Top 10 news of 2018 in China’s wine marketBy Natalie Wang
We round up the top 10 biggest news stories from China’s wine market that made the most significant impact in 2018; from counterfeiting to new laws, trade wars and e-commerce.
It was a year that the market has significant inroads in trademark protection to start with. Treasury Wine Estates launched a legal law suit against copycat brand, Rush Rich, and a massive fake wine haul in Henan province netted US$14 million worth of fake wines including Penfolds.
2018 was also the year when China introduced its first ever e-commerce law that would hold merchants as well as online platform operators accountable for fake products sold online. Last but not least, Bordeaux won landmark case against counterfeit wines, bringing criminal convictions to fraudsters in Shandong, China’s biggest wine producing province, and Shanghai, arguably China’s wine capital.
This was also a year that political frictions have spilt over to wine trade and sparked up some tensions. A few Australian companies including TWE reported delays at Chinese customs, the result of a spat due to Australian concern over China’s growing political influence in Australia.
The most combustive wine row that defined the year was the China-US trade war which started last March, where the countries engaged in tit-for-tat retaliations, with China levying additional import tariffs on American wines.
Meanwhile, the country’s e-commerce sector continues to transform wine sales in China, with the Alibaba Group launching its first staff-less wine store in Hangzhou. The e-commerce giant also invested RMB 2 billion into 1919.com, an O2O (online-to-offline) drinks specialist, signalling its confidence in online alcoholic beverage sales.
There were also record-breaking occasions such as the Macallan 1926 sold in Hong Kong, and a superlative wine dinner featuring wines from 19th century. China also launched its own wine rating system, shunning established western scoring systems, which could have larger implications in the coming years.
Scroll through the pages to see all the big news happened in China’s wine market in 2018.
10. Lafite mix-up
One customer had a very happy day when a sales employee in China made a costly mistake after selling him a bottle of Château Lafite Rothschild grand vin as its much cheaper second wine ‘Carruades de Lafite’. The grand vin usually retails for four times the price of the second label.
This was not the first mix-up apparently, in another liquor store a staff member sold Château Ausone’s grand vin as its second label.
It goes without saying that staff training and wine knowledge are essential, especially when a mix-up with grand vin and sometimes similarly-looking second label can easily set a merchant back thousands just for one bottle, let alone for cases.
9. Alibaba launches unstaffed wine store
China’s e-commerce giant Alibaba pushed its unstaffed, cashless experiment a step further when it launched a completely automated, cashier-less wine storage and retail store in its home base Hangzhou that allows customers to purchase wines by the case without paying any cash or interacting with any sales staff.
The company also debuted an automated wine bar at Vinexpo in Hong Kong last year.
A bevy of Chinese tech companies including Alibaba’s rivals JD.com, Suning and BingoBox have launched their own versions of unmanned cashless stores in mainland China, where e-payment method using QR codes has become widespread, thanks to WeChat and AliPay.
This interaction-free buying behaviour will certainly open up more opportunities for mobile commerce and e-commerce, since the country has over one billion smartphone users, and more than 533 million online shoppers.
But it also begs the question if professional advice from staff and sommeliers will matter that much in the long run in the interaction-free context? Consequently, will brands with proven recognition, smart branding and eye-catching packaging trump wine recommendations?
8. Superlative 19th century wine dinner
If one needs any proof of Hong Kong’s fine wine drinking prowess, look no further than at the city’s extravagant wine dinners.
In October last year, Hong Kong-based wine importer The Fine Wine Experience unveiled arguably the most expensive wine dinner in the city at HK$108,000 (US$13,800) a head, featuring a lineup of 14 rare bottles from the 19th century, including a few pre-phylloxera wines from Bordeaux and Burgundy.
The dinner featured at least four pre-phylloxera wines, two from Burgundy’s venerable estate Bouchard Père & Fils in Beaune, and another two from Bordeaux – the 1865 vintage of Bordeaux first growth Château Lafite Rothschild and third growth Château Giscours, in addition to wines over 100 years old from Château Latour and Château d’Yquem.
Admittedly great wines can age for decades, but can they withstand the test of time for more than 150 years? Apparently 12 deep-pocketed individuals got the chance to find out last October.
7. Alibaba invests RMB 2 billion in 1919.cn
This was perhaps the biggest investment in the past year in China’s drinks industry when the country’s e-commerce giant Alibaba injected RMB 2 billion (US$288 million) into Chengdu-based online drinks retailer, 1919 Wines & Spirits, bolstering its confidence in the growth of drinks sector online.
The investment made Alibaba the second biggest shareholder of the alcohol specialist.
The investment will be allocated to expand 1919.cn’s presence across China, part of which will include opening 2,000 new retail stores this year.
“The wine and beverage industry is a trillion-dollar market, which is a great fit for promoting Alibaba’s new retail strategy to keep pace with the fast-moving business,” Hu Weixiong, the president of Tmall’s retail department, was quoted as saying.
Founded in 1998, 1919.cn saw its revenue grew to RMB 3.3 billion (US$475 million). Its turnover in 2019 is projected to reach RMB 7 billion based on a projected growth rate of 55.56%.
6. Bonhams sets world-record with 1926 Macallan
Auction house Bonhams set a world record in May when a bottle of 1926 Macallan with a Valerio Adami label was sold for HK$8.6 million (£814,081) in Hong Kong, which at the time made it the most expensive single bottle of whisky in the world.
The record only lasted for five months before it was broken again by Bonhams in Edinburgh when the same bottle bearing a different bottle number was sold for £848,750.
And just when the world stood aghast at the astronomical price paid at auctions for rare whiskies, Christie’s announced that another bottle of Macallan 1926 60 Year Old with a hand painted design by the Irish artist Michael Dillon, had been sold in London for £1.2 million (US$1.5m), smashing every previous records.
5. US$14 million worth of fake wines busted in China
Fake wine continues to be a problem plaguing China’s wine market. In November last year, police in Henan arrested 11 people and seized more than 50,000 bottles of fake wine bottled as Australian brand Penfolds and Chinese winery Changyu in a crackdown in central Henan province near Beijing.
The scale of the operation was astonishing. The raids uncovered over RMB 7 million (US$1 million) worth of fake Penfolds and fake Changyu wines worth more than RMB 6 million (US$865,000).
Other branded fake wines were also found in the raids but not specified. The total value of wines involved in this case is reported to exceed RMB 100 million (US$14.4 million) based on a preliminary assessment, according to the police.
This came a few months after police in northern China’s Liaoning province found more than 8,000 bottles of counterfeit Penfolds.
The iconic Australian wine brand is among the most faked imported wines in China. The company declared a war on copycats last year, aiming to stamp out all the “nonsense” in the market, as its chief executive Michael Clark said.
In February last year, it filed legal action against “copycat” producer Rush Rich in Australia over trademark infringements that it claims “exploit TWE’s iconic Penfolds brand”, as well as its Chinese transliteration of Ben Fu. The court battle is still ongoing.
4. Bordeaux’s landmark case win in China
If Penfolds’ constant legal actions against counterfeiters are setting an encouraging example for fellow producers looking to protect their own intellectual property rights, the Conseil Interprofessionnel du Vin de Bordeaux (CIVB or Bordeaux Wine Council)’s landmark win last year against fraudsters who exploit Bordeaux trademarks is another welcome sign.
The chief counterfeiting operation, according to Thomas Jullien, the Bordeaux Wine Council’s representative in China, is based in the country’s main wine producing region in Shandong peninsula’s Penglai, and has been producing fake wines bearing the labels of Bordeaux and Médoc, two Geographically Indicated (GI) wine regions that the trade body has obtained trademark rights within China.
According to Jullien, the case is significant in the sense that Shandong remains China’s biggest wine production base by volume and is itself home to China’s two leading wineries – GreatWall winery and Changyu Pioneers – as well as foreign ventures such as Domaines Barons de Rothschild (Lafite)’s Chinese wine project, and which is trying to establish its reputation as a serious domestic wine producing region.
“For us, it’s sending a strong signal, [that] in that area, the local authorities are serious about enforcement. For us, it’s important, Penglai is an area that has ambition for wine production as well. In order to protect the Penglai name, they have to make sure they don’t have bad actors in that area,” Jullien said.
The win came shortly on the heels of the council’s other legal victory in Shanghai in December 2017, the de facto wine capital within mainland China, where three counterfeiters were convicted and fined for a combined total of more than RMB 1 million (US$145,000), the first criminal conviction on a collective GI.
“This is the first case. It is the first appellation case in China so it sets a precedent,” Jullien exclaimed on the magnitude of the win.
3. Australian wine delays
It had all been smooth sailing for Australian wines in China until relations between the two countries became strained when Canberra proposed anti-foreign interference laws, following reports of Chinese interference in local politics.
In May Treasury Wine Estates confirmed to dbHK that its shipments to China were delayed at customs. Other Australian wine companies including Jacob’s Creek owned by Pernod Ricard also experienced delays.
In replying to dbHK, TWE stated, “the company is seeking greater understanding of new and additional verification requirements which have been applied since April 2018, and seemingly appear to only apply to Australian Country of Origin wines, and to Australian exporters operating ‘warehouse models’.”
China denied the delays, and insisted that the clearing were handled according to normal procedures. Wang Yi, Minister of Foreign Affairs, urged Australia to “take off the coloured glasses” in order to set the two countries’ relations back on track after a meeting with his counterpart Julie Bishop on the sidelines of a G20 meeting in Argentina.
The wines were eventually cleared, and the episode did not seem to affect Australian wine’s overall performance in China.
In the 12 months ended on 30 September last year, exports to China amounted to AU$1.06 billion, according to Wine Australia.
2. China-US trade war
The China-US trade war has been dominating news cycle as the two of the world’s biggest economies launch into a tit-for-tat trade war. As a result, American wine, whisky, beer are caught in the crossfires.
Last March when the Trump administration announced tariff increases on Chinese exports of aluminium, cars and solar panels, the Chinese government fought back with 15% tariff on American products including wine.
The news was a shock to growers in California, which produces close to 90% of wines in the country, as American wines were gradually gaining traction in the Chinese market. The retaliatory move prompted the California Wine Institute’s CEO to warn that it could mean “lost market share for years to come.”
American wine exports (97% from California) to Greater China grew 10% by value to more than US$210 million last year.
In September, the trade war escalated with both engaging in further protective measures. China levied additional 10% on American wine as a result, bringing the total taxes on American wines to nearly 80% compared with the usual 50%.
Since the trade war started last year, it has sent uncertainties to global economy and growth. What perhaps is more dangerous is a larger extent of shunning American products as a result of nationalism, and American wine falling into this category would then become collateral damage.
At the moment, the two countries have called for a truce until 1 March to negotiate possible deals.
1. China launches its own wine rating system
In China’s most affirmative move yet to demonstrate its clout as a leading wine consumer, the country unveiled a new wine rating system designed to evaluate imported and domestically produced wines. Based on Chinese tastes it also shuns the usual set of established international wine rating systems such as the 100-point system favoured by international wine critics.
The system was officially introduced in November in Shanghai by China Alcoholic Drinks Association (CADA) – the country’s official regulatory and trade body for all alcoholic beverages including beer, wine and spirits – China National Food Industry Association and the Chinese Society for Horticultural Science.
This seems to be in line with China’s overall more confident and assertive tone in the global stage, as the country’s clout grows in the fields of global politics, economics and culture. In the wine sector, it’s mirrored in its drive to produce ‘world-class’ Chinese wines, with state-backed wineries or supported projects, and is now launching ‘a wine rating system with Chinese characteristics’ targeting all wines sold in China.
According to the association, the system is said to cater to Chinese wine drinkers’ tastes and palates, with consideration of culinary traditions. Asked how it reflected Chinese drinking and dining traditions, Wang cited an example of tea drinking culture between China and the UK.
“In China, when you drink black tea, you drink it without addition of anything, while in the UK, to cater to their tastes, they often add other things,” Wang Zuming, secretary general of CADA’s wine division who’s in charge of formulating the wine rating, explained to dbHK.
The effects of this wine system are not expected to affect imported wines or domestic wine sales immediately, but a few years from now it might have larger influences, as Wang explained. By 2021, China is expected to become the world’s second biggest wine consumer following the US. A wine rating system with Chinese characteristics that cater to Chinese taste and preferences by then might fit better into a nationalist narrative in the country.