How China is changing the global wine market

On average, Chinese drink very little wine. But for a bottle, connoisseurs pay up to 22,000 pounds.

Shanghai The small booklet has over 125 pages. Listed inside are over 865 wines, ranging from 40 to almost 22,000 pounds. This is not the sales list of a medium-sized wine producer; it is the wine list or rather wine menu of Napa Wine Bar & Kitchen in Shanghai, one of the hip gourmet restaurants in the Chinese metropolis.

Its lower floor resembles more a museum than a restaurant, with around 14,000 bottles on display. Expensive bottles are stored in temperature-controlled wooden containers, which are opened and closed with large turnstiles like a bank vault.

However the true size of the restaurant is signaled by a 15-liter wine bottle, also known as a Nebuchadnezzar. The bottle was imported from the French Bordeaux winery Cos d’Estournel and is a 2016 vintage. It can be uncorked for approximately 10,000 pounds. Customers can even rent a small lockable mini cellar for around 27,000 pounds. Of course, only for bottles that were previously purchased in the restaurant.

No other country in the world currently has more influence over the wine industry than China – although there is currently little wine consumption per capita. However, China’s influence has become clear at the Prowine Expo in Shanghai.

“China is at the forefront of new developing wine markets” says Robert Joseph, a British wine consultant with tremendous international experience.

Sales in China are rapidly growing, as can be seen by the Chinese branch of “1919” sales. Founded in 2010, “1919” now sells wine and spirits in over 1200 branches worldwide. In 2017, “1919” revenue reached 420 million pounds. The company reached a net profit of over 45 million pounds. However a different figure is far more interesting. While in Europe same day delivery is celebrated as a miraculous achievement of modern technology, in China the company’s name is understood literally: A bottle of wine is delivered within 19 minutes.

Unlike in Europe the division between the production and sale of wine is not as prominent in China. For example, the Great Wall Group, who claims to be Chinese market leader, has opened 400 stores within four years while also maintaining various wineries. In the wine cellar of the Chateau Huaxia of the Great Wall alone over 20,000 oak barrels are stored.

Based on this strong domestic market presence, an obvious question arises for foreign wine producers: Is it still worthwhile to enter the market?

Experts say yes. Because even small players can receive great attention in China.

How much wine do Chinese consume on average?

On average Chinese drink 1.3 liters of wine a year, of which almost 90 percent is red wine. While compared with European countries this is a relatively low consumption, given China’s population of over 1.3 billion people the overall consumption rate is enormous. With an overall consumption of 1.86 billion bottles, China became the world’s largest market for red wine in 2013.

The industry’s enthusiasm for the China is greater than ever. “China is currently and for the next three years, the most attractive market,” says Professor Simone Loosen of the University of Geisenheim, the central training for wine in Germany. Other new markets include South Korea and Poland, followed by Russia, Hong Kong, Japan and Australia.

What are Europe’s biggest challenges in the Chinese market?

In the opinion of Simone Loosen, the biggest challenge European wine producers are facing over the next few years will be to overcome geographical and cultural differences with the Asian markets. His findings are based on an international survey commissioned by the Prowein expo, surveying 2,300 experts from 46 countries on international wine markets, marketing trends, the development of online sales of wine and the economic situation. It is considered one of the most authoritative sources on the international wine market.

Messe Düsseldorf, which hosts the world’s leading trade fair Prowein, is also represented in Asia and reports significantly higher numbers of exhibitors and visitors. In addition to the Prowein Shanghai, the company now also alternately organises a trade fair in Hong Kong and Singapore. Exhibition Director Marius Berlemann toured for a year in China’s different regions to promote the fair.

The European industry’s hope for increasing sales in China is based on two main aspects: One of them is the younger generation. “We see an increasing demand from younger wine lovers,” confirms Castle Li of Great Wall. “More women than men want to drink wine and they especially demand premium wines.”

Chinese wine consumers have different preferences for premium products compared to their European counterparts. While in Europe mostly older wine lovers consume these wines, in China 20- to 30-year-olds order bottles of wine or champagne, which also cost well over 100 pounds. Chinese consumers primarily order European wine, with French wines topping the list. At Ruby Red, one of China’s leading premium wine merchants, French wines have a market share of 40 percent.

The second aspect: the growing European influence on China. “This gives European producers great market opportunities,” says Giorgio Vinciguerra, CEO of Beijing Guala Closures. The Italian lives in China and sells bottle caps.

How can European companies advertise their products in China effectively?

Wine sales in China rely on a different communication strategy: independent reporting, an essential feature of press coverage in Europe, is less important in China. XU Wei is one of China’s most important wine influencers. On his WeChat account “Xiapi” he keeps his 1.5 million followers updated about the latest wine trends.

Many of Xu’s videos feature products from manufacturers such as the US group Mondavi or Bordeaux icon Rothschild Lafite. Xu has marketing agreements with them. Xu also retails the wines of his sponsors. “But I do not earn as much with selling wine,” says the influencers. He earns significantly more through his sponsorship agreements. Recently Xu won the award for the best online story of the Australian Winery Association.

If you are interested in exploring opportunities in the Chinese wine market, get in touch with us today.

China’s Health and Fitness Industry is turning to Online Platforms

Broad shoulders, abdominal muscles and firm arms … A fitness craze has hit China in recent years. China’s increasingly urban and young population are driving the growth of a new health and fitness industry in China.

The health and fitness industry boom started in 2015 with the introduction of the O2O (online to offline) system. Lefit, based in Hangzhou, is currently the largest O2O fitness platform with gyms in all major Chinese cities. Membership costs RMB 99 (£11) / month giving members access to any gym 24 hours, 7 days a week.

The person leading the change in China’s health and fitness industry is HAN Wei. In 2013, the then 37-year-old HAN Wei was the marketing director of Alibaba Group, the executive general manager of Taobao Tianxia Media Co., Ltd., and the public relations director of Alibaba. After leaving Alibaba, HAN Wei went to the US to pursue further studies. In the United States, HAN Wei found that the gap between Chinese and American Internet companies is not as big as imagined. “Chinese always think that the United States is more open and free. In fact, China and America are only different in form of expression. The biggest opportunity in the world is undoubtedly in China, because the most prosperous market is in China.”

The idea behind creating an O2O business model stemmed from Taobao’s business model. O2O gyms connect consumers directly with the health and fitness industry. Through the online systems users are able to choose time, venue, classes and coaches online. By giving users more flexibility to plan their active lives through the O2O system, gyms are able to increase their utlisiation rate.

However, Lefit’s online model also generates significant data giving insight into users choices and preferences. This allows the platform to offered tailored services to their members and to support them making healthier lifestyle choices. As of October 2018, Lefit has over 3.2 million registered users, 6,000 coaches and nearly 500 gyms.

However, the ClassPass system also faces challenges in China. Unlike in the US, where 70% of the gyms are large chain gyms and 30% are small studios, China’s market is dominated by small studious. Therefore creating a homogeneous product offering across these smaller studios has been an issue HAN Wei and his team have been facing.

However, HAN Wei is certain, with the craze in health and fitness continuing more and more sports will be made available on Lefit and maybe in the future Lefit will not only be able to offer gym services but also sports like badminton, basketball, and table tennis.

Ping An Insurance: Research investment in the next decade will reach RMB 100 billion

Ping An Insurance’s management revealed today on the group’s technology-themed investor open day research investment budget for the next decade. In order to support the group’s “financial + ecological” strategy and to promote future performance growth, the group expects that their research investment will reach RMB 100 billion (£11 billion) in the next decade. Specifically, Ping An will spend 1% of its annual revenue on research and development of financial technology and medical technology. Ping An Insurance has invested a total of £6 billion in research and investment in the past decade.

Ping An Insurance is China’s biggest insurer, with £90 billion in premium revenue.  It reigns supreme as the industry No. 1 by profit and return on equity. Its market capitalisation, at $136 billion, is 74% larger than the country’s old standard, China Life, and 64% above the largest listed pan-Asia insurer, AIA. By this measure it is the world’s largest insurer except for Berkshire Hathaway.

To make sense of these startling numbers — and of Ping An’s rise to No. 10 on the Forbes Global 2000 list — look beyond the stodgy insurance business and into the realm of high technology, whose branches reach into every aspect of commerce in China and eventually show up in the mobile handsets of Chinese consumers.

Sir Peter Bonfield speaks at the 2018 Zhongguancun International Innovation Forum

With 10-40 billion or even a trillion or more connected things, another important issue will be Cyber security. Bilateral and global cooperation on this issue will be crucial. – Sir Peter Bonfield

Sir Peter Bonfield CBE, FREng senior adviser to Hampton Group spoke about the need for global corporation for innovation in semiconductors at the 2018 Zhongguancun International Innovation Forum in his role as chairmen of NXP.

NXP was spun out of Philips in 2006. Today, it is the leading automotive electronics, artificial intelligence, and IoT semiconductor company in the world. NXP was a hot topic for China-watchers in 2018. Qualcomm abandoned its $44bn takeover of the Dutch company, after Chinese regulators rejected the deal in July.

Semi-Conductors are a core focus of the Chinese government.  Semiconductors, and China’s over-reliance on America’s technology, is a central theme of the so-called ‘US-China technology cold war’. Semiconductors are at the heart of the issue.

In his speech Sir Peter Bonfield cautioned: protectionism in the name of innovation makes no sense – it is cooperation, on a global scale, that is the source of, and that will help drive innovation forward. Of course there are issues that need to be addressed, and not ignored. But solutions can be found through building understanding and trust, and having a balanced approach to fostering and protecting innovation.

As part of the “Made in China 2025” initiative, Chinese officials have set the semiconductor industry a goal of reaching US$305 billion in output by 2030, and meeting 80 per cent of domestic demand. In 2016, China produced US$65 billion of semiconductors and supplied 33 per cent of the domestic market.

In April 2018, China’s Ministry of Industry and Information Technology announced the opening of investment of foreign money into the second phase of its China Integrated Circuit Industry Investment Fund. The fund, which was first unveiled in 2014, aims to build a $31.7 billion investment chest to promote “leapfrog development” in China’s integrated circuit industry.

The ZGC Forum is one of China’s leading forums on innovation and development. Each year the event attracts leaders from across the globe. This year the Chinese Minister of Science and Technology, the Mayor of Beijing, the President of the Chinese Academy of Science and CEOs from over 800 leading technology and investment companies from countries such as the United States, Israel, Britain and Germany are attending.

This year’s forum celebrates a remarkable year with the 40th anniversary of China’s reform and opening. The theme for this year is “International Innovation and High-Quality Development.” The previous ZGC forums have successfully built a bridge for cooperation and exchange between China and the international scientific, economic, knowledge, and political communities. Each year, the event includes world leading professionals such as Nobel Prize winners, academics, scientists, and entrepreneurs. Previous distinguished guests include Nobel Prize winner James Morris, Turing Prize winner Butler Lepson, Baidu founder and CEO Robin Li, New York Stock Exchange Chairman Jean-Michelle Hessels, Innovation Works founder and CEO Kai-Fu Lee, and Xiaomi Chairman Ray Jun.