China’s Wine Paradox: Boom, Bust, and What Now?

The Chinese wine market is a dynamic landscape shaped by ambition, cultural nuances, and entrepreneurial spirit. This has led to periods of rapid growth punctuated by inevitable adjustments. Dan Siebers, co-partner at Wajiu China (part of the Wajiu Group), offers valuable insights into this evolution.

Siebers, one of China’s first sommeliers, has extensive experience in the industry. His journey began in the mid 1990s crafting wine lists for fine-dining establishments in the US and then China. He then transitioned to executive roles within leading import companies, including a decade-long tenure at Summergate starting in 2003. This experience has given him a front-row seat to the cyclical nature of China’s wine market.

Siebers highlights a key challenge faced by wine suppliers: “Many wineries are puzzled by the fact that they export more wine to countries like Korea and Vietnam than to China, despite China’s larger and more mature market. They often attribute this to issues with importers, but the reality is far more complex.”

Siebers identifies a significant contributing factor – a cultural phenomenon he terms “compulsive entrepreneurialism.” This deeply ingrained drive to establish businesses has fueled the market’s expansion but also contributes to its volatility.

“There’s a strong cultural push towards entrepreneurship in China,” Siebers explains. “It’s so prevalent that I often joke with Westerners that the Chinese make us look communist by comparison. Everyone is encouraged to start their own ventures. In fact,” he quips, “if I had a dollar for every time someone suggested I start my own business, I wouldn’t need to start my own business – I’d already be a millionaire!”

This “compulsive entrepreneurialism” has profound effects on the wine industry, creating both opportunities and challenges. While it drives market dynamism and innovation, it also leads to fragmentation and intense competition.

Phase 1: The Western Market and The Western Model (late 1990s-early 2010s)

In the nascent stages of China’s wine market, during the late 1990s and early 2010s, a distinct “Western” influence prevailed. Pioneers like David Henderson of Montrose and Don St. Pierre Sr. of ASC Fine Wines entered the wine business mainly catering to the demand from Westerners residing in China, according to Siebers. This initial demand quickly revealed the potential for substantial growth.

Imported wines predominantly graced the shelves of five-star hotels in major cities like Shanghai and Beijing, catering primarily to a Western clientele. Independent restaurants with dedicated wine lists were practically non-existent.

For most Chinese consumers, wine remained a foreign concept. Domestic brands like Changyu and Great Wall dominated supermarket shelves. Imported wines, mainly inexpensive and low-quality Bordeaux, were consumed more as status symbols than for their taste. Siebers recalls, “The red wine most Chinese consumed back then was sour, tannic, and completely unsuited to their palate. It was more about embracing a trendy Western product than genuine enjoyment.”

Furthermore, opaque and constantly shifting import regulations created significant barriers to entry for new players. The combination of a limited market and challenging import procedures effectively deterred aspiring importers.

Phase 2: The Birth of the China Market, The Website Model, the Social Media Model, and the Wajiu Model (early 2010s-late 2010s)

The early 2010s marked a turning point. Standardized import regulations facilitated easier wine importation. Simultaneously, Chinese consumers began to appreciate wine for its flavor and not just its status.

The rise of Moscato d’Asti signaled this evolution. This sweet, semi-sparkling wine resonated with Chinese palates, signifying a shift from status-driven consumption to enjoyment-driven consumption.

Siebers recognized this fundamental shift: “The popularity of Moscato d’Asti was a long-awaited sign. People were finally drinking wine because they genuinely liked it. This marked the emergence of a true market driven by Chinese consumers.”

This mirrored trends in other markets, such as the US, where consumers often begin with sweeter wines before exploring drier varieties.

Phase 2, Part 1: The Website Model (early 2010s)

While the early 2010s brought positive changes, they also presented a new challenge: the decline of what Siebers coins as the “traditional Western import model.” This model, which had peaked in the early part of the decade, faced increasing pressure from more agile Chinese business strategies.

The first wave of disruptors arrived in the form of website platforms like 1919.com and Yesmywine.com. Siebers notes, “These websites were the tech darlings of their time, experiencing explosive growth. However, their success was relatively short-lived. Within a few years, their influence waned, and although they remain significant players, they are no longer the driving force.”

Phase 2, Part 2: The Social Media Model (mid-2010s-present)

The mid-2010s saw the emergence of the social media business model, spearheaded by Wang Shenghan, better known as Karla or Lady Penguin. Siebers credits her with playing a pivotal role in the rise of a genuine consumer market for wine in China.

Lady Penguin‘s approach resonated with consumers. As a social media pioneer and a true wine advocate, she provided accessible and engaging wine education, emphasizing enjoyment over glorification. This contrasted with the prevailing focus on wine expertise and complex styles, which often intimidated potential consumers. By promoting approachable wines, she fostered consumer interest and confidence, encouraging them to explore and ascend the “quality ladder” – a common journey for wine enthusiasts.

“Lady Penguin’s story marks the beginning of a genuine consumer market in China,” Siebers affirms. He also shares a personal connection: “Her mother is the reason I’m in China today. In 1999, while interning in Washington DC, I was seeking a position related to Chinese environmental issues. Karla’s mother, who runs a leading environmental non-profit in China, offered me my first full-time job in Beijing. I lived and worked with their family, and they treated me like one of their own. I cherish the memories of that pivotal period in my life.”

Phase 2, Part 3: The Wajiu Model – “A Quiet Revolution” (2014-present)

Amidst the dynamic shifts in the Chinese wine market, Wajiu emerged with an unconventional and highly diversified model. The company established distinct business units, effectively penetrating nearly every market segment without overlap.

Founded in 2014 by Li Meng, the Beijing-based Wajiu built its foundation by directly supplying small distributors with high-quality wines at competitive prices through its closed B2B platform. Today, Wajiu Group comprises three main divisions: Wajiu China (import and distribution), Wajiu Service (logistics), and Wajiu International (global wine resource management). Wajiu China further divides into independent yet synergistic business units, including the Wajiu B2B platform, the merged Summergate/Torres traditional Western model, Summergate Fine Wines (formerly Vinternet) focused on open market and luxury wines, and Sparkling World, a leading importer of sparkling wine. Each unit operates independently but shares operational resources and collaborates to maximize distribution within their respective product and market segments.

“Wajiu Group has a presence everywhere,” Siebers states. “The unique structure allows each business unit to serve different market segments without conflict. This enables Wajiu Group to distribute a wide range of products across all tiers and channels, both locally and nationally.”

Central to Wajiu’s strategy is its closed B2B platform. This platform addresses a critical challenge in the Chinese wine distribution market. Traditionally, distributors relied on importers for products, but these products, often well-known brands, were widely available through numerous distributors, limiting profit margins.

Further complicating matters is the Chinese back label requirement. Unlike in the US or UK, where importer details are typically not disclosed on the back label, Chinese regulations mandate their inclusion.

Siebers explains: “In most Western markets, end consumers have limited access to importers. However, in China, anyone can easily contact the importer listed on the back label, potentially bypassing distributors altogether. This puts distributors at a significant disadvantage.”

“Li Meng recognized this problem and created the Wajiu B2B platform to directly serve the extensive distribution network with quality wines at competitive prices,” Siebers explains. “Unlike other models, the Wajiu B2B platform focuses on distributors who are just one step away from the final point of sale. Four key elements make this model successful: low markups, high quality, a strategic product mix, and most importantly, a closed platform. Downstream clients cannot access the platform, ensuring price integrity. Strict vetting procedures, including business license verification, are in place to maintain the platform’s closed nature.”

This approach allows Wajiu to collaborate with numerous small and medium-sized businesses nationwide, achieving market penetration beyond the reach of traditional importers.

Siebers illustrates: “Most importers operate like planes, airdropping wine into a few key top tier locations. In contrast, Wajiu’s distribution map is densely populated with points across the country.”

The Boom and Bust (early 2010s to present)

While the rapid expansion of China’s wine market in the early 2010s initially appeared promising, it also brought challenges. The growth, fueled in part by the rise of the website model, attracted speculative entrepreneurs who viewed wine as a get-rich-quick scheme. Import statistics soared, but they didn’t accurately reflect actual consumption.

“Driven by the ‘compulsive entrepreneurialism’ I mentioned earlier, the market was flooded with outsiders seeking easy profits,” Siebers explains. “The Bordeaux en primeur boom of the early 2010s and the broader wine import surge, which peaked in 2017, were driven more by speculation than genuine demand. People imported wine not because they had buyers lined up or a distribution strategy, but because they hoped to flip it for a quick profit. It was reminiscent of the Bitcoin frenzy—fueled by hype and speculation rather than real value.”

This speculative bubble eventually bursted. As the market corrected, many speculative players exited, leaving behind a surplus of unsold wine. To exacerbate the issue, much of the imported wine was of low quality, further alienating consumers and hindering repeat purchases.

“The decline in China’s wine imports wasn’t due to people suddenly stopping drinking,” Siebers clarifies. “It was because much of what was imported wasn’t being consumed, and much of it wasn’t worth consuming in the first place. Compulsive entrepreneurs were flooding the market with cheap, low-quality wine, damaging the entire industry.”

A recent resurgence of this trend can be seen with the return of Australian wines to the Chinese market. After a period of about 4 years, the news of their return triggered a new wave of speculative imports.

“The recent influx of Australian imports is largely disconnected from real consumption or demand,” Siebers observes. “It’s primarily driven by compulsive entrepreneurs chasing the next trend.”

It’s important to recognize that the “boom and bust” cycles in China’s wine market are largely driven by import booms fueled by speculation, not necessarily by underlying consumer demand. Therefore, the “bust” periods are perhaps not busts at all, but rather a return to normalcy after periods of inflated activity. While reliable data on actual consumption is lacking, it’s reasonable to assume that consumption trends are on a long-term upward trajectory, even with these fluctuations in import volumes.

Phase 3: Hyper Fragmentation (late 2010s to present)

The current market is characterized by “hyper-fragmentation,” again fueled by the culture of entrepreneurialism, but with a crucial distinction, according to Siebers.

While speculators remain, many new players are now wine industry insiders—former employees of larger importers or distributors, or Chinese individuals with wine industry experience gained abroad. These companies are often small, owner-operated, with limited scalability and reach, typically confined to one or two major cities.

Siebers draws an analogy: “I call these small-scale, owner-operated importers ‘piranhas.’ Individually, they may seem insignificant, but collectively, they are a force to be reckoned with. Like piranhas, each importer takes a small bite, but thousands of them can quickly devour their prey. Though each small-scale importer may seem insignificant, their combined impact surpasses that of the top few importers.”

This hyper-fragmentation explains why some wineries export more to smaller markets like Korea and Vietnam than to China. The multitude of small importers limits the market share any single importer can capture.

“While we constantly navigate the challenges posed by this ‘swarm of piranhas,’ Wajiu has a distinct advantage,” Siebers asserts. “Our separate business units, each specializing in a specific market segment with a distinct product focus, allow us to ‘self-fragment.’ We leverage the benefits of fragmentation while also capitalizing on economies of scale by sharing or owning key operational resources.”

Outlook and Strategies

Despite the challenges, the industry veteran remains optimistic about the future of China’s wine market. He believes that as Chinese consumers continue to refine their palates, the market will stabilize, driven by genuine demand rather than speculation. However, he emphasizes the critical need for better data and transparency.

“Currently, the only available data comes from import statistics, which don’t reflect actual consumption. In fact, these statistics often create more confusion than clarity. While import stats show a boom until 2017 followed by a bust, actual consumption demonstrates a consistent upward trend,” Siebers reiterates. “Platforms like Vino Joy News are essential for providing clarity in this market. The more accurate information we have, the better equipped we are to navigate its complexities.”

He acknowledges the persistent presence of speculators and “piranhas,” advising wineries against relying solely on patience: “People have been preaching patience for almost 20 years now. What’s needed is realism and strategies that address the hyper-fragmentation. For medium to small wineries with multiple SKUs, I sometimes recommend the ‘open marriage’ model. This involves granting different importers exclusive rights to different SKUs within China. Channel and regional exclusivity are rarely effective in China due to the intense entrepreneurial spirit and resulting competition. When multiple importers have access to the same SKUs, it often leads to price wars that erode margins and ultimately kill the brand.”

The ‘open marriage‘ model offers several advantages for both wineries and importers. It allows wineries to compare the performance of different importers, demonstrating that importers of similar size often achieve comparable results. This approach also relieves pressure on importers to manage a winery’s entire portfolio and satisfy all market demands.

However, successful implementation of the ‘open marriage’ model hinges on careful selection of importers. Choosing a diverse mix of importers who focus on different channels, regions, or distribution styles is crucial for maximizing market penetration and avoiding internal competition.

For larger brands, the situation differs. They require listings in national on- and off-trade key accounts, professional nationwide marketing campaigns across multiple channels, and agile e-commerce price control, among other things. “Piranhas” and medium-sized importers generally cannot provide these services, even within an ‘open marriage’ model.

While some large wineries opt to establish their own offices with significant staffing, Siebers believes this often adds unnecessary costs without substantial benefits. “They often end up selling to the same first-tier wholesalers as the large importers, without the ability to sell directly to any channel. This model often incurs more costs than benefits. Generally, only the largest brand owning groups with extensive portfolios of multiple brands can achieve a positive ROI with this approach.”

Siebers also advises wineries to carefully consider an importer’s track record, staff size, and the owner’s passion for wine. “If a company is less than five years old and has fewer than ten staff, significant long-term growth is unlikely. If the owner is passionate about wine, they’ll likely focus on the niche on-trade and direct clients who share that passion, resulting in a fragmented wine selection. For example, a wine bistro with 100 listings often sources from over 20 importers. These venues represent a small segment of the market, and as they grow, so will the number of ‘piranhas.’ They will persist, but they rarely achieve significant growth.”

In navigating the complexities of the Chinese wine market, understanding its unique cultural dynamics and entrepreneurial spirit is crucial. While challenges like hyper-fragmentation and speculative bubbles persist, the future holds promise. As Chinese consumers continue to develop their palates and embrace wine for its intrinsic value, the market is poised for greater stability and growth. By embracing data transparency, strategic partnerships, and a deep understanding of the evolving consumer landscape, wineries can successfully navigate this dynamic market and unlock its vast potential.