In the first chapter we have done an analysis of wine as a Chinese product. We have deeply analyzed the Chinese context where the wine industry has been developing in the last century defining its history, the consumer’s behaviour, the area where wine is produced and the formation of personnel for the developing of this industry. All these pieces of information can give us important clues on how the market is moving and where it is aiming for the future. The results detailed wine as a new product that will have more importance every year on the world market and that is changing the way it is perceived by Chinese consumers.
To understand at a deeper level these trends is important to analyse now not only the product but also the market in which it is evolving. Firstly a general review of wine global market will be given, focusing on the data and the drivers that are making this industry more and more dynamic every year on a global level. From this picture, it will be seen more clearly how peculiar and different from the general trend is the Chinese scenario, that is actually living an intensive growth while many other countries are facing difficulties.
After detailing the most relevant data, we will focus on the Chinese market analysing the data of its development. The trends form the beginning of the century will be presented and commented. Later particular attention we be dedicated to defining the features of the Chinese wine producing companies, which once again show a completely unique context where few and huge state-owned companies control the market and many small others try to find their own personality and market share.
Finally, to get an exhaustive overview of the chins wine market we will study how local and foreign bottles reach the final consumers, describing Chinese distribution channel. Doing so we will see how its development has caused the rising of new opportunities and threats like the e-commerce and the counterfeiting problem.
2.1 The global wine industry in the Chinese perspective
From the beginning of the new millennium, the global wine market has been part of continuous changes and modifications. As many scholars have pointed out, the scenario is getting more and more demanding and the most important drivers can be lead to these prior factors:
- Globalisation of the market;
- The shortfall of wine consumption;
- Different consuming behaviours in each country;
- The increasing importance of marketing activities;
- The increasing bargaining power of the distributor channels;
2.1.1.The Globalisation of the Market
One of the most relevant consequences of globalisation is its influence on the world markets. The wine industry was no exception since local production and international trade have always coexisted and characterised this sector. With the fall of trade barriers and the increment of international treaties as the FTA all over the world a push to the promotion of the commerce in this field has been felt as well. As a consequence of this more dynamic scenario, new countries emerged worldwide, with the roles of both wine producers and consumers, challenging the market position of the previous countries which have always had an oligopoly of this industry.
With the progressive internationalisation of the markets countries such as France, Spain and Italy had to face the competition with these new players, trying to balance high product quality and an organisational efficiency to contrast them.
On the other hand, also the new players had to find new ways to make their product attractive, challenging the prejudice of their relevantly young experience in wine production.
However, it is relevant to notice how today the so-called Old World countries still maintain their supremacy and are still ranked on the top of wine producers. Nevertheless, they are suffering the consequences of an environment that is getting more competitive every year and where new entrants are constantly establishing their position and gaining market share.
As a consequence of this phenomenon paired with other factors, from 2000 to 2015, all the most traditional wine producer countries had signed a decrease in the wine production amount (e.g. France -28,4%, Italy – 15,15%, Spain -22%), while at the same time countries like South Africa, Chile, Australia and China, had all an increase of more than 40%.
2.1.2 The Shortfall of Wine Consumption
The increasing gap between global wine production and consumption has been a trait that evolved in the last 10 years defining a progressive oversupply phase which had a great influence in the strategies of the producers in the Old and New World countries.
The situation is getting more balanced in the recent years. In 2017 the world total production of wine was 246.7 mhl, 8% less than the one of 2016 signing one of the lowest amounts from the 60s. On the other hand, consumption has increased signed a total of 242 mhl. The situation is getting more balanced. Despite the still present discrepancy between production and consumption, it is important to notice a change in the trend. As said before, form the beginning of the millennium the variation between the two data was much higher than the one of the recent years. In 2000 the oversupply was 54mhl and the highest level of variation was scored in 2004 with more than 59mhl of wine that exceeded the year demand. If we analyse the variation in 2017 we can see how reduced it has become with a gap of almost 5mhl. This result is prevalently due to the relevant decrease in the production of wine, while the consumption one is still slowly but constantly increasing (form 2000- 2017 +7,1%).
When looking at the level of the global wine consumptions after this data it is clear that in the last years the wine industry has reached a mature level. Even though the global consumption has increased, it is fundamental to notice an impressive decrease in the level of wine consumption of the countries which used to drink the biggest amount of it. In these cases, the decrease has been constant and can be effectively explained by individual data. If we look at the pro-capita consumption of these countries we see how drastically consumption has fallen from 2000 to 2015 (Spain -34%, Italy -23% and France -23%), delineating what has been renamed the “European Shortfall”.
Anyway, as we have just seen, the market is reaching an equilibrium between production and consumption even though the huge decrease in consumption by the most important drinking countries. The reasons behind this phenomenon can be traced back to to the increasing consumption of new countries. This changing in the consumes from the most important wine producers have in fact lead the market to new horizons and caused a shift in the geographical and economic asset of the industry. Countries that a few years ago were less important on the market have now gained the attention of it, and both new and old players are looking to gain a part of this market share. The globalisation had thus focused its attention on China, USA and Russia and many other developing countries which are having a new and enthusiastic approach to this product.
As a consequence of the increasing consumptions and export demand of the new markets paired with the simultaneous shortfall of production, the global wine industry has thus slowly moved from oversupply to balance and, if the trend will keep constant in the years, to shortage.
it is finally relevant to understand that the shift from a Europe-centred prospective to the new markets one is not only concerned to the consumption data but also the production one. As said in the previous paragraph, a relevant production increase has been scored by the New World countries and, even though their impressive trends will not compensate fort the general fall in global production, it is surely an indicative sign on where the attention of the market will go in the next years.
2.1.3 The Different Consuming Behaviours
The increasing internationalisation of the sector has guaranteed a more enlarged public for the wine industry. But, showing different consuming behaviours in the purchase habits and in the different tastes, consumers have also represented a new challenge for the producers. The differences coming from these behaviours have contributed to make the market more and more uncertain and have threaded to weaken the competitive position of the companies. Producers in many cases had to adapt their product to new cultures, trends and habits to meet the consumer’s needs.
Many studies have been done on how the buying process and consumption patterns of wine consumers can differ a lot from different cultural context and patterns. Being in many cases the quality of the product not determinable in an objective way, for the different perception of the consumers coming from different contexts, the cross-cultural comparison is a factor that cannot be ignored when positioning a product in a new and unknown market.
2.1.4 The Increasing Importance of Marketing Activities
When a bottle of wine is sold, the consumer does not only buy a drink obtained by the fermentation of grapes. Values, concept, needs and perceptions merge together to create a particular product that paired with the services provided by the producer helps the consumer to distinguish it from all the other bottles.
Companies are facing a larger and new public, not always acquainted with drinking wine and characterised by the different behaviours outlined in the previous paragraph. If companies want to succeed in the market they will have to think carefully not only to the quality of their product but to the quality and uniqueness of their services too.
The communication mix related to advertising, the product diversification, but also labelling and packaging is becoming a mandatory step for all the companies who want to go global or satisfy new and emerging markets. Brand awareness, identity and competitive positioning are becoming more relevant every year in a globalised world. The quality of a bottle can be experienced only after the bottle is open so it is necessary to improve the marketing of it to make the consumer appreciate the product before tasting it.
As said at the beginning of the chapter, both Old and New world companies had to face the challenge of finding an effective marketing approach. the first to survive to the competitors of the new markets, the second to take a position in the market avoiding the general misconception of bad quality associated to companies with a short history in the production of wine.
Every company from both the Old and New World had its answer. The Old world has started the so-called “Export Imperative”, an obliged choice to the survival of the companies and to solve the overproduction problem of the previous years. The new World, headed by the example of Australia and Chile, has on the other hand promoted its products cutting its costs and increasing its relations with the new markets thought FTA and other international agreements.
2.1.5 The Increasing Bargaining Power of the Distributor Channels
Finally, the last driver shows the deep relations between the marketing activities and the distributor influence in a wine world global economy. The purchasing moment is decisive and it is made on the trust and reliability perceived by the consumer. For this reason, the distribution channels have recently got more and more powerful.
The increasing bargaining power is thus becoming a problematic element that can not be ignored. the risks are high since the relationship with the distributor may compromise the competitive position of the wine producers, squeezing producers’ profit margins or selling under own-store labels bulk wines or branded wines as well.
A solution to this problem has been found by many producers with a downstream approach in the value chain through brown-fields, acquisitions and mergers. This choice is finalised to get the maximum control on the consumer’s choice and maximise the profit. Obviously, such a movement is not possible for all the wine companies. The dimensions and the assets must be relevant and in many cases do not suit the typical small dimension of the Old word wineries.
In the case of small dimension companies, it is better to find other solutions, such as looking for innovative ways of enhancing the brand awareness or promoting the product in order to make it more attractive for the consumer, despite the retail offers and merchandise activities. It is also suggested to reach an agreement with the distributor seeing the distributor not only as a thread but as an opportunity to reach a larger and vaster public.
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* Luca Bonasegale, bonas94@hotmail.it 24 anni, laureato in Lingue e letterature Straniere Moderne presso l’Università degli Studi di Bergamo e con una laurea magistrale in Language and Management to China all’Università Cà Foscari di Venezia ottiene una prima borsa di studio presso la Nanjing Normal University di Nanchino 南京师范大学 nel 2015 e una seconda a Pechino alla Beijing Capital Normal University 北京首都师范大学 nel 2017. Attualmente è a Hong Kong dove svolge un tirocinio presso la Camera di Commercio Italiana di Hong Kong e Macao.
** Titolo della tesi “China Wine Revolution: Is China becoming a World Wine Power?”
Tesi discussa presso l’Università Cà Foscari di Venezia, Master’s Degree Programme in Languages, Economics and Institutions of Asia and North Africa (D.M. 270/2004).Anno accademico 2017/2018.
Relatore Prof. Renzo Riccardo Cavalieri, Correlatrice Prof. Lala Hu