Danny Kane sits at a small table inside Aria, the restaurant he runs in Beijing’s China World Hotel, and addresses a large wood-bound book. What lies between the lacquered covers is Aria’s fabled wine list: 38 pages of chardonnays, cabernets and Chiantis – from the world-renowned to the rarely seen – painstakingly put together with help from 19 distributors.
"The Italians are some of the hardest for Chinese people to understand," Kane explains. "So I’ve arranged them separately according to style and region."
Kane’s wine list is considered one of the best in China. It also reveals some of the strange dynamics at play in the country’s wine market. The list was assembled at great cost but to little profit; and is sophisticated enough to have won an Award of Excellence from Wine Spectator magazine but elementary enough for the restaurant’s wealthy neophyte drinkers.
According to government statistics, China’s wine imports swelled 116% year-on-year in 2006 and grew at a more moderate 29% last year. Per capita, though, Chinese consumers still only drink 0.38 liters of wine, roughly half a bottle, per year. These numbers have caught the attention of many European wine producers, especially those in proud wine-growing regions like Spain and Italy, who see in China an opportunity to reverse decades of declining sales at home.
With China’s middle class becoming wealthier and worldlier, and the market growing so quickly, the idea of China saving Mediterranean wine doesn’t seem so far-fetched. But Galia Stern, North China manager for Torres China, a distribution arm of Spain’s Torres Family winery, offers a word of caution: "Remember, growth does not mean revenue."
The primary challenge for foreign players in China is getting wines into the country in the first place. Only licensed distributors are allowed to import wines into China, a process that is both expensive and time-consuming. According to ASC Wines, China’s largest distributor of imported wines, it typically takes more than three months for a wine to get from the vineyard to a Beijing restaurant table. This includes three weeks in a bonded warehouse in Shanghai where Chinese customs slaps a 48% tax on each bottle.
China’s wine tariffs are not bad compared with some – Thailand levies a 100% markup – but for Kane, who is constantly trying to enliven his list with new names, "the tax factor" often forces him to charge prices that are untenable.
"Some of the things you want to buy and have on your list, you just can’t because you won’t be able to sell it," he says.
While wine importers and distributors alike hold out hope China will eventually lower barriers to foreign wine, things appear to be moving in the opposite direction. Customs authorities have recently intensified oversight of imported wine, delaying shipments longer.
Even foreign wine company personnel have been targeted. In March, ASC managing partner Don St. Pierre Jr. was detained by customs officials in Shanghai in what some interpreted as a signal China plans to protect domestic wine producers, many of which are state-funded.
"China’s general policy is to have consumption supplied mainly by Chinese agriculture, not by foreigners," said John Gai, former country manager for Italy’s Zonin Wines and now owner of wholesale company Palette Wines. "I think it’s just going to get harder and harder."
This is not good news for Italian and Spanish wineries that already find themselves underdogs in the fight for Chinese drinkers. France’s Bordeaux region accounts for as much as 40% of China’s imported wine market by some estimates.
One Bordeaux name in particular appears to have laid claim to the hearts of Chinese wine consumers: Chateau Lafite. A certain amount of Lafite’s popularity in China appears to be due to its Chinese name, Lafei, which is relatively easy to pronounce. But most agree Lafite and other Bordeaux names win because they established themselves early on as the luxury brands of choice.
"It’s something that’s always safe," Stern explained. "You go to a restaurant, you say ‘Lafite,’ you know what you’re going to get, you know how much it costs, and all the people who eat with you know how much it costs."
Despite the challenges, some Mediterranean wines have managed to scratch out a place in the Chinese market. Italian wines seem to be gaining in popularity, accounting for nearly 10% of ASC’s portfolio, and roughly a third of Torres China’s offerings. This is largely due to the popularity of Italian food – and expatriates are the primary consumers. Gai says Palette Wines has seen a 50% drop in sales of Italian and Spanish wines since June, when intensified visa restrictions forced many foreigners to leave China.
Glass half full
Still, industry insiders are optimistic about the outlook for Mediterranean wines as the Chinese market matures. According to Annie Lundin, ASC’s marketing manager for northern China, increasing numbers of white collar Chinese are traveling to Europe on business and returning with an evolving taste for wine. "There are more and more of them," she said. "And they want to drink better all the time."
Others, like Torres China, see opportunity in second-tier cities, where disposable cash is piling up for the taking.
"The big cities are so saturated with wine events," said Stern. "But people in cities like Dalian, Changchun, Shenyang – they’re craving the luxurious lifestyle."
Both Stern and Gai also believe there’s a strong future in retail, particularly in wine bars that offer Chinese consumers the chance to indulge the face factor of fine wine without the cost or ordeal of going to a restaurant.
"I think Chinese people will go to wine bars like they go to Starbucks," said Gai, who has opened a retail outlet, Palette Vino, in the Beijing suburbs. "To see and be seen is a very good thing."
Regardless of the exact location, industry participants agree that Mediterranean wine producers must rely on education – tastings, promotions, training for restaurant staff – and patience if they are to break Bordeaux’s China stranglehold.
"It’s a good time for a wine label to be here and be known, because in the next 10-15 years, it is definitely going to grow," Kane says, one hand resting protectively on his wine list. "But if you have this expectation that China is just going to blow right now, you’re probably wasting your money, and your cases are going to sit here waiting to be sold."