Outline
Provide an overview of the Chinese wine market;
• The macro view of China
• Profile of the overall wine market
• An examination of the imported wine category
• A snapshot of imported wines
To provide even the Chinese ‘first timer” with a solidbaseline and understanding
from which to begin planning their entry into this unprecedented market.
50-60
40-50
30-40
10-2020-30
0-10
Population Scale(millions)
HUBEIANHUI
ZHEJIANG
JIANGSU
NINGXIA
TIBET
XINJIANG
QUINGHAI
CHONGQUING
YUNNAN
SICHUAN
GUANGXI
GUIZHOU
HUNAN JIANGXI
FUJIAN
GANSU
SHAANXI
INNER MONGOLIA
SHANXI
GUANDONG
HENAN
HEILONGJIANG
JILIN
HEBEI
SHANDONG
HONG KONGMACAU
SHANGHAI
LIAONING
BEIJINGTIANJIN
100-110
90-100
80-90
70-80
60-70
A Population of 1.4 Billion, spread throughout 34 Provinces – 10 With Populations of 50m+
Beer and spirits particularly “Baiju” still dominate China’salcohol market………but that situation is changing rapidly
• Sales of alcoholic beverages in China totaled 123 billion litres in 2014, valued at US$176B
• This is compared to Australia’s total alcohol market value of AUS$10.4 Billion
• Beer dominates by volume with an 85% share, with spirits on 8%• Beer’s share by value is much lower at 40%, just ahead of spirits with 38%• Wine fastest growing – 5 year volume CAGR of 18%, compared to beer at 8%, spirits at 3%
Source: Euromonitor International
Beer85%
Cider/Perry0%
8%
Volume share
RTDs
0%
Other Wine4%
Grape Wine
3%
Spirits
Value share
Grape Wine
Other Wine10%
RTDs0%
Spirits38%
12%
Cider/Perry
0% Beer40%
515
2,989
2,671
2,305
2,259
2,228
971
1,162
1,015
973
535
16,237
France USA Italy Germany China UK Russia Spain Argentina Romania Total Top10
Source: OIV; Wine Australia; Euromonitor; analysis
16,752
Per capitaconsumption,2014
China is a large wine market,but mostly consumes its owndomestic production
China now ranks 5th and is a whisker behind 4th Germanyamong the Top-10 wine consuming countries…but on a per capita basis has plenty of room to growVolume of consumption 2014Millions of litres
39.2 9.4 41.1 24.8 4.3 22.3 8.3 21.7 24.8 12.3
If current growth continues by 2018 there will potentially be 648 million wine consumers
• At 1.4 billion, China has the world’s largest population
• The Chinese population expected to peak at 1.49 billion by 2030
• Wine Intelligence research shows that 179 million adults currently drink wine in Chinabut only 84.3 million adults drink imported wines.
• Rabobank estimates that 248 million people in China have the purchasing power tooccasionally consume imported wines
Shijia-
Jinan
Zhengzhou
WuxiChangNingbozhouWuhan
Dongguan
000’ RMBper capita
Tier 1 cities Tier 2a cities4 highest GDP High GDP with big market
Tier 2b citiesRelative small market with high GDP per
capitaRMB bln
Tier 2c citiesHigh population
with relatively lowGDP per capita
Chengdu
ShenzhenZhongshan
Zhuhai
Tier 2a citiesTier 2b citiesTier 2c citiesCities covered
Harbin
Changchun
ShenyangHohhot
Beijing Tangshan
Baotou DalianTianjin
zhuang YantaiZibo Qingdao
Xi’anSuzhou
Nanjing Nantong
Zhen Shanghaijiang
ChongqingHangzhou
WenzhouChangsha Fuzhou
QuanzhouXiamen
Guangzhou
Tier 1 citiesFoshan
China: one country, but many marketsThe coastal cities in China represent the majority of the economy
China’s top 20 cities ranked by GDPSource: China Year Book, Respective cities’ year book 2014
Breakdown of GDP by cities tier systemSource: China Year Book, Respective cities year book 2014
Distribution:China is relatively evenly split by sales channel
• Wine volume share in 2014: off‐trade 49%, on‐trade 51%
• Growth rates in both channels similar, therefore
• Very little change in off‐trade and on‐trade shares over the last decade
• Domestic mainly off‐trade, imported sector pre‐dominantly through the on‐trade
• Expansion of leading retailers will expand the off‐trade supermarkets (62% share) and smaller
specialised wine stores (18%) are gaining market share
Reds dominate …for now…, but watch for the coming White and sparkling surge
• Red wine accounts for just under three‐quarters of China’s wine market. Whites .>1/4
• Red sales growing at a faster rate (5 year CAGR of 21%) than whites (5 year CAGR of 14%)
• Rosé and sparkling small but growing segments
• The preference for reds relates to its image of vintage, sophistication, heritage, investment value
plus the colour red symbolises fortune and joy in China
However many females, especially when out with friends have started to switch to whites and sparkling varieties, which will boost white share of
the total market rapidly
Two holidays account for 60% of wine sales
• Chinese New Year and Autumn Festival account for 60% of wine sales
• Primarily due to family and business gatherings during these festivals
• Gift boxes are popular, while off‐trade sales are mainly for gift giving and family visiting
• Traditional packaging/labeling, communicates a “premium” image associated with “heritage”
• Cork is “necessary” (synthetic is also acceptable, but ideally real cork, especially for premium positioning) versus screw-cap
Creating Premium PerceptionsThe importance of packaging With limited consumer knowledge, packaging becomes an important proxy for wine quality
DistributorRetailerRestaurant hotel
71010
989
799
679
743
445
715
Preference of packaging from different stakeholders(High marks indicate favorable packaging style)Source: Rabobank, 2014
Scale 1-10with 10being mostpreferred
Don’t underestimate the scale and affinity for the domestic industry
• Domestic wine production reached nearly 211 million cases in 2014
• Production bases are concentrated in the North, with Shandong the major region
• The major 3 domestic players are Changyu, Dynasty and Great Wall.
• Each own domestic vineyards as well as source from growers and imports of bulk wine.
Import sector is growing fast; France and Australia lead
• France (45%) is the leading importer followed by Australia (20%).
• Top six importers account for over 90% of imported volumes sold
2014
Growth in imports is outpacing domestic
• Sales of bottled imported wine are growing at nearly four times the rate of domestic
embracing of Western culture, products and lifestyles,
increasing disposable incomes,
healthy image of wine compared to other alcoholic beverages in China,
and the high quality perception of imported wines
Also cultural factors such as “Guanxi” face in a business context
Why?
Cu
mu
lati
vera
tio
for
Au
stra
lian
win
esa
les
(%)
• Strong presence about 20% of all imports in at the “high-end” retail pricing point in China, between RMB200-300 per 750 mL bottle
• RMB 300-400, Australia has a dominant position, selling 40% more than French wine• BUT THERE IS A CEILING - For the “icon” price segment (>RMB 400), Australian wines top out between
RMB 500-800, while French dominate all price points from RMB 1,000 to10,000
Retail price point (RMB per 750 mL bottle)
100
75
50
25
Size of bubble indicative of market size at respective price points% indicated market share by volume of AUS wine in respective price points
= 300,000 9L cases
Below 30 30-50 50-100 100-150 150-200 200-300 300-400 Over 400
PremiumHigh-end IconMid-rangeEntry-levelLow-end
7%
2013 Import bottled wine volume (9L cases)Total China: 15.1 millionTotal from Australia: 4 million (20.5%)
15%
11%
Australian wine has gained momentum in the “high-end”and “premium” segmentsThe penetration of Australian wine among China’s wine pricing points
Imported wine sales volume from all origins in China at defined retail pricing pointsSource: AUSTRADE, Morgan Stanley,IWSR, UN Comtrade, 2013
Growth of leisureClass in China
••••
Consumption boom.Life-style changes.Food and beverages as mainstream Self-medication.
• Local and imported.• Multinationals in China.• Traditional influences.
• Own consumption• Gift giving.• Restaurants/bars
• Supermarkets.• On-trade growth • Wine specialists• E-commerce
1
Urbanization
3
Diversity OfChoice
2
Evolution OfF&BCulture
4
ModernizationOf Channels
... The same drivers transforming China’s F&Bsector are driving wine consumption
Savvy wine exporters are capitalising on the rapid spread of F&B culture into secondary and tertiary cities
China’s Urban Landscape
WHO ARE WE?: Navigate is a “Boutique” international management consultancy
Our team, all ex Tier 1 employees from market research or management consulting; either live or have lived extensively in China, speak at least Mandarin fluently and have extensiveexperience assisting Australian, US and UK winemakers successfully capitalize on Chinese market opportunities
Our work in China builds on our proven model of bringing together
research experts with wine market specialists to deliver actionable
insights
Clients – Australia &New Zealand
Clients – United States
Little Differentiation:Many small players failingto invest in R&D has ledto overcrowded marketsand undetectedopportunities.
False AdvertisingClaims: Even though thegovernment has crackeddown, the damage causedby years of false claimsremains.
Poor ProductQuality: Due to theshort term view ofmanufacturers cheapraw materials and oldequipment are used.
Fake/CopiedProducts: Widespreadproblem, some of Australia’s most prestigiouslabels are openly copiedAnd sold in legitimate trade channels
• In the 1990s, as thewine market beganto develop, many localmanufacturers entered.
• Unscrupulous practicesdepressed the sector, onlyrelieved when regulationwas introduced in theearly 2000’s.
• While progress has bemade, infractions ofcourse remain.
OngoingUnscrupulous Local
PracticesHistorical Development Ironically Creating A
“Vacuum” of trust that only imported brands can fill
• Public distrust means70% of consumers aredistrustful of wine retailers product offerings
• Many believe thatinternational products areof higher quality thandomestic products.
We help clients understand & avoid the risks inherent in the Chinese market
Effective brand names
HOW WE CAN HELP YOU: We provide evidence-based solutions for a wide range of business questions
Back label designand content
Pre and post-testingof advertising
… and more
Financial and business planning
Consumer and tradepreferencesPrice positioning
Evidence-based solutions
Market entry strategies andGeographic focus
Distribution
Understandingmotivations
What should my Chinese market entry strategy look like?
How do I grow top line revenue and bottom line profit.
How do we establish a successful positioning for winesfrom XXXX in the Chinese market?
Does the Chinese translation of my brand name reflectthe positioning we want?
How to Chinese consumers evaluate and interpret mylabel design?
What are the opportunities and barriers from the tradeperspective for my range?
What should my label look like for the Chinese market?
Strategic
Advice
Brand
development
Primary &
Secondaryresearch
Go to Market
Services –
distribution,
retailing and legal
Service areas Questions we answer include:
WHAT WE DO: A broad range of services tailored toindividual client needs
For each project, we assemble a project team with the right mix of research, management consulting and market expertise to give you an evidence-based answer to your business questions
STRATEGIC ADVICE: Using evidence-based approach tosupport key strategic decisions
Primary &secondaryresearch
Branddevelopment
Strategicadvice
Reports
When helping clients to tackle complex strategic questions, we
use a structured approach in order to deliver a strategy that is
evidence-based and achieves our client’s objectives
Questions include:
“What should my distributor strategy be for China?”
“How should I build my brand portfolio for China?”
A typical process will address the following areas:
Where arewe now?
1
What dowe want toachieve?
2
How do weget there?
3
Does ourproposedapproachwork forconsumersand trade?
4
How do weget tomarket?
5
We work with clients tocapitalize on top line growth
opportunities while alsoaddressing long-term profit
protection.
DevelopmentAssessment of the opportunity and
formulation of the strategy to enter newchannels, value segments, application
sectors and lower tier cities.
PenetrationListening to the voice of the customer to
improve customer segmentation &targeting, product & service offering, and
route-to-market.
Profit ProtectionUnderstanding of the cost curve and coststructure 5 years out, and developmentof the right response to protect profit
margins.
Government AffairsDesign of a modern, proactive and
customized approach to governmentaffairs and corporate social responsibility
to meet business objectives.
Primary &secondaryresearch
Branddevelopment
Strategicadvice
Reports
STRATEGIC ADVICE: We help secure top-line growth and secure bottom line profit
Distribution
DistributionBranded
PartnershipStrategicInvestor
Greenfield Acquisition
Importer/distributormodel, supported byin-country team (ROor FICE).
• Detailed
understanding of themarket opportunity.
• Modeling of organicgrowth scenarios,route-to-marketstructures, andnature of in-countrysupport needed.
• Search and selection
of distributionpartners.
Importer/partnermodel, leveragingexisting sales anddistribution platform,either F&B or pharma.
• Potential partner
assessment (interestin proposition andreadiness to sharedownstreammargins).
• Sustainabilityassessment (risks,next best use ofassets, alternativesupply).
A step further thanbranded partnership,offering to divest aminority share.
• Assessment of the
strategic significanceof the Chinesemarket, and thus therationale for astrategic investorfrom China.
• Identification ofsynergies with astrategic investor,supporting theirglobalization.
Investment in in-countryproduction capacity andfull business capabilities,either as a WFOE or JV.
• Full modeling of the
economics anddetailed businessplanning.
• Decision onwhether a JVpartner would benecessary, orpreferable andfeasible to goalone.
Acquisition ofexisting business inChina.
• Definition of theideal target profilethat fulfils the entrystrategy.
• Search and selectionof attractive andavailable targets.
• Design of acquisition
strategy andrelationship buildingwith vendor.
1 2 3 4 5
Entry Models
STRATEGIC ADVICE: Our goal is to help you find and grasp the optimum market entry model for your brand
Primary &secondaryresearch
Branddevelopment
Strategicadvice
Reports
Including the pros and cons of the myriad of legalPartnership models in China is you wish to link with a A well established player
PRIMARY & SECONDARY RESEARCH: The right method at the right point in developing your Chinese market position, brand platform and distribution network
Primary &secondaryresearch
Branddevelopment
Strategicadvice
Go to mkt plans
Quantitative
Bespoke quantitative surveys of Middle-upper middle class wineDrinkers in China.
Covering up to 35 cities and representative of 250 million consumers
Qualitative:
ConsumerFocus groupsIn-depth interviewsTremor panel (phone and
online)
Sensory testingPackaging and ad analysis
Trade Research
A key focus for our Chinawork is interviewingmembers of the Chinesewine trade, including:
Importers and distributorsMajor off-trade buyersHigh-end on-tradeJournalists and educators
Recruitment begins with ourown network of contacts inChina. For specificrecruitment needs, we use anetwork of locally-basedpartners to find the rightrespondents
Secondary research
Our in-house languagecapabilities and researchexperience allows us toquickly and effectivelyconduct secondary researchon the Chinese wine space.Platforms that we consultinclude:
Social media, includingWeibo, Renren, forumsetc.Press and mediapublicationsData sources, includingChinese Bureau ofStatistics
As a management consultancy whose team have experience across globe but more importantly in the Asia-Pacific region our strategy, research and implementation expertise allows us to draw on wide range of research methodologies.
BRAND DEVELOPMENT: Our proprietary Vinibrand®approach to optimize brands for the Chinese market
Primary &secondaryresearch
Branddevelopment
Strategicadvice
Reports
Brand development Pre-launch Post-launch
Brand strategy
Differentiated brand
positioning / brand audit
Brand specification
Optimised Chinese
brand name
Culturally appealing
label
Culturally relevant back
label
Brand communication
Effective
communicationscampaign
Vinibrand® provides a framework for assessing and developing a
brand for the Chinese market, with particular attention placed on
the unique demands of this market.
Based on individual client needs, we typically select one or two aspects of the
brand development process to focus on.
CASE STUDY:Vinibrand® market entry and positioning project
BUSINESS CHALLENGE
A consortium of Western Australian wines brands, led bythe Industry group Wines of Western Australia wantedTo explore the feasibility of entry into the Chinesewine market.
In particular they group wanted to avoid the increasinglycluttered array of Eastern Australian wines on offer inthe three Tier 1 Chinese cities of Beijing, Shanghai andGuangzhou and carve out a less crowded andcompetitive niche in other regions.
We were asked to develop and execute a completemarket entry plan for the wine consortium.
SOLUTIONStage 1:A three phase review of the Chinese market wasundertaken in order to select the optimum new venturelegal and organizational structure, geographic footprint,distribution strategy and retail channel selection andlaunch trade and consumer marketing campaign for theconsortium of WA wines. 21 Chinese provinces in Chinawere examined in depth from which a selection of 14provincial cities ere chosen for first stage distribution. Alimited joint venture structure was chosen as theoptimum structure.
Stage 2:Trade research to determine distribution options andgeographic reach. Then Primary consumer research todetermine the optimum product portfolio, pricingstrategy, point of sale communications and digital andtraditional media support.
Stage 3: Full market entry plan and implementationincluding years 1-3 financial and operations plan
Our team includes:
• Chinese based nationals, includingnative Mandarin and Cantonesespeakers
• With experience working across all provinces and regions
• Quantitative and qualitative market research expertise
• Experienced trade researchers
• Extensive experience in the wineindustry, including WSETqualifications
Our team is formed of some of the brightestand most experienced wine industry,marketing, research and branding experts inthe business.
RUI SUResearch Director
The Navigate CHINA Wine TeamMarket experts with research and consulting expertise
John GreggNavigate Principal
Kim WuDirector – Trade,
Francis LyDirector – Logistics
& Partnerships
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