Chris Shanahan: Wine exports to China — it’ll be a long march

Business people have been easily seduced by the sheer size of China. Surely, the argument seems to go, if I can sell just one widget for every ten of the 1.3 billion population, then I have a market for 130 million widgets.

But in China – as in every market – the devil is in the detail. Hence recent decisions by both of Australia’s major brewers – Fosters and Lion Nathan – to shut or sell their Chinese operations.

Unlike the big brewers, Australian winemakers are in general more likely to export to China than to attempt local production. But despite encouraging export growth from a low base, it’s going to be a long march to success.

Driven largely by shipments of bulk wine, China exports for the year ended May 2006 grew 483 per cent by volume and 110 per cent by value over the figures for May 2005.

In the same period, the surge in bulk wine shipments – no doubt fuelled by Australia’s wine glut – saw the unit price plummet sixty four per cent to $1.75 a litre – the lowest of any of our export markets.

I’m told that the bulk of these exports are destined to the big commercial centres of Hong Kong, Shanghai and Beijing. And, indeed, it’s easy enough to fine Australian wine – conspicuously Jacob’s Creek — in these cities.

But with Jacob’s Creek selling at around 160 Yuan ($27) a bottle – about two thirds of the weekly wage for a schoolteacher — we get some idea of how limited the market is in relation to the population as a whole.

While China’s massive economic growth is surely increasing wealth for parts of its population, the continuing weak Yuan seems likely to limit demand for imported consumer goods like wine for many years.

Visiting China recently, I heard a Bloomberg report that the number of Chinese earning more than fifty thousand Yuan a year is set to double by 2010. Impressive as that sounds, it may not mean a great lift in consumption of wine imports.

While a person might live well in China on fifty thousand Yuan a year, it equates to just $AD8,300 or $US6,250 – leaving limited power for buying imported luxuries.

As well, it could take decades before China changes its broad consumption habits. The same Bloomberg report said that household consumption accounted for just forty per cent of China’s GDP (compared with seventy five per cent in the USA) and that Chinese households saved twenty five per cent of disposable income (compared with minus 0.1 per cent in the USA)

Assuming continued economic growth, then the market for Australian wine in China should increase steadily in the major cities then, over many, many decades, spread as the middle class grows.

At present, though, I could see little evidence of wine consumption beyond the city stores and expensive restaurants.

What I found on the streets of China was an abundance of fresh, delicious, cheap food and a choice of beer, baijiu (clear spirit), water or tea in most little restaurants.

A good sign for future marketers though, is that the Chinese love their food and the blokes in particular like to wash it down with a refreshing lager or tot of baijiu.

Indeed, it’s easy to imagine a future Chinese generation enjoying a chilled Aussie riesling. But it’ll be a long, smoggy road that might take some time to traverse.