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Low margins put off leading wine brokers despite boom in imports

Post a commentBy RJ Whitehead , 30-Jun-2014

Low margins put off leading wine brokers despite boom in imports

Although China wine market has been booming for some time, the low prices charged by online importers means few leading brokers and retailers have been tempted to enter the business.

Currently, the market for imported wine stands at RMB100bn (US$16bn), though profits for wine companies have been shrinking in recent years due largely to the popularity of e-commerce firms that charge much tighter margins than traditional traders.

e-Business boom

This is a new trend for China. Before 2010, wine imports were largely procured by corporations and government departments through trading companies, with relationship selling playing a big part in the trade.

The importers were able to set high margins by taking advantage of a general lack of knowledge about wine at a time when the market for Western products began to boom and the current government-level austerity measures had not been put in place. 

But now the e-business model has forced an impact on traditional importers and traders, many of whom saw a decline in sales last year to the point that some of the larger operators witnessed falls in revenue by as much as 30%.

Importers are also suffering on the back of retail growth and the shelf charges that are popular among Chinese supermarket and convenience store chains.

Smaller agents often have a tough job to gain access to such outlets as distribution chains, with stores regularly charging at least RMB300 (US$48) per store per year to place individual lines on shelves. 

With chains going through frenzied expansion, to the point that some supermarkets and convenience stores will see more than 100 new outlets this year, the annual cost for distributors to stock just one wine item could easily reach RMB100,000 (US$16,000).

Further growth predicted

In spite of a lack of high-level importers, the wine market looks well set over the next five years, according to a recent report in Shanghai's CBNweekly magazine, with imported wine accounting for almost one-third of all sales in China.

This figure has grown significantly over the last decade—10 years ago, nine out of 10 bottles were supplied by China Great Wall Wine, Changyu and Dynasty—China’s big three domestic producers, with little in the way of imports.

However, in 2012, China overtook France and the United States to become the world's biggest consumer of red wine, although the white wine market still trails far behind the US. 

Last year, Greater China consumed almost 1.9bn bottles of red wine, an increase of 136% from 2008, according to statistics from Vinexpo, the wine exhibition company. 

Vinexpo has since projected China's wine market will grow by a further one-third by 2017, of which imported wine will account for half of the total.

The growth largely reflects the rise of the country's middle-class, with the market no longer depends on procurement or gift sending. In the past, the retail sector accounted for just 30% of the total wine market, but this situation will gradually change as the emerging middle class will focus on enjoying their expanding wealth and leisure time.

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