Brendan O'Toole, managing partner at Shanghai-headquartered Summergate, has a tough job: talking a nation of 1.3 billion Chinese hooked on sweet, strong, and cheap grain alcohol into switching to grand crus from Bordeaux and other fine vintages from around the world. Yet Summergate and its rivals are having some luck in their pioneering efforts to import and distribute foreign-bottled wines.
China's thirst for the good stuff is growing at an astonishing 35% to 40% a year, O'Toole says -- although the increase is from a small base. Fine-wine imports are expected to top 1 million cases in 2005, vs. 41,000 cases in 1995 when the world's most populous nation first opened its markets to booze from abroad. The overall quantity of wine imports into China is greater still, since the country also brings in large amounts of bulk wine.
O'Toole deals in the pricier bottled varieties, and even for that market, the demographics look promising. Potentially, a quarter of China's population could be future wine drinkers, O'Toole estimates, if you count the 80 million to 100 million that make up the country's educated elite and the 250 million to 300 million members of the middle class. Already, many of these consumers drink one to two glasses of grape wine annually, he says.
Challenges abound. China has few wine writers or sommeliers to help cultivate an appreciation for the beverage among the masses. Take the story of one Chinese wine importer who, trying to promote a Domaines Baron de Rothschild-Lafite wine to Chinese restaurant and hotel owners at a grand reception in Beijing, mixed glasses of the vintage with Sprite.
O'Toole, a New Zealander who speaks Mandarin, recently chatted with BusinessWeek Online reporter Eric Wahlgren at Wine Evolution, a wine industry conference in Paris. Edited excerpts of their conversation follow:
Q: Who mainly benefits from the growth in China's wine market?
A:France is the biggest beneficiary, with 40% of the total market for bottled foreign wine, and France will always retain a natural advantage. People associate Bordeaux wine with prestige. Australia is charging hard. They are now about 19% of the total. The U.S. typically runs at 12% to 13%, followed by Spain and Chile.
Q: What are the Chinese dropping in favor of foreign wine?
A:I don't know if it's entirely replacement. A lot of it is new consumption. The traditional grain-based alcohol is a declining market. The younger generation is going down the grape-wine road. It's viewed as healthier. And it has better lifestyle associations.
I believe there is [also] a significant amount of cognac volume that is switching over to wine. Serving cognac was all about face and showing your wealth. As wine started to emerge, you could still go to nightclub venues and get the same degree of respect by buying an expensive Bordeaux.
Q: Does wine go well with Chinese food?
A:If you want to get into wine-and-food matching, you are going to come up with some marvelous combinations with Chinese food. The variety in Chinese cuisine is enormous, from ingredients to the way it's cooked.
You could take a fish, wok-fry it, and put on all these heavy sauces with a lot of flavor and high sugar content. The dish is suddenly very powerful, so you may find that a medium-bodied red would be much more suitable then a delicate white wine.
Invariably, when you go out to eat in China with a group, it's at a round table and there are a lot of different foods in the middle. What the Chinese usually do is buy a bottle of red -- usually a red Bordeaux. Even if it doesn't appropriately match with the food, they still drink it.
Q: But is the class of people who know about wine growing?
A:There is more of an effort to match food with wine. Some hotel groups have launched lists of that match wines with particular dishes. You are starting to see the first sommeliers at the big hotels.
But the market is still very unsophisticated. There is only one journalist who is writing about wine, and she is not very widely distributed. The education process is going to take decades.
Q: Yet you say the color of wine is a built-in marketing tool?
A:Yes, red is a lucky color. Everything is red in China. Their flag is red.
Q: But you need more than that?
A:It's important that a foreign wine's name be translated into something that is easy to pronounce in Chinese and is appealing. It really has to hit the spot.
We have a wine from Chilean group Concha y Toro called "Casillero del Diablo," which means "cellar of the devil" in Spanish. We translated it into the Chinese for "Red Devil." There again is the lucky color red, and it's a name that resonates incredibly powerfully. I think it's going to be one of the biggest brands in China.
Q: Is the China market the answer to the prayers of troubled French winemakers?
A:There are a lot of people in France, Bordeaux in particular, who I've spoken to who talk about China as their savior. A lot of French wine companies are in serious trouble. China might be a country that potentially softens the pain. But it's a long-term thing.
Q: Meantime, China is also developing its own wine industry?
A:I think there are about 350 Chinese wineries now, but typically these are joint ventures. There is a technology and a knowhow transfer going on. But the domestic industry is not very advanced.
But the Chinese don't want the foreigners involved forever. They're going to observe and learn and adopt the best practices as quickly as they can. I wouldn't be surprised if China becomes the biggest winemaker on the planet. I don't know when. Perhaps it will be 30 years or 40 years. But the ingredients are all there.
Edited by Thane Peterson