Wine in China

Capitalizing on the Emerging Market for Mid-Priced Wines

LARRESE GOODEN
CHARLIZE TECSON
XUAN WANG
BOHAN YAO
 I. Executive Summary

This is a business pertaining to the exporting of wine to China from the United States,

Napa California wineries in particular. China is a market that is open to receiving foreign wines

for a couple of reasons. The appeal of the western world and its upscale style of living serves as

the primary. This includes relaxation in luxury, prestige and class. Positive health reasons

attribute to wine drinking in China as well, but mostly amongst the middle to older population.

The younger population of China consume more wine than the previous generations by just

under 50% due to the growing economy and desire to enjoy luxury moments. Red wine is

preferred because red is a cultural sign of joy and good luck. A large increase of mid-priced

wines in China are due in a few years to come, which is beneficial in our quest to sell wine in

China. There is an opening to teach China the unique ability to pair wines with the appropriate

foods for an increased enjoyment of taste and style. The Chinese prefer to purchase wine of a

familiar name or something that they can relate to. They are savvy in that they enjoy searching

the internet to learn about products of interest. We plan to infuse our wine products to meet to

needs, tastes, and style to accommodate the various chinese local cultures.

We must be able to do the following:

1.) Focus on mid-priced wines so as to take advantage of the market’s growth;

2.) Find a local partner that has valuable market insight regarding the local landscape;

3.) Focusing on the internet as a distribution channel;

4.) Develop a brand image of health and luxury; and

5.) Specify and focus on the selected market segment.

“According to the China Wine Market, As of February 2017, there are 48 million “wine

lovers” in China. This mainly due to the significant western influence in the major cities in China

and also, due to the developing economy and the growing number of upper-middle class Chinese

citizens.” (INS, 2017).

China Wine Market projects that by 2020, the “wine lovers” will increase to around 70-

80 million. CWM defines “wine lovers” to be Chinese wine drinkers who consume wine at least

twice a year. Although defining the 48 million regular wine drinkers to be individuals belonging

to the upper-middle class sector of the population, China Wine Market foresees that there will be

a growing demand for middle-priced wines, approximating an increase of 65% over the

upcoming 5 years. They also foresee that growth for lower-priced wines will decrease by 7%,

and higher-priced wine sales will increase by 24%. INS also notes that young Chinese wine

consumers tend to consume more alcohol than previous generations, whereby “over 40% of

imported wine consumers in China are aged 18 to 20 years old.”

“Justin Cohen from Ehrenberg Bass Institute has said that, “most Chinese consumers

prefer to choose a brand they know, they’ve tried before or has been recommended by friends

and family.””
 INS has discovered that “out of the 39 million urban aged 18-54 year-old upper-middle

class imported wine drinkers, 88% actively use the internet. Moreover, 68% of them search for

wine information online and 49% purchase wine online.” Estimating that approximately 1 out of

2 wine consumers in China purchase their wine online and depend heavily upon information

available online in deciding whether or not to purchase a product (2017).

They divide the wine drinkers into four segments:

1.) Young and Affluent,

2.) Connoisseur,

3.) Business Men/Women and Government Officials,

4.) Developing drinkers;

And indicate two motives behind wine consumption, first, for its health benefits, and second, to

attain a sense of high-class and luxury. They suggest for wine suppliers to target the

demographic group of upper-middle class Chinese consumers, ages 25-45 who have “more

disposable income, are more educated, have a global perspective, and will be the driving force of

the Chinese market future.”

The International Organization of Vine and Wine reported that vineyards now cover

3,000 square miles of land in China. It is notable to mention that the great speed of growth in the

wine industry is most likely derived from the country’s rapid economic growth, where

consumers now experiencing higher disposable incomes seek to be able to have physical

manifestation of that new status (2015).

cuisine.” Although research indicates that most Chinese consumers do not enjoy wine for the

taste, there is an opening to teach consumers how to pair wine and different Chinese cuisine

(2014).

III. SWOT Analysis

STRENGTHS WEAKNESSES

- Californian Wine - No ‘Guanxi’

- Napa Wineries - Chinese Government

- Pairing Wines with Cuisine

THREATS OPPORTUNITIES

- Highly fragmented market segments - Huge growth for mid-price wine

- Growing Nationalism - Huge demand for foreign wines

With respect to the aforementioned, there is a proven market for foreign, in this case

Californian, mid-priced wines. The nature of the market shows us that our greatest strength is the

luxurious connotations that accompany Californian wine, specifically those sourced from Napa

wineries. Even still, the foreign nature of the wine is both a strength and a weakness, as it

requires foreign brands to be capable of establishing strong ties with local partners. If we are able
to match well with our chosen local partner, there is a good chance that we will be able to

penetrate the market successfully.

The growing demand for mid-price foreign wines specifically by the also growing

middle-class sector has also created a market for people interested in learning how to consume

wine. Serving to the information suggested by the market research conducted, we will be

marketing wine as a symbol of luxury, and as more Chinese wine consumers begin to consume

more wine for the primary purpose of being able to flaunt that status symbol, there is a demand

for the experience of being taught how to properly consume wine as they would be in the West.

IV. Business Model (Four P’s)

A. Products

1. Begin with 2009 YAO MING Napa Valley Cabernet Sauvignon, a high-

priced wine, and create a mid-priced counterpart Cabernet Sauvignon.

2. In addition to providing wine, because our wine intends to capitalize on a)

Californian wine culture, b) an emerging market, it would be beneficial to

package the wine with a wine-tasting experience. As suggested by the

research gathered, consumers need to be able to a) learn how to drink

wine, b) flaunt their new skill, and providing a channel that would allow

the preceding would be conducive to the desired brand image.

B. Price

1. $30 to $40 per bottle to provide a price point more accessible for increased

frequency and higher volume consumption. In addition to this, discounts

bottle free, purchase 3 bottles, receive 1 bottle ½ off.

C. Place

1. We intend to be bringing the wine into China, specifically, within the

following cities: Shanghai, Hong Kong, Shenzhen, and Beijing.

2. This price intends to target the segment of ‘developing drinkers,’ as

defined by the INS.

D. Promotion

1. Consumer purchasing in China has become increasingly dependent on the

internet, and so, our wine will focus on advertising through online

channels, including building rapport with consumers through product

review sites and through online distribution channels (e-commerce.)

2. Because we target developing drinkers who are as of yet not affluent with

wines and pairings, promotion will also focus on teaching these ‘wine

lovers,’ how to consume their wine and pair it with food.

We intend to be building on the capabilities of a brand that has proven its capabilities in

the Chinese market. While research has suggested that sales of higher-priced wines are falling

(Gray, 2017), we believe that anchoring ourselves with a local brand that has been able to

establish itself as a symbol of luxury would be most beneficial in successfully delivering our

brand image. The local landscape is also made more difficult to scope out due to the increased

demand for wine to be sold online.

especially from Napa Valley is also gaining popularity. This is after the Napa Valley wine started

being sold on online platform such as Alibaba. However, the most preferred wine that can be

sold in China is 2009 YAO MING Napa Valley Cabernet Sauvignon.

Owing to the fact that most of the wine consumers in China prefer red wine, Cabernet

Sauvignon from Napa Valley can gain more popularity. Precisely, selling the 2009 YAO MING

Napa Valley Cabernet Sauvignon brand in China can gain more consumers, which would lead to

increased sales. Cabernet Sauvignon is one of the globally recognized red wine grape varieties.

According to Torres (2017), the current wine consumers prefer red because red color has cultural

significance in China. Precisely, it symbolizes joy and good luck, Therefore, introducing this

wine would create a connection with Chinese because of its symbolic meaning.

The other reason for selling 2009 YAO MING Napa brand in China is because red wine

is perceived to have health benefits. Studies carried out by Ehrenberg-Bass Institute for

Marketing Science wine consumers in China drink wine mainly because of health benefits

associated with red wine. In this view, health benefit is the main motivation for taking red wine

as opposed to luxury status and taste (Schmitt, 2013). Most common health benefits according to

wine consumers in China is that red help them to sleep and also good for their skin. Besides,

moderate consumption of red wine has been considered to reduce the risk of death caused by

heart diseases by approximately 30-50 percent (Higgins & Llanos, 2015). Therefore, selling

2009 YAO MING brand in China can lead to more sales, which in turn lead to profits as it is

associated with health benefits.

2009 YAO MING brand is also produced by basketball star Yao Ming, who most of the

Chinese can associate with (Lomu, 2015). This means that most of the Chinese will prefer this
wine as they can relate to one of their own. Given to the fact that Yao Ming is the start of US

national Basketball, most of the Chinese would prefer to be associated with a brand of a winner.

Besides, Yao Ming’s wine is one of the most sought wines in China because of its taste.

To this end, it is deducible that 2009 YAO MING brand should be sold in China. This is

because it meets most of the needs of wine consumers in China. These include red wine features,

high-end brand, and health benefit associated with red. Besides, the rising middle-class in China

can afford the price of 2009 YAO MING brand. Also, this wine does not need to be customized

to reflect local preferences as it has been made by one of the Chinese who has taken the Chinese

wine consumers into consideration.

The 2009 YAO MING brand currently retails for approximately $170 per bottle, which is

affordable to middle-class in China but still on the upper-end of the scale (Wine Enthusiast,

2012). With a population of 1.3 billion with an estimated middle class of 630 million by the year

2022 (Torres, 2017), selling this to these individuals means more sales as this group has

disposable income and usually aspires to purchase most of the western goods.

Even still, statistics have shown that the US, only contributing 2% of wine sales in China,

has focused too much on providing high-priced wines. The ISWR gathered data suggesting that

sales for wines above $56 have continued to decrease in volume (2016). Thus, while 2009 YAO

MING Cabernet Sauvignon would work best for our business model, its price point is not as

advantageous. Instead of retailing the $170 Cabernet Sauvignon, we instead suggest that 2009

YAO MING retail a Cabernet Sauvignon with a lower price, i.e. one falling within the range of

$40-$50.
 We firmly believe that collaboration with the YAO MING brand will be able to solve one

of our major problems, i.e., Guanxi, and so we suggest introducing a mid-priced Cabernet

Sauvignon still to be produced by the YAO MING winery in Napa Valley, California.

VI. Conclusion

Doing business in China is our goal. Our research and analysis of exporting Napa,

California wines to China stands a great chance. We understand the China market now based on

our findings that catering to the local markets of each area is a key element to uphold. China has

a strong interest in enjoying the luxurious, upscale status of the western world. This includes

wine drinking for status, positive health, and a feeling of style. The opportunity to teach China

the importance of pairing wines with foods that are befitting of their best tastes suites the realm

of upper-class enjoyment. We understand that the Chinese spend more freely when it’s an item

that they can relate to a familiar name, family or friend recommended, especially from the

United States. Wine consumption is rapidly growing in China and has projections of large future

increases. These are amongst the reasons for our movement to get involved with this market.
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