November 2019 is a busy month for Australian wine in China. In just under a fortnight, Australian wine will be showcased at the second China International Import Expo 2019 (5–10 November), the China Awards (11 November), ProWine Shanghai 2019 (12–14 November) and finally the Decanter Shanghai Fine Wine Encounter (16 November).
With each of these events highlighting Australian wine’s fine wine credentials, it is important to review how our exports are performing in the market.
As reported in our recent Market Bulletin highlighting the latest Australian wine export results (issue 180), exports to mainland China increased by 19 per cent in value to a record $1.13 billion in the year ending September 2019, which also translated into a record free on board (FOB) per litre value of $8.08 as volume declined.
Exports with an average value above $10 per litre were the main reason behind this growth, with exports in this price point increasing 52 per cent to $663 million in value and up 53 per cent in volume to 3 million 9-litre case equivalents. The largest absolute growth was within the $20–29.99 segment.
On the other hand, price segments below $10 per litre FOB collectively declined by 9 per cent to $468 million in value and down 62 per cent in volume to 2.3 million 9-litre case equivalents. Unpackaged products drove that decline along with packaged exports less than $5.00 per litre (Figure 1).
In value terms, exports at $10 per litre and above made up 59 per cent of all exports to mainland China, while for volume it accounted for 19 per cent. In both instances, the share of this price segment has grown due to the market recently shifting from unpackaged to packaged wine, especially in the higher price segments.
Figure 1: Value of exports by price segment ($A per litre FOB)
This result comes as unpackaged imports from Chile increased 12 per cent in year ending September 2019 to 10.4 million 9-litre case equivalents, 4 times the size of Australia’s unpackaged wine imports. It also coincides with a decline in bottled import volume from France, down 30 per cent or 6.6 million 9-litre case equivalents to 15.2 million.
Fine wine consumption
Based on the FOB to retail calculator, if we take an FOB of $7.50 per bottle (or $10 per litre), then the retail price is estimated at RMB151.58 – around $21.60 per bottle. This includes tariffs and three levels of margins (importer, distributor and retail).
According to the International Wine and Spirit Record, demand for grape wine priced at RMB150.00 and above has been growing in value since 2016, with an annual average growth rate (AAGR) of 7 per cent. Australian wines have been leading the growth in this price segment (which makes up half of the Australian wine volume consumed), with an annual average growth rate of 17 per cent. There has been small growth in French wines in this price band over the past two years, but this saw negative growth in the past year.
Figure 2: Value growth rates in Chinese grape wine consumption in the RMB150.00 and above price bands by top 6 country of origin
Source: International Wine and Spirit Record (the IWSR)
Wine exports $10 and above per litre analysis
So what Australian wine is being exported in this price segment?
All major wine styles contributed to the increase in value and volume of wines exported at $10 per litre and above. Red wine continues to dominate, accounting for 97 per cent of export value to China within this price segment and grew 52 per cent to $643 million in year ending September 2019. White wine accounted for 1.5 per cent and increased by 6 per cent to $10 million. The remaining sparkling/carbonated and fortified plus other wines experienced triple digit and double-digit growth respectively – albeit off small bases.
Of the red wine category, all top 20 Geographical Indications (GIs) and variety label claims experienced year-on-year growth. The largest absolute value growth was from South Australia Shiraz followed by Barossa Valley Shiraz.
Figure 3: Top 10 GI and varietal label claims based on export value of red wines in the above $10 per litre segment
Of the white wine category, more than half of the top 20 GI and variety label claims experienced year-on-year growth. The largest absolute value growth was from Adelaide Hills no label variety followed by South Australia no label variety and Clare Valley Riesling.
Figure 4: Top 10 GI and varietal label claims based on export value of white wines in the above $10 per litre segment
All exporter size segments contributing to the growth at above $10
An analysis of growth rates by Australian exporter size in the above $10 per litre price segment reveals that all exporter size segments have contributed to value and volume growth.
It is interesting to note that exporters who shipped less than 10,000 9-litre case equivalents in year ending September 2019 had a higher proportion of products in the $10 and above price segment by volume compared to exporters that shipped over 100,000 9-litre case equivalents.
Figure 5: Proportion of exports (in volume terms) based on price segments by exporter size
For more insights on the China market, visit our reports page here.