China Wine

IWSR CEO: China still sets to become second biggest wine market

The "real brights spots" driving China's wine market growth pre-Covid will return once the market normalizes, says IWSR CEO.

China is still set to become the world’s second biggest wine market, says Mark Meek, CEO of IWSR, sticking to the drinks analysis organisation’s previous projection that it will surpass current second biggest wine consumer France in coming years, but the timeline will likely deviate from previous estimation due to coronavirus and economic recession. 

Speaking at a joint press conference organized by IWSR and Vinexpo, Meek outlined the opportunities and challenges for the global wine industry till 2024 under the new normal when traditional on-trade sales and travel retail have been significantly affected by Covid-19.

A ‘Nike Swoosh’ rebound

Comparing the differences between 2008 financial crisis and the coronavirus pandemic, Meek admitted the downturn will be more serious than the economic crisis over 12 years ago.

The post-Covid recovery, as he estimated, won’t be a ‘V Shape’ as seen in 2008 but a ‘Nike Swoosh’, a more gradual rebound. “The economic impacts on employment and disposable income means it will take longer for the world to recover,” he says during the online live broadcast, adding that the global drinks industry will likely return to pre-Covid level in 2024.

What’s worse, he warned prior to Covid-19, in the wine industry, problems with tariffs, trade frictions, Brexit and other political issues have hampered the industry’s growth, and none of them are going away with Covid.

This year, he says global wine consumption will see a volume decline of 13.6%, compared with 1.1% drop recorded in 2019. Heavy declines in China (-22 million cases) had “the single largest impact on global volumes last year”, while a contraction in the US, first time in 25 years, proved to be “a turning point”, adding to a series of high-profile wine markets in long-term decline, according to IWSR.

Bright spots will return in China

In China, he says before the coronavirus pandemic, the country’s still wine consumption dropped by 15.4% in 2019, as a result of structural problems, a negative perception of local wine industry, overstock and sluggish growth in larger population centers.

This year, the market’s wine consumption will fall further and is projected by IWSR to suffer a 24.4% drop in volume, mainly caused by local wine consumption decline, he says.

Still wine consumption in the country in the next five years will still lag behind 2019 level based on its growth projection.

But speaking of cause for excitement, he affirms, “The real bright spots” pre-Covid including e-commerce market expansion and imported wine growth will return.

“Nearly 75% of younger drinkers of legal drinking age in China order imported brands via e-commerce, so it’s a substantial growing channel,” he says.

“Nearly 75% of younger drinkers of legal drinking age in China order imported brands via e-commerce, so it’s a substantial growing channel.”

Mark Meek, CEO of IWSR

The country’s e-commerce now represents more than 30% of total wine sales in the country, and wine’s penetration of the fast growth e-commerce channel will be a major driver going forward, according to Meek.  

Despite short-term setback, he believes wine imports are will bounce back strongly as they remain a sophisticated choice for aspiring younger consumers, particularly women.

Italian and Australian wine as he notes performed well in the market last year. On the contrary, Bordeaux, is falling out of favour, as it is increasingly seen as poor value for money compared with Chilean and Australian wine.

“It’s a very status-driven market, and it’s a market where female consumers instead of gravitating towards baijiu and spirits and there’s more propensity to drink wine, which is seen as healthy. There are a lot of opportunities in the market once it normalizes,” he affirms.

But it seems Covid-19 and ensuing recession will likely deviate the association’s previous projection that China would overtake France to become the second biggest wine market by 2022.

Asked by Vino Joy News, if they are still confident on the projection given the economic recession and trade frictions, Meek replied: “In simple terms, yes. Growth trajectory will be a bit different and slightly subdued from our pre-Covid prediction but for all the reasons I mentioned, we think China offers real growth opportunities whether it’s 2022 or 2025. China’s volume consumption will surpass other markets.”

Dark cloud on the horizon for Hong Kong

Riot police inside a shopping mall in Hong Kong

While, the mainland market remains promising, the “dark cloud” on the horizon as Meek sees is Hong Kong. “The disruptions seem to have re-emerged, which will cause short-and long-term disruptions for the wine and spirits market,” he says.

Continuing, he noted that Hong Kong is vastly different market from the mainland China market, thanks to locals’ high disposable incomes, its status as a travel hub and a vibrant on-trade scene.

However, these tailwinds as he calls “will be subdued and might even become headwinds due to the current disruptions and protests” in the Asian city, he cautions.

“Travel in the short- and medium-term will face difficulties, and due to the protests, the on-trade segment will face some sort of difficulties,” he explains.

Hong Kong is already in recession because of last year’s protests that started in June, and the recent passage of national security law fueled fresh rounds of protests in the city.

The US had already threatened to remove Hong Kong’s special trade status, adding more uncertainties to the city’s fate.

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