The Wine Hypothesis: the China Syndrome

Judy Leissner, Grace Vineyard CEO since 2002 in the company’s vineyard in Shanxi.

In the first installment of the Wine Hypothesis (the Italian Job) we looked at some cheap and cheerful wines from Italy. In this installment of our occasional foray into the wine world we look at the big elephant in the wine locker: China.

On a trip to China last fall I took note of what wines were available, the prices, and whether or not there was any good Chinese-made table wines. In an interview for CNN, Jancis Robinson, the noted wine writer and critic, had these observations about wine and China:

CNNGo: There has been speculation that when China complies with the recent WTO rulings on wine, reductions in wine tax will make wine even more popular. Is China is going to become the world’s biggest market for wine one day?

Jancis Robinson: For those of us in Europe, China looks like the future and the promised land. If imported wines get much cheaper, that will certainly be a good thing. More people will have a chance to taste well-made wines. Even so, it would help enormously if the quality of local wines were better, if [these wines] weren’t only designed for people who hadn’t tasted wine before.

CNNGo: Are there any decent local wines in China?

Jancis Robinson: I’d recommend Grace Vineyard.

CNNGo: Chinese food is eaten family-style, with dishes to share. Can one wine suit such a variety of food?

Jancis Robinson: You discover quickly that with Chinese food, the wine you choose will only go well with a quarter of the dishes on table, and you modify your behavior accordingly. I alternate wine with water. I enjoy the wine with dishes that it does go with and water with the others. People worry about not getting a perfect match, but it’s virtually impossible for all dishes in a Chinese family-style meal to match the wine.

CNNGo: What are the challenges for wine drinking in China?

Jancis Robinson: My perception is that for most people in Shanghai, wine is unknown, completely misunderstood and something people feel like they ought to taste because it’s fashionable.

I’ve heard that some people with a lot of money here buy very expensive French wine, but don’t really like the taste, so they pour something like Coca Cola or Sprite into it. That’s not how the wine was meant to be enjoyed.

 A couple of thoughts; first, I had a chance to taste the wines from Grace Vineyard (http://www.grace-vineyard.com/?page_id=2&lang=en) and would agree with Robinson that they make very good wines; I tried their Chardonnay and Cabernet Sauvignon. The second is that I’ve heard that some Chinese add soda pop to wines. I’ve never actually seen this happen but if true it does indicate the need, opportunity and challenge of wine marketing and education among Chinese consumers who do not have a familiarity with nor context of wine.

But things in China move quickly and I think that it is only a matter of years, not decades, before there are many savvy Chinese wine connoisseurs. When combined with the size of the upper income market in China and their spending patterns, the market for wine in China has large upside. The recent Robb report on luxury spending in China states:

Many people assume the Chinese rich own gigantic villas, keep a horse or two and collect luxury watches or art, but a new survey shows their favorite purchase trends to be leather goods and cars.

According to the latest report by Robb and Ipsos, a Paris-based research company, the top 2 products accounted for about 20% of Chinese millionaires’ total consumption over the past year.

People surveyed in the report spent an average of CNY 1.55-M (US$250,000) on high-end and fine-living items in the last 12 months, of which leather goods cost the most, making up to 30% of their total expenditure, followed by autos, which accounted for 20% of all their purchases. A total of 16% was spent on wrist watches.

The majority of individuals own more than 2 watches, with Patek Philippe being the most favored brand.

“Design was the main driving force behind the purchase of luxury goods. This was closely followed by product quality and brand image. Female customers showed a strong preference for product image and design, while males valued features and services more,” according to the study results.

Additionally, the country’s wealthy men maintained strong interest and investment in wine with 72% of the respondents having a wine collection in the home.

The Economist noted that for both reasons of ego and perhaps evolving tastes, Chinese with money to spend are now focusing on Burgundy. (This is bad news for someone such as myself who love red and white burgundies but not so much the big price tags.)

Fine Bordeaux used to be the world’s poshest wine. But in the past 18 months the price of leading labels has plunged. David Elswood of Christie’s, an auctioneer in London, says a case of Lafite Rothschild 1982 that cost £70,000 ($110,000) two years ago now goes for £30,000.

The reason is changing appetites among Chinese buyers. In past years they stoked the boom (prices rose by 35% in 2006). They then moved on to buying wineries (around 20 Bordeaux producers are now Chinese-owned). But such vineyards commonly produce 300,000 bottles a year each. In search of more exclusive labels, Chinese buyers are tiring of Bordeaux wines and turning to Burgundy, where wineries rarely make more than 3,000 bottles annually. A case of Domaine Dominique Gallois La Combe 1985, an exclusive Burgundy, now costs £114,000.

In August Château de Gevrey-Chambertin became the first Burgundy vineyard to go to a Chinese buyer. Christie’s Burgundy sales in Hong Kong are up threefold this year; much goes on to the mainland. A jeroboam (equivalent to four bottles) went for £47,000 at an auction there in 2011.

The switch is bad news for the wine trade: Bordeaux accounts for 85% of the fine-wine market, so a drop in Chinese interest hits hard. But Max Lalondrelle, of Berry Brothers and Rudd, a London merchant, says lower prices let him “reconnect with the drinkers”, rather than focusing on collectors and prestige buyers.