Highlighting the extreme fragmentation of Chinese wine market, the General Manager of Penfolds in China, described the local market that as highly “atomized,” indicating extreme fragmentation beyond typical market segmentation.
At a recent Penfolds event this week, Wu Mingfeng, General Manager of Penfolds in China, highlighted that the top ten wine brands collectively hold just 30% of the market share, while the remaining 70% is fiercely contested by over 3,000 brands, in a segment that comprises only 3% of China’s total beverage market.
Since the removal of punitive tariffs on Australian bottled wines at the end of March, Penfolds, which is also the leading brand of imported wines in China, has started a series of promotional activities.
To celebrate Penfolds’ 180th anniversary, starting in May, the brand has been hosting anniversary tasting dinners in ten key cities across China including Beijing, Shanghai, Guangzhou, Shenzhen, and Chengdu.
Low Market Share, Fragmentation, Lack of Consumption
According to Chinese media Southern Metropolis Daily, on June 24 in Guangzhou, Wu shared the challenges and opportunities in the Chinese wine market. He outlined three major challenges confronting the wine industry: low market share, market fragmentation, and a lack of consumption scenarios.
Regarding market share, data shows that in 2023, the Chinese alcoholic drinks market was dominated by homegrown Baijiu, accounting for 72% of the market share, with beer at 20%, and wine and imported spirits each at only 3%. Moreover, per capita wine consumption in China is remarkably low at 0.4 liters, compared to 24.6 liters in more mature markets.
Besides the low market share, the Chinese wine market is also highly fragmented. Wu noted that the lack of dominant leading brands means that the top ten wine brands only hold a 30% market share, with the remaining 70% split among more than 3,000 brands. “It’s not just fragmented; you could even say it’s atomized,” said Wu.
In mature markets like the US, the top seven wineries account for over 60% of market share. According to Silicon Valley Bank’s 2024 US Wine Industry Report, the top 7 wine groups such as Gallo, The Wine Group, Constellation Brands take up 62.9% of market share.
Due to the agricultural nature of wine, many small wineries do not engage much in brand promotion. However, since most Chinese consumers do not know how to choose wines and are overwhelmed by the vast selection, they tend to steer clear of wine altogether. The fragmented nature of the market is thus a significant barrier to wine sales in China.
However, the biggest challenge in the Chinese wine market, according to Wu is the lack of consumption scenarios. Citing third-party data, Wu noted that whether for family dinners, business banquets, or wedding celebrations, the proportion of wine consumed is much lower than in mature markets. For instance, in mature markets, wine accounts for 40% of business banquet drinks, whereas in China, it’s only 5%.
Wu did not disclose the ten top brands named in the report, but Penfolds team confirmed the popular Australian brand is among the top 10. Given the few well-known wine brands in China, it’s likely that Lafite, Casillero del Diablo, and Chinese wine brands like Changyu and Great Wall are also among the top ten.
The Seve-Year Cycle
Wu further highlighted declining wine popularity among younger generations in China. Compared with five years ago, Generation X (born between 1965-1980) in China drank wine more frequently in 2023, but the frequency decreased among Millennials (born between 1983 and 1995), while Generation Z (born between 1995-2010) indicated they rarely drink wine. “This is because, to the younger generation, wine is seen as something their parents drink, and they are more inclined to try trendy products,” Wu said.
He also pointed out that to tap into the young consumer market, wine companies need to develop products that resonate with young people.
Despite these challenges, Wu remains optimistic about the future of the wine market in China, citing the upward trend in wine consumption over the past two decades and the potential impact of the rising middle class and evolving consumer habits.
He believes these factors will continue to drive growth in the market, as evidenced by the increase in spending on wine from RMB 46 per liter in 2004 to RMB 106 in 2023.
Additionally, Wu described the trend of China’s wine market as following a ‘seven-year rule’. “From 2004 to 2010, the market was on the rise; 2011 to 2017 marked the golden period, and from 2018 to 2023, there was a decline. We are now entering another seven-year cycle, and we expect the Chinese wine industry to grow by 10% over the next three years, resulting in an additional market value of RMB 19.2 billion (US$2.6 billion),” he stated.
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