Grace Vineyard Announces to End Its Whisky Business

Grace Vineyard, China’s first boutique winery, has abruptly exited the whisky business just five years after entering the sector, citing financial strain and challenging market conditions. The decision underscores the difficulties of sustaining long-term investments in an increasingly competitive and import-dominated market.

Long-Term Investment, Uncertain Returns

In an announcement on December 5, Grace Vineyard revealed plans to sell its whisky subsidiary, Pacific Surplus, to its controlling shareholder, Judy Chan (陈芳), for HK$71.82 million (US$ 9.25 million). This transaction will privatize the whisky business and leave Grace Vineyard with no stake in it.

The decision reflects the difficulties of operating in a market dominated by imported brands and saturated with new entrants. According to the company, the number of whisky distilleries in China has surged from a handful in 2019 to approximately 48 by mid-2024, creating intense competition. Imported whisky, which accounts for 60% of the market, remains the preferred choice for Chinese consumers.

Although Grace Vineyard’s whisky distillery began operations this year, its products would not hit the market until 2026 due to whisky’s aging requirements. Meanwhile, operational costs are substantial, with the company estimating RMB 12 million (US$ 1.64 million) annually for production and an additional RMB 12 million for overheads. The distillery also carries RMB 51.95 million (US$ 7.12 million) in outstanding debt.

Due to uncertain market returns and a mismatch between investment and output, the whisky business has become a financial strain on the company, leading to the decision to exit.

Slowing Growth in China’s Whisky Market

Grace Vineyard’s exit also highlights broader challenges in China’s whisky sector. While domestic production has expanded rapidly, imported brands continue to dominate consumer preferences. At the same time, whisky imports into China have faced setbacks, with volumes dropping 19.12% and values declining 28.11% year-on-year from January to October 2024, according to customs data.

Global whisky leaders like the UK, Japan, and the US have all reported decreased exports to China, further underscoring the market’s stagnation. For domestic whisky brands, the uphill battle to compete with well-established imports and win consumer trust has made the sector even more challenging.

A Strategic Exit

Grace Vineyard’s foray into whisky began with optimism in 2019, when the company acquired Fujian-based Dexi Distillery through its subsidiary Pacific Surplus. At the time, Chan Chun Keung praised the acquisition as “a great project.” However, the financial realities of sustaining a whisky business—particularly one with long lead times for returns—have led to a strategic withdrawal.

By selling the whisky business back to its controlling shareholder, Grace Vineyard aims to offload a loss-making venture and refocus its resources. The company stated that the privatization would alleviate financial pressure and improve its overall balance sheet, signaling a pragmatic approach amid challenging industry conditions.

As the whisky business exits its portfolio, Grace Vineyard appears to be recalibrating its strategy to navigate the broader difficulties facing China’s wine and spirits market.