Mainland China is Australia’s largest destination for wine exports with shipments valued at $850 million in 2017.
China may be one country but it is not one market. Geographically, China is divided into more than 30 provinces and each province has its own characteristics, making navigating the China market very complex and challenging.
There are 100 cities with more than 1 million people, 40 cities with more than 3 million and 7 cities with more than 10 million people. The varying provincial dialects, cultures, and culinary specialties drive differing preferences for taste. A large proportion of imported wines is sold in the Tier 1 cities such as Shanghai, Beijing and Shenzhen and, while they are very competitive markets and the cost of doing business is high, they remain very important markets. Lower tier cities such as Chengdu, Harbin, Nanjing, Hangzhou, Ningbo, Shenyang, Wuhan, etc., offer growth opportunities as their economies expand, but it is crucial that exporters find a reliable and sustainable distribution partner.
China’s central government introduced a policy in 1999 to assist western China to catch up with the more prosperous coastal regions. Almost 20 years later, this policy has paid off greatly, with huge improvements in infrastructure, education, attraction of foreign investment, and its general economy. Western China has about half the land mass of mainland China and with a population of 300 million, is on par with the United States of America.
A city with a rich history
Sichuan Province is the economic powerhouse of western China. At the centre of its rapid development is its capital city, Chengdu. Chengdu has a history dating back 3000 years and, unlike some other major cities in China, it’s never had a location or name change. Once a silk brocade capital, it is situated on the banks where the Jin and Fu Rivers intersect and is now one of the most important economic and financial centres in western China.
Chengdu has a population of more than 14.6 million people making it the fourth largest megalopolis of China. Chengdu is the centre for commerce, trade, finance, and science and technology as the transportation and communication hub of western China. It may be landlocked but it has one of China’s best logistic networks.
Photo: Ewen Bell / Wine Australia
An economic powerhouse of western China
Chengdu has now become the third biggest economy among China’s sub-provincial cites right after Guangzhou and Shenzhen. However, it should be noted that the economies of the big four municipalities of Shanghai, Beijing, Tianjin and Chongqing are all well above Chengdu. Furthermore, while the GDP per capita of Chengdu is growing fast, it is still relatively low – out of the top 75 cities for GDP per capita in China, it is ranked in the mid-50s, with Shenzhen ranked number 4 as a benchmark. This is important because general wine pricing, even with the tariff reductions, is at international levels. As an ad-valorem tax market, there is still around 30 per cent of CIF pricing to add as tax (even when the duty rate reaches zero). For some entry level wines this means that the equivalent retail price in China is 20–30 per cent higher than in Australia. However, the China average GDP per capita is only about 25 per cent that of Australia. Hence, the ability to spend on luxury goods such as wine for the general population has still a long way to go to match mature markets such as Australia, but having said that, aspiration and interest in imported wine is extremely high.
Despite the low current ranking for GDP per capita, Chengdu is becoming more and more interesting as a market for companies to sell their products and services. Chengdu is one of China’s top cities for foreign investment. A study in Fortune magazine focusing on foreign investment showed that Chengdu is the leading city in China when it comes to business costs, integrated commercial environment, labour supply, and quality of life. As such, Chengdu has become known for its favourable policies, low-cost labour resources, vast consumer market, and pleasant living conditions. As of 2016, 299 of the Fortune 500 companies are now located in Sichuan, of which 219 are foreign owned.
Chengdu is also regarded as one of China’s best R&D bases, having more than 2700 research institutions and vocational and technical colleges. The city has the largest number of universities and colleges in western China, with almost 1 million enrolled students.
Advanced logistical infrastructure network
Chengdu is the largest city in western China with an advanced logistical infrastructure. Chengdu International Airport is connected with airports in more than 160 cities in the world and is the fourth international air hub of China. The city plans to open its second airport in 2020 with a planned transportation of 80 million people and 2 million tonnes of cargo each year. Improved railway connections will spur a rapid growth in rail cargo of commodities and consumer goods. Furthermore, Chengdu has finished construction on a direct highway to Lijang, the most popular tourist attraction in Yunnan, which will boost the cities’ tourism and greatly increases the ease of reaching Yunnan for both people as well as goods. Infrastructure in Chengdu itself will also be made more convenient as the number of metro lines will be expanded from 4 to 21 by 2030.
Chengdu has a broad agriculture and natural resources industry, is an important production base of high-quality agricultural products, and an important processing centre and logistics distribution centre in western China.
Chengdu is considered as a well-positioned city for further economic development. The Chengdu municipality has mapped out five development zones along the region’s major roads, rivers and railways.
Chengdu is not solely a city for business; it consistently ranks in the top-10 ‘happiest cities in China’ according to ‘China’s Economic Life Survey’ conducted by CCTV. Furthermore, William Mercer, one of the largest consulting firms in the world, ranked Chengdu 7th on the list of cities with the highest standard of living in 2014.
Photo: Kimberley Low / Wine Australia
City of gastronomy
Tourism is also one of the city’s most vital sectors. Chengdu was one of the world’s fastest-growing destinations for international visitors in 2016. Chengdu is a very popular destination for Australian tourists. Booking agency Kayak.com.au has looked at emerging destinations that are seeing huge growth in search numbers and Chengdu has come out on top, with year-on-year growth of 133 per cent.
Its popularity with international visitors is partially due to its open-air breeding sanctuary for giant pandas, but also due to its historic, cultural and gastronomic attractions. It’s a UNESCO city of gastronomy, the first Asian city to receive the honour. Chengdu is the cradle and centre of Sichuan cuisine, which is based on a unique mixture of sweet, sour, bitter, spicy and salty flavours.
Catering is also an important part of Chengdu's service sector. The city is home to more than 60,000 catering businesses. There are also more than 60,000 restaurants and more than 2300 renowned chefs and serving masters.
Imported wines growing in popularity
Imported wines are becoming more popular in Chengdu. Wine Intelligence reports that there were 2.3 million imported wine drinkers in Chengdu in 2016, placing it in sixth position in China. Wine Intelligence suggests that imported wine drinkers in Chengdu prefer lighter, sweeter reds with blackberry and raspberry flavours, while for whites they prefer fruity, crisp and sweeter styles with honeydew melon and nutty aromas.
Retail trends
While online platforms such as Tmall and JD are important and growing channels, physical retail will continue to be a very important element of wine retail in Chengdu. Among the key retailers in Chengdu include supermarkets such as Olé, Carrefour and Chengdu Hongqi and specialist liquor stores such as 1919 and Cheers.
1919 is the biggest chain store for wine in China and it have previously stated it intends to open 5000 stores across China over the next 2 years. Reports suggest that store numbers increased by 190 to over 1000 in 2017, and with a target of 6000 locations by 2019. This means the alcohol distributor needs to open on average seven new stores each day for the next two years – a very ambitious target. One interesting development is their ‘dial-a-bottle’ strategy – in a restaurant, the consumer can select a wine via an app that is to be delivered in under 10 minutes. The success of this strategy may impact on the number of stores opened.
As of 2016, 1919 had 76 stores in Chengdu. At 1919, Australian wines make up around a quarter of total liquor offering, behind French labels. However, the market share for French wine is flat at about 44 per cent, while Australia has seen its share grow from about 18 per cent in 2014 to 25 per cent in 2016.
Photo: Tim Jones / Wine Australia
China Food and Drinks Fair
Chengdu is home to the China Food & Drinks Fair to be held from 18 to 24 March 2018. The Fair is China’s longest established and one of the most influential food and drinks shows; it attracts more than 100,000 wine importers and buyers from many of China’s regional cities.
Wine Australia will participate for the fifth consecutive year, supporting Australia’s positioning as a leading fine wine producer. Six in-pavilion tasting classes will be delivered by Wine Australia’s certified educators during the first two days. The topic of the classes will include diverse types of Shiraz as well as alternative varieties of white and red wines.
For more information on Chengdu, contact Wine Australia’s China team at china@wineaustralia.com