of regions or styles, but essentially bulk wine tailored to suit a very low level market, could erode our standing as the France of the Southern Hemisphere."
While this sounds worrisome, most competitors would love to be in Australia's shoes. For France, with a steadily declining share, Italy, with sputtering volumes at odds with its global status, and Spain, with the lowest value per bottle of any key player, Australia's position as a high-volume high-value player that makes wines consumers like and trust is envious. That makes Australia not only one to watch and one to catch, and the trick will be maintaining that momentum.
As Caillard says, "The popularity of Australian wine should not be taken for granted."
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