Wine business in China is proving to be a weak link in the country’s drinks industry’s recovery as wine companies struggle to fully bounce back from the pandemic-induced sales downturn.
In China, large-scale wine companies mainly consisting of wineries form the backbone of the country’s domestic wine sales.
While the country’s overall drinks industry benefited significantly from the country’s economic rebound starting from second half of last year, led by Chinese spirit Baijiu producers, wine sector still struggles to overcome tepid consumer demand, tight cash flow and overstock.
According to the latest data released by the country’s official drinks regulatory body, China Alcoholic Drinks Association, in 2020 there are a total of 1887 big-sized alcoholic drinks producing companies in the country. Their sales revenue increased by 1.36% and profits jumped by 11.71% to RMB 179.2 billion (US$27.6 billion) over the previous year despite the pandemic.
Sizable Baijiu producers in the country, tallied at 1040, managed to turn in 13.35% profit increase last year to RMB 158.5 billion, leading the country’s alcohol industry.
Domestic wineries’ performance tanked even with a top-down drive to encourage Chinese drinkers to shun imported wines for domestically produced wines.
Among the country’s sizable 130 wine companies, wine production volume dropped 6% and sales dipped by 29.82% to RMB 10 billion (US$1.54 billion). Overall profits plunged by 74.48% to RMB 249 million (US$38.4 million) only, according to CADA data.
This is the sharpest decline among all beverage categories listed out by CADA, signaling that the country’s domestic wine industry is far from being normal.
Admittedly the country’s leading wineries have been on a streak of profit losses for years, as we have reported. But last year’s campaign to encourage Chinese drinkers to drink Chinese wine failed to generate much response from consumers either, even with the country’s most popular imported wine, Australian wine, out of the picture.
Annie Lin, Vice-president of Chongqing Banniere Yunjiu E-Commerence, when interviewed by Vino Joy News, cautioned that the tepid performance by domestic wine companies is not necessarily linked to overall market demand for wine, imported wine in particular. Banniere Yunjiu owns e-commerce platform Vinehoo.com, offline retail shop Banniere and wine media platform Vinehoo.
The sales loss from big volume producers such as the country’s Changyu Pioneer Wine Company, GreatWall and Weilong also means that there’s a rise for a wider range of boutique and privately owned wine brands, which are taking up bigger domestic wine market share.
However, she bemoans that quality Chinese wine’s price might have deterred customers, which is why sales suffered. “Prices for Chinese wines remain high. First time buyers might have bought the wines out of curiosity or patriotic sentiment, but what about value for money?”
Average Chinese red wines from Ningxia, China’s premier wine region, sell on average RMB 300 a bottle, and so-called fine wine made by Lafite’s Shangdong winery and LVMH’s Ao Yun goes higher for at least RMB 2000 a bottle.
Unlike Old World wine regions such as France, where vineyards are normally inherited from generation to generation, in China wineries are primarily set up as alternative investment.
With China’s cap on land use rights as well, this means winery owners are on a tight timeline to turn profits in a shorter period of time, Lin explains.
However, faced with stiff competition from other beverage categories and last year’s pandemic, many newly set up Chinese wineries served nothing more than tourist reception center and guest house.
Five of the country’s listed wineries as the report says suffered profit loss last year.
For land of industrial, educational, scientific and technological, cultural, health, sports, comprehensive or other uses, the maximum land use rights should be no longer than 50 years, according to Chinese law. For residential use, land use rights is capped at 70 years, while commercial and tourist land use is limited to 40 years max.