How to Sell Wine in China – Strategies and Recommendations
Komal Chalotra – Business Consultant
Alcohol industry is considered to be on of the most profitable markets in the world.
Some countries find this market more profitable than others. China has been producing wine since Han dynasty (206 BC–220 AD) when the region had high quality grapes. Before the introduction to grape wine, the most commonly consumed beverages among Chinese used to be rice wine beer and other alcoholic drinks.
The demand for Wine in China kept growing with the changing lifestyle and better standard of living.
China ranks 6th largest wine producer in the world and ranks 5th in terms of consumption. The wine consumers in China range from young people to elderly people drinking wine for either social status, luxury or health reason.
Chinese consumers are showing more and more interest in foreign products in the last few years. And imported spirits are definitely not an exception of this phenomenon.
The Chinese have acquired a strong taste for imported spirits, particularly in the first rank cities which are modern and cosmopolitan such as Shanghai, Beijing, Guangzhou and Shenzhen.
It is a growing market, with consumer showing greater interest in foreign products. The potential for growth of international brands in China remains strong yet there is the need for wine sellers to understand that Chinese consumers and China are different from rest of the world.
Wine industry in China
Wine is one of the most popular and the first imported spirit to enter into the Chinese market.
Even if Chinese does not include wine as part of its culture, still the wine market in China is very dynamic, witnessing an annual growth of 25%. Although Rose and White wine are gaining popularity, the consumption mainly remains dominated by Red Wine.
The re-emergence of wine market in China took place in 1990s as a result of globalization and disposable income and became no. 4 in terms of revenue after the United States, France, and Italy.
The expansion in domestic wine production is witnessed by the fact that over 800 million litres of grape wine was produced in China in 2019 and it has the second largest vineyard area worldwide after Spain. Shanxi, Ningxia, Shandong, Hebei, Jilin including Beijing and Tianjin provinces have the most prominent vineyards.
China also ranked 7th for the number of achievements in Concours Mondial global wine competition in 2019. These achievements are a result of many foreign partnerships that are much needed for wine industry in China.
China witness many western winemakers investing in joint ventures to help in bringing in the knowledge and flourishing the wine industry in the world.
While the production is expanding, a prominent growth is also witnessed in wine sales and consumption. Although the per capita wine sales per year remains low when compared to the rest of the world, the demand is still rapidly increasing. As a matter of fact, China has to heavily rely on wine imports. It was ranked at 4th position in wine importer after the U.S., UK and Germany.
Wine consumption in China
The consumption of wine in China has grown dramatically since the economic reforms and as a consequence it has outnumbered major wine producers of the world.
Despite the fact that the consumption pattern is observed to be unique and different in different regions of China, yet China still remains an enthusiastic consumer of wine. The consumers of wine are located mostly in big cities towards the North (led by Beijing), East (Shanghai), and South (Canton, Hong Kong) regions of China.
In contrary, wine is still struggling to make a prominent position in the market of west of China and the cities surrounding it. Beijing encounters the lowest of wine consumption among the middle class as only the army and the officials invested in purchasing wine using the money of the public.
East of China including Shanghai are characteristically more economical witnessing a large expatriate community. These include modern cities with young middle class consumers who consume wine on daily basis.
The climate in these regions is much warmer in the winter, but just as unsustainable during summer, with temperatures close to 40°C. The people belonging to this region are more interested to consume fresh and fruity white wines because of unsustainable temperature in summer. The wine market still continues to expand in this region.
Wine consumers in China
Wine Consumption in China varies a lot according to the age group. This can be largely divided into three groups and would provide an insight to wine producers to target a specific group to sell the products.
- Young: Youngsters in between the ages of 18 and 29 are bold enough to test new products in market. Over 40% of imported wine in China is consumed by this age group and this trend has attracted many wine-producing countries including France, Australia, Chile to the growing Chinese market
- Middle-Aged: People in the age group of 30-45, although, have greater purchasing power, but yet they are super careful about the selection process and conduct enough research online and before purchasing form a store or online platforms such as Taobao and Tmall.
- Elderly: Wine Consumers above 45 years are mostly wine lovers. They consume the as a symbol of social status and do not worry to spend extra penny on buying a bottle of wine.
The demographics of China’s wine-drinking population witnessed a significant shift since 2012. The rise in young wine drinker, especially the female wine drinker is the major factor contributing to this shift Females accounted for just one-third of all the population of wine drinkers in 2012 and by 2015 this figure had increased by 50 percent.
Younger wine consumers are more open to experimenting with different wine brands throughout the world.
The growth in the wine drinking population can be attributed to The increasing number of female drinkers who are under the age of 30, drinking wine contributes to the growth in the wine drinking population as per Wine Intelligence.
According to Wine Intelligence, this figure will grow in coming years. On comparing the imported wine drinking population with the urban adult population indicates that wine drinking is yet away from the mainstream. The emphasis, now, is to attract young female wine drinkers that belong to different cities across Mainland China.
According to another study conducted by Wine Intelligence in 2013, male population from the age group of 30-39, residing in Shanghai and belonging to upper middle class was the typical consumer of imported wine in China. They are interested in testing and consuming different variety of wine.
Wine import tax in China
China charges tariffs for most of the products that are imported to the country. China’s wine import tax in China is based on the estimated value of the goods or transaction. China’s General Administration of Customs is responsible for looking and publishing the tariff schedule annually.
Packing, freight, insurance premiums and other service charges are included in the tariff before the goods are unloaded at a specific destination and later on arrival in China, Value-added tax (VAT) and consumption tax are added to the total tariff.
There are three different types of taxes on alcohol a) import custom duty, b) excise tax and c) value-added tax. The rate for custom duty for wine stands at 14% for vintages with alcohol content 20% or less by volume. This can increase up to 20% for bulk wine or with packaging above 2 liters.
It is essential to first determine the Cost, Insurance and Freight (CIF or C&F price), or the expense a seller pays in order to cover the possibility of loss or damage to a buyer’s order while in transit to in order to compute the taxes. Custom duty is CIF multiplied by 14%.
Below mentioned is the computation for excise tax and VAT:
Excise tax = [(CIF + import tariff) / (1–10%)] * 10%
Value-Added Tax = (CIF + import tariff + excise tax) * 17%
Overall, the tax paid for imported wine stands at 48.2%. This excludes handling and documentation fees charged by the shipping company and freight forwarder, among others.
Exceptions exists for Countries in Free Trade Agreements (FTAs) with China which are allowed for importing wine without tariff in a particular period of the year.
How to export wine to China
The market in China provides a huge potential for wine producers from different parts of the globe. But the route to selling wine in China follows a strict process.
It is essential by the exporter to understand the local rules and the exporting process and need to adhere to the regulations set by customs strictly.
Regulations on Export
It is of extreme importance to study the local standards and regulation before the export of any consumable product in order to avoid any penalties or issue.
There are certain regulations set by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) along with the Guobiao standards (GB) that are must to qualify for a business before there wine enters the China market.
The National People’s Congress (2015), Food Safety Law of the People’s Republic of China (2015), the President Order 22 (2015) for advertisement, the SAIC: Measure for Administration of Special Signs of Geographical indication products and the Trademark Law of China are some of the other standards related to the export of wine in China.
Following are the steps that are mandatory in Business planning to sell Wine in China.
- Firstly, finding and signing an agreement with a local importer is necessary to handle product registrations with the State Certification and Accreditation Administration (CAA) and the AQSIQ.
- The registration of the label is also required along with sending the other documents to the China Inspection and Quarantine (CIQ) for review before shipping the wine.
- On arrival of goods in China, it is required by the local importer to declare them at the nearest CIQ office.
- Once the shipment is fit to follow local standards, a certificate of approval is released.
- As a final step product testing of the imported wines is performed for analysing the allowable measure of metals, minerals and vitamins.
The growing wine market in China can highly benefit from the consumers’ favorable perception and interest towards imported vintages. With the growing demand and popularity of wine among all the age groups in China, Wine producers around the globe are positive that the Chinese market will continue to grow more in the future.
How to sell wine in China – Channels and distributions
Chinese consumers varies a lot in terms of culture, taste and perception about wine from Westerners. However, Chinese consumers are still open to accept wines and there is a lot to benefit from the huge market along with the competitors who have already dominated the region such as the Italian, French and Spanish.
Furthermore, with the increase in the middle-class population, there will be increase in consumers willing to have deep understanding of wine and therefore, imported wine can increase popularity in coming years.
One of the best way to sell wine in China is through digital means. Social media is the greatest way to reach Chinese consumers to make them aware and discuss new products and therefore, a significant amount of efforts are required to be put into the digital media.
The most effective way to advertise a product is using captivating videos or photos as Chinese are very open to new and emerging technology.
However, wine producers have to operate in a different platform that works in other major economy as most of the social media like Google, Facebook, YouTube, Twitter, Pinterest, Instagram, and WhatsApp are either banned, blocked or censored in China. Nevertheless, following are some of the available options to advertise the products.
- Baidu: So called China’s google and the leading search engine in the country is an option for advertising products. It is very similar to google having pay per click and advertises showing up in search along with the keywords based content.
- Weibo: Popular form of messaging app which is a combination of Facebook and twitter. Consumers can make use of this platform to advertising wine to Chinese consumers.
- WeChat: It one of the most popular messaging app and is ranked world’s 5th largest messaging interface. It offers its user much more than the messaging ranging from booking hotels, making payments to using it for official purpose. Many Chinese sell a wide range of products within WeChat.
- E-Commerce: Alibaba is one of the China’s biggest e-commerce company accounting for maximum online retail. Alibaba operates under three main sites i.e. Taobao, being China’s largest shopping website; Tmall, offers a great range of branded products targeting middle-class and Alibaba.com, a B2B trading platform.
Using digital media for promoting and marketing wines is essential and understanding the landscape and opportunities it brings for effective advertisement is very important for the success among Chinese consumer for any business.
The principles involved in use of internet and social media is the same as used for sales and marketing in China. As far as other markets are concerned, followers need to be interactive if they are to be converted into potential customer, the only difference in Chinese market is to take care of the approach followed, the language used and the content that should be in accordance with the Chinese culture.
Which kind of entity can you establish to start selling wine in China?
With the growing demand for alcohol and increasing popularity of foreign brands among Chinese consumers, it is the best time to enter and expand into Chinese market.
- Company Establishment: If you are open to the option of importing wine into China and looking for exploring the opportunity to expand into Chinese beverage market then the best option is to set-up the corporate entity in China.
A trading Company needs to be established for distribution of wine and operating in the area of import in China. The principal form of business open to foreign investors in China is wholly foreign owned enterprises (WOFE), or in case there is a Chinese partner involved then Joint Ventures (JV), which is the same for any other sector.
Another option is the purchase of already existing company, however, company acquisition is comparatively a costly and time consuming process which is strictly administered by Chinese authorities. This alternative is suitable for companies willing to build a heavy structure in the country and are ready to invest with capital expenditure and oblige with the tax compliance.
- Sales office set-up: Another flexible solution for entering the wine market is by creating a sales office which provides more freedom and flexibility to have a dedicated sale team on ground to carry out commercial activities and marketing in China without the requirement of establishing a legal entity in China.
It is a best and popular approach also known as PEO (Professional Employment Organization) or Employer of Record (EOR) model which is a cost effective method of entering Chinese market.
A PEO provides the winemakers and distributors with an opportunity to dispatch and hire staff in China to conduct the overseas sales and networking while PEO as the employer of Record takes care of all the administrative requirement and compliance of their employment.