As the year of 2019 ends, we talked to key decision-makers in China’s wine industry to evaluate what has come to shape what’s been described by wine merchants as a turbulent year, and what’s at stake for 2020.
As the year-end report card comes in, one can’t help but wonder what happened to China’s wine market in 2019?
The country’s wine growth, a major engine of the global wine industry, halted in the past year. The country’s slowing economy – worst in past three decades – and US-China trade spilled into businesses across the country and tainted the country’s wine growth.
The country’s wine imports, a key indicator of the wine industry’s healthy growth, were first in line to suffer. Its wine imports from January to November in 2019 showed no sign of recovery and continued to suffer double-digit drops, 12.3% by volume and 16.5% by value year-n-year, according to the latest figures released by China Association for Imports and Export of Wine & Spirits (CAWS).
Woes in the mainland market were also compounded by sluggish sales in Hong Kong. The city’s monthslong anti-government protests ended up sending it into economic recession altogether.
If the slowdown sounds alarming so far, market recession is however not without its precedents. The country’s wine consumption contracted notably after 2012 due to a government crackdown on luxury spending.
But compared with the previous slump, the slowdown in 2019 as Edouard Duval, CEO of East Meets West Fine Wines, a leading wine importer operating in both mainland China and Hong Kong, observed is quite different.
Calling the year one of the most challenging years he’s ever seen since he started wine importing in China in 2003, he estimated the decline in the country’s overall wine import value in 2019 will be more than 15%, though the full year data is yet to be released by Chinese customs.
“It is the first year when the decrease of imports and sales in general is due to a slowdown of the Chinese economy. Prior drops have been the result of government policy changes or specific health crises but this time it is different,” he explains.
What makes this year’s slowdown more acute is a sense of pessimism that grips different business sectors.
Founder of Meituan Dianping, the popular online delivery company in China, famously summarised the year of 2019 with a dash of pessimism, it “may be the worst year in this decade, but it will be the best year in the next decade”.
Asked if the EMW CEO shares this sentiment, Duval replies, “I agree that for the first time since I arrived in China, there is a kind of pessimistic sentiment about the future of the Chinese economy. That is a big change.”
Duval founded EMW Fine Wines with Gregory Bielot in 2003. “I always perceived, and appreciated, the very optimistic and positive energy of China. Nurturing a pessimist sentiment can be dangerous as it can bring a lack of confidence, lower investment, all resulting in less spending and it becomes a vicious circle. I do not agree with that sentiment,” he continued.
For Alberto Fernandez, Managing Partner from Torres China, a wine importing company founded in 1997 and distributes over 400 wines from 13 countries in China, he admits the slowdown will likely continue for the next two or three years.
“It has been a turbulent year, mainly a result of the slowdown of the economy and the recent shift of consumption in channels, affecting the traditional distribution business and hence worse results,” he commented.
The knock-on effects of dwindling wine imports will bear more ominous news for wine merchants and particularly European wineries who are counting on China to absorb what’s lost in the US after Trump’s threat of 100% tariffs on wine.
If shipments are dropping, this means consumption will stagnate and stocks are filing on, limiting wine merchants’ liquidity. When wine merchants are strapped for cash and struggling to pay their bills, as a result, many were forced out of the business. As reported by Vino Joy News, according to official figures, in the first five months of 2019 alone more than 2,000 bottled wine importers went bust.
Speaking of the mass exit, Duval of EMW agreed, cash flow was a main cause. “Trade customers reduce their buying and delay their payments. This causes stress throughout the system,” he analysed.
But both Alberto and Edouard admitted due to the volatility of China’s market, exits of merchants is normal and happens every year. “So the fact that 2,000 importers went out of business is not really representative of a big change in market, or slowdown, but just shows that the China wine market is still not very mature with numerous traders in wine industry which are not here with long-term, or mid-term, strategies.” Duval explains.
What perhaps is more worrying than the importers who are folding their business amid economic recession is when cautious spending among wine drinkers in tough economy prompted them to opt for cheaper options oftentimes at home.
“It is relatively easy to consume less or switch to much lower priced domestic beer and spirits. We know there was a decline of ‘wine imported’ in 2019, as reported by China customs, but I also believe there was a decline in ‘imported wine consumed’ in 2019,” Duval cautioned.
Similarly, Fernandez from Torres China also pointed to a surge of OEM wines, referring to wines that often bottled from bulk and slapped with DIY labels, as a key challenged that stifled growth for 2019.
Hong Kong, trouble in paradise
Across the border in Hong Kong, wines sales in the tax-free wine hub also plummeted.
The challenges that have confronted Hong Kong market in 2019 were on a “whole different dimension” as Pierre Legrandois, General Manger of the city’s major wine importer Links Concept, exclaimed.
The economic slowdown on the mainland is already straining Hong Kong’s China-dependent economic growth. The monthslong anti-government protests that started since June last year completely put a brake on the city’s growth. The protests have frightened off tourists especially the city’s biggest tourist group, mainland Chinese, and hammered consumer spending across different sectors in retail shops, dining and hotels.
“I have been in Hong Kong since 2006. I’ve experienced some tough time but 2019 was [on a] whole different dimension. It’s hard to speak on behalf of the whole industry but companies who are mainly trading open market wines specially focused on Bordeaux might have had more difficulties due to the slowdown in China particularly,” Legrandois.
He recalls for Links Concept the year started promisingly with the releases of Chave, Sine Qua Non, Continumm, Cristal 2008 and JM Cazes’ Château Lynch-Bages, sales were brisk. But things started to sour since June after over 2 million marched on the street to protest the now-withdrawn anti-extradition bill.
“Sadly, from June onwards we felt the heat starting with the restaurants and hotels which are businesses we value and are close to,” says the seasoned wine merchant.
With roads blocked and protests often taking place in commercial centers in Central, Causeway Bay and Tsim Sha Tsui, dining and shopping took a huge hit.
“There has been far less entertainment specially on weekends, while dining at home as become the new normal,” he says, detailing impacts on on-trade wine sales, but the silver lining comes from online wine sales. “The growth from our e-commerce channel has been significant last year for us. We do have a very flexible and efficient delivery service which again we have strengthened across the year.”
For wine retailers in the city who operate physical wine shops across the city in major shopping malls, the impacts are more severe. Enoteca, a wine retailer operating across Asia, bore the brunt of the social unrest as most of its wine shops are located at prime shopping locations where protests are often staged, its General Manager in Hong Kong Nick Chan told Vino Joy News.
“In Hong Kong, major business got hit in third and fourth quarter. Enoteca opened its 8th shop at the end of August, which is just in the difficult timing, also our shops all located in a prime area shopping mall, that’s also a big challenge because of heavily reduced foot traffic,” Chan explains.
In August, the wine merchant opened a flagship store inside Yoho Mall in Yuen Long, which has become a focal point of violent protests between protesters and police after the violet mob attack on protesters on July 21 last year.
But even in the thick of the protests, Chan said the company did not lay off any staff and thanks to the company’s international business in other parts of Asia such as Singapore, Japan and Korea, the pressure on Hong Kong business was leveled off.
“Our company got international market. Hong Kong business is not the biggest piece, other country could cover. Anyhow we are still a strong leading wine company in Hong Kong,” he says.
Recovering in 2020?
In January this month, China welcomed a much-needed respite as it signed a phase one trade deal with the US, pausing the costly trade war between the world’s two biggest economies.
Though China’s economic growth for 2019 slowed to its lowest rate at 6.1% in the past 29 years, figures in the last three months of the year showed signs of stabilising. If the country’s economy is stabilising and trade war tension eases, will it shrug off the slowdown in wine imports and consumption in 2020? Importers interviewed for the article are conservative in their expectations.
“I guess the first quarter of 2020 at least will be a repeat of what we’ve seen in the summer period of 2019,” Legrandois from Links Concept estimated.
“I expected the year 2020 will be a big Challenge. It will continue to kick some of the wine company out of the game. Leading wine company may drop selling price to catch volume,” Nick from Enoteca predicts.
Striking a different tone, Duval from EMW Fine Wines, injects a sense of optimism. “I think that 2020 may be another challenging year, at least for the 1st semester, but I also think that we are at the end of a cycle and that China has many resources to reignite growth and build a stable economic environment to start a new cycle of growth based on the Chinese consumer,” he says.
Echoing Duval, Fernandez from Torres China says, “ I think the coming 2-3 years would be similar, but China still remains a big market and with the right strategy we shall be able to grow. But the crazy spending mood of the past is obviously gone, and consumers now understand much better what they should be paying for wine and the quality associated with.”
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