China’s Wine High Intoxicates Exporters, 3PLs

China’s Wine High Intoxicates Exporters, 3PLs

By most standards, Asian demand for imported wine is increasing at a strikingly quick rate with purchases from abroad surging 122 percent between 2006 and 2011, according to International Wine and Spirit Research. But set that figure against import growth rates for China alone and the overall Asian numbers look almost tepid.

Imports of wine to China soared a staggering 1,040 percent in the five years through 2011 as China leapfrogged Japan to become Asia’s biggest market for overseas wineries.

IWSR figures also reveal a 1,090 percent increase in China’s imports of “still light” non-sparkling wine during 2006-11. Across the wine categories, China last year imported more than 55 million cases of wine, and is expected to account for more than half of total Asian import market soon.

A number of factors are driving consumption, including increased availability, government marketing of wine as a healthier alternative to spirits and, in urban centers, wine’s acceptance as an accompaniment to food in restaurants and at home. The latter factor has broadened China’s tastes from primarily prestigious French wine to a global appreciation across a wide price spectrum, according to Lutz Wempe, head of DB Schenker Beverages.

“I think a lot of Chinese people are now interested in ‘drinking’ wine,” he said. “Wine has been en vogue for a long time in China, but mainly immigrants from the Western Hemisphere enjoyed drinking. For Chinese, wine was a prestigious pleasure as a gift or to open a good bottle in a restaurant. But they hardly bought a bottle of wine to drink at home with their family or friends. This seems to be changing.

“Demand for wine and other alcoholic beverages from Asia has increased dramatically in the past decade, and especially in the past three to four years there has been another peak,” he added.

Fashion is also a factor, said Jose Luis Hermoso, the IWSR’s head of research. “Wine is proving a trendier alternative to baijiu and beer, especially in tier one and tier two cities, and among women,” he said. “Its consumer profile is relatively younger than baijiu’s and wealthier than beer’s.”

“Drinking wine is an expression in China of status,” added John Lu, chairman of the Asian Shippers’ Council. “People have money to spend, and they want to show people they know how to appreciate the finer things in life.”

DB Schenker is appointing dedicated beverage logistics managers in all major Chinese regions, and at key cities around Asia, to operate bonded and non-bonded logistics services including consolidation, storage, pick and pack and labeling. Most wine is shipped as containerload or less-than-containerload in dry or refrigerated containers depending on storage requirements, Wempe said.

DHL offers wine logistics services through its majority-owned specialist Giorgio Gori. Some 98 percent of wine is shipped as ocean freight with only occasional auctions justifying air freight shipments, said Alex Braun, Giorgilo Gorie’s corporate sales manager.

Maintaining the value of wine entails using a range of methods and carriers to optimize temperature during storage and transit, he said. This can include specifying that wine is stored in the hold and away from the ship’s engine, using direct sailings to avoid transshipment, and deploying sophisticated monitoring systems and secure warehousing to protect the value of the cargo.

“For wine, you don’t want temperature extremes, and you especially don’t want rapid changes in temperature,” he said. “Packaging is also very important because there is a lot of counterfeiting.”

Hong Kong was quick to recognize the potential of China’s growing wine consumption and is now the world’s most important location for wine auctions, with sales of $170 million last year. “Wealthy Chinese are growing in number, and many have decided to invest in a good cellar to show off their status,” Hermoso said. “The boom in wine auctions in Hong Kong is a direct consequence of this.”

The process was speeded by the decision to remove all duty-related customs and administrative controls on the wine trade in 2008, which has helped Hong Kong secure hub status for distribution in China and to other markets in Asia.

“Hong Kong acts as a bridgehead for foreign wine trades by providing total logistics services for wine re-export,” said Kelvin Leung, CEO for the Asia-Pacific region at DHL Global Forwarding, which runs its own wine distribution and warehouse hub in Hong Kong. “Many foreign wine producers also choose Hong Kong as their transfer stations from which they can tap the massive inland market.”

Wine exports from Hong Kong to China grew 150 percent year-over-year in the first quarter of 2012, according to statistics from the Hong Kong Trade Development Council.

Apart from the tax breaks and logistics experience and facilities available, the Port of Hong Kong also handles regional distribution of wine, Wempe said. “We see more and more direct shipments of full containers of wine to all destinations for which Hong Kong has been used as a hub traditionally,” he said.

The high price of logistics operations in Hong Kong, however, means Schenker and other 3PLs supplement hub operations there with warehousing options in South China. “Of course, customs clearance in China is by far more complicated than in Hong Kong, but we run these warehouses under bond, which gives us and our customers a good flexibility,” Wempe said. “In Xiamen, we are in the free trade zone of the port so also this isn’t an issue for further distribution to other parts of China and Asia.”

Beverage logistics specialist JF Hillebrand operates offices in Shanghai and Hong Kong to cover China. It’s also setting up storage facilities in Shanghai, Guangzhou and Tianjin to provide the capacity required to support market growth, said Pierre Bonel, group sales and marketing director.

“The Chinese domestic market is young and is still very much developing, having started from a relatively low level,” he said. “It is perhaps too early to predict what the longer-term future holds in terms of what size the import market will reach and what domestic production will do. However, it is clear that the market is booming.”

Most experts agree import volumes will continue to rise. Not only is total Chinese wine consumption surging, but imports also still account for a tiny fraction of the 630 million cases of wine consumed nationally last year. “As China’s wealth grows, so will its appetite for luxury products,” Lu said.

“The IWSR forecasts growth for all categories of wine in China over the next five years,” Hermoso said.

Analysts predict import growth of 50 to 300 percent between 2010 and 2015. In one of the more conservative studies, Bordeaux, France-based exhibition company Vinexpo forecasts Chinese wine consumption will grow 54 percent between 2011 and 2015 to reach more than 1 billion bottles by the end of the period.

“The share of bottled wine imports is growing, as is the U.S. dollar value per liter of imported wine,” Bonel said. “We also believe that consumption in China will logically spread north and inland as the market develops and matures. These factors suggest that it is a rapidly developing import market, which, of course, will increase demand for supporting logistics services.”

Contact Mike King at michael@borderline.eu.com.