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China’s crowded wine market offers no lifeline for thr struggling global industry

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China’s crowded wine market offers no lifeline for thr struggling global industry

Forumul Economic Regional Moldova 2024 – Vatra Dornei, 4–6 iulie

The crowded wine market in China doesn’t hold much hope for a globally troubled industry. Australia’s wine industry welcomed the news that China will drop anti-dumping tariffs, reopening its market to imports. However, the challenging economic conditions of 2024 won’t bring the growth sought by wine producers worldwide, Reuters reports.

For two decades, China has been the engine driving global wine industry growth, as a burgeoning middle class began to appreciate wines from Australia, Chile, Italy, and France, Agerpres writes.

However, many wine industry executives in China now say both the market and domestic consumption are struggling to recover from a crisis that began before the pandemic and was prolonged by pandemic restrictions. “The market has declined significantly in terms of consumer interest in wine and shows no signs of post-COVID recovery,” says Kym Anderson, director of the wine economics research center at the University of Adelaide. According to her, China’s wine consumption in 2023, including both imports and domestic production, was a quarter of the peak reached in 2017, and annual import volumes decreased by two-thirds during this period. Meanwhile, more and more local and international players have crowded the market, offering many more alcoholic beverages besides wine, says Judy Chan, director at China’s largest wine producer, Grace Vineyards.

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“We now see many more cocktails, craft beers, there are many more choices for consumers. Wine used to have this aura of international sophistication. Part of the problem is that it lost its allure,” says Judy Chan. China’s alcohol market is the world’s largest, estimated at $336 billion, although it is dominated by a local spirit called baijiu. Efforts to regain a larger market share for foreign beverages have been hampered by consumer apathy after the COVID-19 pandemic. Although consumer confidence increased by 1.5% in January, it remains close to a historic low, as slowing growth, real estate market issues, and high youth unemployment limit discretionary spending. Yan Yu, who uses the WeChat social network to sell wine directly to customers, mostly from the middle class, says customers have become more price-sensitive after the pandemic, with the most popular wines priced under 200 yuan ($28). “China is a difficult market. The context is problematic. I have to find people who haven’t tried wine before and are curious. That’s how I grow my business. You have to enter into competition,” says Yan Yu.

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Nevertheless, Judy Chan believes that the Chinese market remains strong in the upper segment, with people willing to buy expensive, quality wines. “I think Penfolds wines will perform well,” said Judy Chan, referring to the most renowned wine brand of Australia’s largest producer, Treasury Wine Estates. “People are willing to pay for a recognized wine brand,” Judy Chan added. While Penfolds wines may be appreciated by consumers, the return of Australian wines to China will be a challenging process for many other producers who are already struggling with oversupply issues. The return of Australian producers will lead to a decrease in market share for countries like France, Chile, and Italy, which have benefited from the absence of Australian rivals to become leaders in China’s imported wine market, valued at $1.6 billion, with shares of 48.24%, 19.31%, and 10.1%, respectively, in 2023. Although the free trade agreement agreed upon in 2015 by Australia with China provides Australian wines with a competitive advantage over many other states, rebuilding Australia’s export capacity to China is a time-consuming process, and imports into a generally contracting market are unlikely to quickly return to the 2019 figure of $790 million.

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