Wine profits beat beer, spirits
(China Daily)
Updated: 2004-06-25 10:14

Sinomonitor International, a Sino-Japanese independent market monitoring company established in 1997, recently released a report analyzing China's wine market, especially the top brands' performance.

The report, written by Huang Wei, is based on the China Marketing and Media Study (CMMS) database, which, in 2003, followed over 70,000 Chinese consumers aged between 15 and 64 in 30 major cities.

China has a long history of drinking alcohol, but it has only been in the last few years that wine has been widely accepted by Chinese.

Several tourists visit the underground vault of a wine company in Yunnan. Market reports show that domestic wine makers are enjoying favourable market response from consumers compared to their foreign counterparts.[newsphoto]

Compared with beer and white spirit, wine production and consumption are still very small.

In terms of consumption, there are 33.29 million people drinking beer in China, 13.58 million drinking white spirit, while only 7.98 million drink wine.

However, people are changing their consumption habits, and influenced by the government's policy control of the alcohol industry, the beer and liquor markets are shrinking.

By contrast, wine production output has been experiencing year-on-year growth of over 10 per cent in recent years. And wine producers are making higher profits than those producing beer and spirits.

CMMS statistics show that at present, domestic wine brands dominate more than 90 per cent of the Chinese wine market.

And the top 10 brands in the market are all owned by Chinese wine producers.

One of the reasons for the small market share of foreign wine brands is that imported wine sales were affected by counterfeit products and wine smuggled into the market.

More importantly, Chinese-made wines are as good as imported ones in terms of quality and taste, but have cheaper prices.

The statistics show that in domestic wine sales, big brands dominate the market, while small winemakers hold only a minor market share.

The top four brands are Changyu, Great Wall, Tonghua and Dynasty.

Their total market share tops 60 per cent, with Changyu accounting for 19.30 per cent, Great Wall 17.34 per cent, Tonghua 14.17 per cent, and Dynasty 10.51 per cent.

The top two brands Changyu and Great Wall perform successfully not only in the category of national sales, but also across every regional sales category.

Diversified products at various prices and a wide supply chain make Changyu a definite leader in China's wine industry.

Tonghua, Dynasty and China Red show strong sales performance in northern China's major cities, such as Beijing, Tianjin, Jinan and Qingdao.

Produced in China's northern regions, Tonghua and China Red sell well due to their strong regional edges.

Tonghua Wine controls 45.17 per cent of the Northeast China market.

In East China's major cities such as Shanghai, Hangzhou and Suzhou, Dynasty leads the wine market.

However, its excellent performance in the region indicates some concerns for the company's future development.

High market share is an advantage for a single brand. But a small presence in other regional markets increases management risks.

South China is an important wine market. In this market, consumers prefer Great Wall.

The brand holds 31.48 per cent of the total regional market, over 10 percentage points higher than Changyu.

But many small wine makers also use the term Great Wall in their brands, making it hard for consumers to tell the difference, which affects the popularity of the real Great Wall wines.

Unlike in other food markets such as milk and beer, Chinese wine consumers are loyal to their favoured brands, CMMS data shows.

All the top eight brands in the wine market enjoy similar high brand loyalty: Changyu with 56.7 per cent, Great Wall 72.6 per cent, Tonghua 68.7 per cent, Dynasty 56.3 per cent, Weilong 48.3 per cent, China Red 50.9 per cent, Qingdao 43.9 per cent, and Baiyanghe Dry Wine 40.7 per cent.

The loyalty rate is calculated based on how many people buy only one brand after tasting it.

For example, among all the people who had previously bought Changyu, 56.7 per cent are loyal to the brand.

The success of a brand name is not only decided by its high market share, but also a high brand loyalty.

Marketing research shows the cost of finding a new customer is five to 10 times higher than keeping an old one.

With the rapid development of the wine market, and the entry of foreign brands, competition is going to heat up.

For this reason, cultivating loyal customers and establishing sound brand images, as well as attracting new consumers, are of great importance to winemakers.

At present, China's wine companies could be divided into three groups.

The first group are leading brands, like Changyu, Great Wall and Tonghua. These makers own a relatively high market share and better brand loyalty.

The second group are leaders in a specific market, which have a smaller market share but high brand loyalty. Dynasty could be among this group, although the above mentioned features cannot be obviously found in its market performance.

Dynasty, targeting mainly high-end consumers, controls some 40 per cent of China's high-end wine market.

For such brands, high brand loyalty gives greater room to develop.

The third group can be called the "followers". Currently, most of the wine brands in the domestic market belong to this group they have little market share and only a small base of loyal consumers.

However, the active participation of these brands indicates hotter competition in the future.

Wine is more easily accepted by Chinese youth and middle-aged consumers with higher incomes, CMMS data shows.

Great Wall, Qingdao and Dynasty are favoured by young people.

The Duke Dry Wine is popular among rich, middle-aged people. Older consumers with low income often choose Tonghua and China Red.

China is an emerging wine market with the highest growth potential in the world. Its annual growth exceeds 10 per cent, while the global market grows at less than 1 per cent a year.

The huge market potential is not only attractive to domestic enterprises, but foreign winemakers as well.

Although domestic brands currently dominate the market, foreign winemakers hold advantages in production techniques, brand promotion and management.

Meanwhile, with the deepening economic and cultural co-operation between China and other countries, wine culture is spreading quickly in China.

This creates a favourable environment for foreign wines to explore the market.

Domestic winemakers should prepare to fight off their foreign rivals.

A government prohibition on half-juice wines from June 30 will be a heavy blow to domestic winemakers. Currently, wines mixed with water and other additives account for 40 per cent of the country's total wine production.

But a much greater challenge facing domestic wine makers is the import tariff cut.

According to China's World Trade Organization agreement, the tariff on imported wines lowers to 14 per cent this year from the original 65 per cent.

With such a large-scale tariff cut, imported wine prices are expected to drop. Currently, some low-end imported wines have similar prices to domestic ones.

Import statistics show Beijing alone imported 1,997 tons of wine in the first quarter of this year, a year-on-year growth of 46 per cent.

Top 10 Brands in China's Wine Market
Brand Name           Market Share
Changyu              19.30%
Great Wall           17.34%
Tonghua              14.17%
Dynasty              10.51%
Weilong              3.99%
China Red            3.76%
Qingdao              3.41%
Baiyanghe            2.19%
Yeli                 2.13%
Duke Dry Wine        2.09%      (source: Sinomonitor)

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