China market analysis: taking a deeper dive

Australian wine is experiencing strong demand in Mainland China. Headline growth rates have been impressive at 43 per cent for the year ended 31 March 2017, but what does this mean for individual exporters and which categories are the best performers?

China’s emergence as Australia’s most important wine market is very recent. From 2012 to 2015, China was third to the United Kingdom (UK) and United States (US) by value, and just 10 years ago it was the eighth largest market for Australian wine, behind New Zealand, the Netherlands, Ireland and Germany as well as the UK, US and Canada.

Some of the recent growth has been achieved by exports now going directly to China instead of via Hong Kong, following the China–Australia Free Trade Agreement (ChAFTA) coming into force on 20 December 2015. If the exports to China and Hong Kong are considered together, the growth rate in export value in 2016 was 26 per cent.

What is the benchmark on value growth?

Another contributor to the growth has been the number of new entrants into the export market. In 2016, there were 1374 Australian wine exporters to China, compared with 1050 in 2015.

These new entrants accounted for just 14 per cent of the total export value in 2016, but removing them from the mix gives a growth rate of 31 per cent for the ongoing exporters.

Growth has also been patchy. The top 10 exporters experienced growth of 60 per cent. Removing them leaves a growth rate of 14 per cent for the remaining ongoing exporters. This is a healthy growth rate and one that is probably a more realistic benchmark growth rate for most businesses planning to build an export business to China.

How does this compare to the US and UK?

Australia’s exporter profile mimics the Chinese market, which is more fragmented in terms of route to market and channel than it is in some other top markets for Australian wine.

By contrast, in the US and UK markets, the number of exporters is much smaller (257 and 345 respectively in 2016) and new entrants in 2016 accounted for just 2 per cent of total export value.

The average value of exports per exporter per year was around $1.8 million for the US, $1 million for the UK, and $380,000 for China. However, excluding the top 10 exporters, the average value per exporter in 2016 was very similar for all three markets at around $230,000.

Regional and variety label claims in growth

Growth in wine with regional label claims^[1] has been strong, with the total category up 36 per cent to A$163 million. Within the top 20 regional label claims, there was growth of more than 100 per cent for Heathcote, Central Victoria, Eden Valley, Pyrenees and Nagambie Lakes.

Of the variety label claims (including blends), Shiraz, Cabernet Sauvignon and no label claim accounted for 89 per cent of all bottled wine to China in 2016. Excluding these, the varieties that had the most growth in the top ten were Riesling and Durif, while of the smaller varieties Ruby Cabernet, Tempranillo and Pinot Gris all grew strongly over the past 12 months from a smaller base.

In Beijing, where the Wine Australia China Roadshow will visit on May 19, these trends are apparent, with Riesling, Muscat and Pinot Gris showing the best year-on-year increases in placement on grocery shelves of all Australian wines (based on label claim), while Shiraz, Cabernet Sauvignon and Chardonnay continue to dominate with 53 per cent of the Australian wines offered in the off-trade overall (MIBD Market).