China is fast becoming the biggest wine market in Asia, but U.S. wineries lag far behind other nations like France and Australia in slaking the growing thirst for fine wine in the world's most populous country.
Concerned that U.S. wineries might be missing a golden opportunity in China, the California Association of Winegrape Growers undertook a year-long study that concluded U.S. vintners face significant hurdles to tapping the emerging Chinese wine market.
"This is a market that we would hate to wait too long to get into," said Karen Ross, the group's president. "The potential market is huge, but it won't just be ours for the taking when we are ready."
The sheer size of the country, its exploding economy, and the rise of its middle class all convinced the group that California wineries needed to better understand the market they might be missing out on, Ross said.
U.S. wine exports to China fell from 253,000 cases in 2004 to 251,000 cases last year, but increased in value, from $5.5 million to $5.9 million, Fredrikson said.
But the sheer size of the potential wine market in China is simply too big for some U.S. wineries to ignore. Big players like E&J Gallo, Constellation Brands and Kendall-Jackson, as well as niche players are positioning themselves to benefit as the market matures.
"It's kind of like being a kid and looking at this huge mound of ice cream and saying 'How am I going to start eating all this ice cream?'" said Eric Morham, senior vice president of Constellation Wines' international division. "The answer is one bite at a time."
Nevertheless, wine consumption is on the rise, and at a pace that's faster than the domestic industry is likely to be able to keep up with, according to a study by Vinexpo, a French organization that held its annual convention in Hong Kong last month.
Wine consumption in China is expected to grow 78 percent between 1999 and 2009, equivalent to annual growth of 7.8 percent, while domestic wine production is expected to increase just 2 percent per year between 2004 and 2010, Vinexpo found.
Such steady increases in consumption have made China the largest wine-drinking nation in Asia, at 500 million bottles in 2004. Japan is second, at 300 million bottles, but because prices are higher in Japan, it is still the most valuable market, with wine sales of $2.6 billion in 2004 compared with China's $1.1 billion, the Vinexpo study found.
The gap between China's future domestic wine production and its expected consumption represents a significant market potential for imported wines, Ross said.
At the moment, however, other countries are better positioned to take advantage of the opportunity than U.S. wineries, she said.
The USDA Foreign Agricultural Service study agreed. That 2004 study concluded European and Australian wineries had gained significant shares of the foreign wine market in South China through aggressive promotion. Other nations, like the U.S., may find it harder and harder to enter the South China wine market as consumers become familiar with wines from those nations, the study concluded.
That possibility convinced the California growers that the group needed to take a closer look at how the Chinese wine market operated.
The results were not encouraging.
The CAWG study confirmed that California wines, while present in about one quarter of grocery stores and supermarkets, were not well promoted.
Of the more than 30 markets surveyed, 82 percent had promotions for domestic wines, 18 percent had promotions for foreign wine, but not a single store promoted California wines. In one third of the stores that carried California wines, employees in charge of the wine departments did not know the store had U.S. wines. Clerks in several other stores claimed the U.S. did not make wine, according to the CAWG study written by Dan Sumner and Scott Rozelle at UC Davis.
This lack of education about California wines is cited in the study as a key impediment for U.S. wineries seeking to enter the China market.
Another significant factor is the relative high cost of U.S. wines in China - $15 per bottle versus less than $5 for domestic wines.
Those results did not surprise Ross because the majority of California wineries have been pursuing other more lucrative market opportunities in recent years, such as the growing U.S. wine market, predicted to become the largest in the world by 2010.
Kendall-Jackson's Steve Messinger, who spent 10 years in charge of the Santa Rosa winery's Asian strategy, agreed most wineries have passed over China in favor of more profitable markets.
"The U.S. is probably the easiest wine market to sell wine in in the world, so by comparison everywhere else is a lot more difficult," Messinger said. "I think most California wineries are scared of the Asian wine market as a whole, and China in particular."
A recent survey of members of the Sonoma County Wineries Association showed just five wineries out of 145 - Kendall-Jackson, Gloria Ferrer, Jordan, Arrowood and Domaine St. George - currently export to China, though many more indicated a desire to expand their international export programs, said Honore Comfort, the organization's executive director.
But Constellation's Morham says he's not convinced the headstart countries like France and Australia have in China will block U.S. wineries out of the market in the future.
Thirty years of absence from the U.S. market didn't stop Australian wines from grabbing a huge chunk of the value wine market in recent years, Morham said.
Robert Mondavi began pushing into China about 10 years ago, and now Constellation, which purchased his iconic Napa winery in 2004, is marketing a range of its wines there, including Robert Mondavi Select, Woodbridge, Franciscan Estates, Ravenswood and Simi, Morham said.
Constellation is focusing its wines on high-end hotels and restaurants, where business people and foreigners may drive the demand. But marketing to the typical Chinese person - whose average income is about $1,000 U.S. dollars per year for city dwellers and $300 for rural residents - doesn't make much sense for Constellation, he said.
But things are changing quickly. While the average household income is still very low, incomes are growing quickly in some cities, as are appetites for Western goods, Ross said.
One study estimated the number of households in China making at least $50,000 was higher than the entire population of France, Ross said.
"That is not an insignificant market to go after," Ross said.
By Kevin MacCallum, PressDemocrat.