Comments on: California Wine and the Chinese Market http://calpolymbatrip.com/2006/china/california-wine-and-the-chinese-market/ The MBA Graduate Program at Cal Poly Fri, 18 May 2012 14:55:44 +0000 http://wordpress.org/?v=2.6.3 By: Eric Cole http://calpolymbatrip.com/2006/china/california-wine-and-the-chinese-market/#comment-754 Eric Cole Fri, 15 Dec 2006 08:50:10 +0000 http://calpolymbatrip.com/2006/china/california-wine-and-the-chinese-market/#comment-754 There are two main reasons for the profusion of French and Australian wines in China. The first is that both France and Australia have been recently suffering the effects of an international wine glut, as more and more countries are exporting wine. Australia has had such a problem that the industry is subsidizing growers who destroy crops and wine so as not to saturate demand. Part of the solution to the problem for them is to expand to new markets (i.e. China) and to sell at a reduced price, which is why you are seeing many nicer wines at large-scale grocery stores. The second reason is that the French and Australia wine industries have made a concerted effort to tap into the growing Chinese market. Since China is the fastest growing wine market with double-digit annual growth, these countries are trying to get in early on and to prevent other producers from encroaching on their market share. California wineries have not been having the excessive supply issues to the degree that the French and Australians were experiencing, and as such, have not had the impetus to expand into the Chinese market. The Chinese market represents an enormous opportunity for California wineries. As the Chinese accumulate greater wealth and more discretionary income, its wine drinking population will burgeon as well. With 20% of the world’s population and 6% of the arable land, most of that land will be needed to produce staple foods, leaving little space for luxury crops such as wine grapes. As a result, there will be greater demand for imported wines, and California wineries need to be in place to satisfy that demand. The wineries need to make a more concerted effort of establishing a secure distribution chain that provides protection from counterfeiting and to get over the misconception that the Chinese do not drink wine. This misconception applies also to importing Chinese wine. While China is not thought of as major wine producer, but neither was Australia until the last decade or so when they firmly established themselves on the international stage with 8% of the export market. I do not believe that the untapped market in the U.S. for Chinese wine is very large. We already have a very strong domestic wine industry and with China emerging as the U.S.’ main competitor on the international stage, American consumers will react to this by purchasing more American wines. There are two main reasons for the profusion of French and Australian wines in China. The first is that both France and Australia have been recently suffering the effects of an international wine glut, as more and more countries are exporting wine. Australia has had such a problem that the industry is subsidizing growers who destroy crops and wine so as not to saturate demand. Part of the solution to the problem for them is to expand to new markets (i.e. China) and to sell at a reduced price, which is why you are seeing many nicer wines at large-scale grocery stores. The second reason is that the French and Australia wine industries have made a concerted effort to tap into the growing Chinese market. Since China is the fastest growing wine market with double-digit annual growth, these countries are trying to get in early on and to prevent other producers from encroaching on their market share. California wineries have not been having the excessive supply issues to the degree that the French and Australians were experiencing, and as such, have not had the impetus to expand into the Chinese market.

The Chinese market represents an enormous opportunity for California wineries. As the Chinese accumulate greater wealth and more discretionary income, its wine drinking population will burgeon as well. With 20% of the world’s population and 6% of the arable land, most of that land will be needed to produce staple foods, leaving little space for luxury crops such as wine grapes. As a result, there will be greater demand for imported wines, and California wineries need to be in place to satisfy that demand. The wineries need to make a more concerted effort of establishing a secure distribution chain that provides protection from counterfeiting and to get over the misconception that the Chinese do not drink wine.

This misconception applies also to importing Chinese wine. While China is not thought of as major wine producer, but neither was Australia until the last decade or so when they firmly established themselves on the international stage with 8% of the export market. I do not believe that the untapped market in the U.S. for Chinese wine is very large. We already have a very strong domestic wine industry and with China emerging as the U.S.’ main competitor on the international stage, American consumers will react to this by purchasing more American wines.

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