Recent times have been hard on the Australian wine industry. Overseas sales to the major markets of the USA and UK fell in 2010, caused by a surging Australian dollar. Tough domestic growing conditions have pushed many producers to the wall. But China may offer a glimmer of hope for Australia’s hard pressed vignerons. Rapidly rising urban incomes has created an emerging class of affluent consumers in China - keen to sample the best of global wine. And demand for Australian wine is on the rise in China. But in a still emerging market, Australian exporters will need to understand local preferences and market conditions before they can become established as a premium international brand.

According to Wine Australia, in 2010 Australia exported 781 million litres of wine valued at $2.1 billion. China took 55 million litres, making it Australia’s fourth largest wine export destination and generating export earnings of some $164 million. Wine Australia also ranks China as Australia’s fastest growing wine export market, with exports in 2010 increasing 36% over 2009.

The growing potential of the China market for Australian wine was confirmed in a recent quarterly market report by Rabobank. Between 2005 and 2010 the Chinese market for bottled table wine grew by 20% per annum – and the market for imported table wine increased at three times that rate. The report says that in 2010 China imported 150 million litres of bottled wine – which represents only 10% of total domestic wine consumption. Red wine is the dominant variety sold. According to its March 2011 report on the China market, Ferrier Hodgson says that over 83% of imported bottled wine in China is red and 85% is valued at $5 or less per bottle.

Red wines by Queensland wine maker Sirromet, one of the Australian exporters making headway in the growing China market, recently won three gold medals in a Beijing wine challenge.

The Rabobank report commended Australia for its work to get established in the China market and said Australian winemakers have been able to outperform a number of international rivals in terms of price and sales volume. However it concludes France remains the dominant foreign player in China– both in terms of sales volume and status in the eyes of Chinese consumers.

One of the biggest challenges for Australian wine exporters is to be recognised as a supplier of premium wine - and to attract high prices. This means going head to head with often better known and well resourced international competition from France, the United States and other international producers. Convincing China’s brand and status conscious wine connoisseurs that wine from down under ranks alongside the world’s very best is not a simple task.

Rabobank says the Chinese wine market is at an “elementary stage” of development. And domestic distributors play a critical role in influencing consumers wine choices. Wine is usually bought as a gift, for entertaining or for prestige reasons – and that usually means a French brand. The report says the challenge for other international wine makers is to catch up with the French image and reputation. And this means influencing distributors and market gate keepers. The report concluded that significant investment in educating Chinese consumers and building relationships with distributors is essential.

Several Australian wine exporters have decided to tackle the China market direct. Rather than solely work through local distributors or partnerships, wineries like Yabby Lake and Bird in the Hand have been reported in the media to have opened their own cellar door outlets in major cities to reach Chinese buyers.

To help position Australian wine as a premium product, Wine Australia has launched its ‘A+ Australian Wine’ program in China. The program brings together a range of Australian wineries and brands with Wine Australia to promote a national image for Australian wine in China. Wine Australia has also launched a Chinese language iPhone APP to promote higher end Australian wines to Chinese consumers. The APP is part of a series of wine education programs in China. Wine Australia’s Vintage 2011 program brought 100 Chinese wine professionals to Australia for a week of winery hosted vintage experiences.

Another group visited Victoria's North East where Muscat of Rutherglen put on a brilliant program touring well-known local producers like Bullers and Pfeiffer Wines, and went to the trouble of translating menus with such favourites as the Tim Tam Slam *yes, we admit this one was challenging in translation!)

But not all Australian exporters are trying to crack the high end of the Chinese market. Over half of Australian exports to China are bulk wine, attracting very low prices. In 2010 30 million of the 55 million litres of Australian wine sold to China was bulk wine. Much of this wine is later bottled in China to maintain the lowest possible retail price.

One hazard for premium Australian labels – faced by other leading international and also Chinese producers – is counterfeiting. No sooner does a label or brand become popular than fakes and imitations can appear on the market. In recent years reports have emerged of Australia’s leading international brands, including Penfolds, being the victim of fake labelling in China - Benfolds: "thusethat beld theprvicus vinrage of Benfolds Grange." Yes , this is what you get when you don't employ proper translators! (SMH August 24 2010) Leading Chinese brands face a similar challenge – at the end of 2010 the People’s Daily reported that local wineries in Anhui Province had been found to be adulterating and falsely labelling wines as Great Wall and other well known domestic brands.

China’s domestic wine production is also ramping up. AP reported in early 2011 that China’s domestic wine production could overtake total Australian production by 2014. The growth is not expected to see Chinese wine becoming a major export player, but rather meet growing domestic demand for wine. The expected growth in China’s domestic production is likely to put pressure on low cost Australian wines, another reason why market analysts want Australia to focus on the premium market. Leading international winemakers, including giants Moet Hennessy and Pernod Ricard have formed local partnerships with Chinese growers to develop premium products for the Chinese domestic market.

Potential also exists for Chinese investment in vineyards and wine production in Australia. Ferrier Hodgson concludes that despite “nibbles” and several small scale ventures Australia is yet to see any significant Chinese investment in the domestic wine industry.

(Sources Wine Australia, Rabobank April 2011 Quarterly Wine Report, Courier Mail May 17, AP, People’s Daily, Ferrier Hodgson report March 2011)

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