Chinese insiders provide bridge for wine exports - SPECIAL REPORT

20/04/2015 - 10:13

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China has become WA’s biggest wine export destination, but finding the best way to market is still a learning experience for local producers.

Chinese insiders provide bridge for wine exports - SPECIAL REPORT
LOCAL FLAVOUR: Wine producer Murray McHenry (left) toasting success with Linquan Fan. Photo: Attila Csaszar

China has become WA’s biggest wine export destination, but finding the best way to market is still a learning experience for local producers.

At first glance, the Chinese wine market looks a bit like the iron ore market; after a period of rapid expansion, the value of both commodities from Western Australia has fallen sharply.

In contrast to the gloomy outlook for iron ore miners, however, wine producers are much more positive.

After nearly a decade of tough conditions, marked by excess supply and poor returns, their spirits have been lifted by the falling value of the Australian dollar and improved prospects for premium quality WA wine.

Local producers are targeting growth in multiple export markets, from the UK and the US to Japan and South-East Asia.

But arguably the biggest opportunity is in China, which grew rapidly during the noughties, from a very low base, to become WA’s largest export market.

To keep this in perspective, WA exports of bottled wine to China were worth only $7.5 million over the past year, according to Wine Australia statistics.

That’s down from a peak of about $12 million two years ago, before the Chinese government cracked down on extravagant ‘gifting’.

Nonetheless, the latest export data still put the Chinese market ahead of the UK ($6 million) and the US ($4.9 million), which have shrunk dramatically in value from the highs they reached in 2007.

Total WA wine exports are worth only about 15 per cent of total production, much lower than for east coast wine producers.

Lifting WA exports is one of the industry’s top strategic goals, and China is considered one of the best prospects.

The immaturity of the Chinese market is both a big opportunity, and a major challenge.

“It’s still very new,” Burch Family Wines commercial director Sue Henderson told Business News.

“There is no infrastructure, no traditional route to market.

“Lots of people want to trade but they have no experience working with wine; they just see wine as another product to sell.”

Like many of his peers, Thompson Estate Winery owner Peter Thompson has experienced mixed success in China.

“We’ve had some fairly large orders in the past but they come back and say how about lowering the price,” Dr Thompson said.

“It’s been a learning experience but not a comfortable experience.”

Ashbrook Estate is another WA winery that dabbled in the Chinese market but, on its own, struggled to build up stable volumes.

“To get traction in China, you need a guide,” Ashbrook’s Kingsley Edwards told Business News.

“The language barrier is obviously the biggest thing, but there is a huge cultural barrier as well.”

Partners

Each of these wineries has found a partner to tackle the Chinese market, and each has a very different business model.

Ashbrook is one of many WA wineries to have partnered with local entrepreneur Linquan Fan, who has an unusual business model.

“I’m doing something different from all the other distributors,” Mr Fan said.

“The customers I’m targeting are people in Perth, but all the consumption, the drinking, is in China.”

PARTNER:  Ashbrook Estate's Richard Devitt (left) with chief winemaker Catherine Edwards and Kingsley Edwards. Photo: Acorn Photo


His customers are mostly mining company executives doing business with China, local residents of Chinese extraction, and Chinese tourists visiting WA.

His six-year-old business, Linkar Wines, exported 20 containers to China last year, with each containing more than 1,100 cases of wine.

A key part of Mr Fan’s business includes winery tours for his Chinese clients.

“I’m telling them a different story, about how comfortable, how simple, how different WA is from Sydney and Melbourne,” Mr Fan said.

He has worked with 75 WA wineries over the past six years, with the range of suppliers making it easier for him to deliver the volumes sought by his customers.

Mr Fan also travels to China with the local winemakers

“In most cases, it’s the first time they have exported to China,” he said.

Growing prosperity and cultural change in China is a big driver of wine consumption.

“They are drinking more Western wine instead of Chinese liquor,” Mr Fan said.

There is also a big focus on premium brands; South Australian wine maker Penfolds, the maker of internationally renowned Grange, is the number one Australian brand in China.

In light of this, Mr Fan focuses on premium WA brands, steering clear of wine that is repackaged for the Chinese market.

“Lots of brands are created for China,” he said.

“If anything is made for China, we don’t touch it.”

McHenry Hohnen co-owner Murray McHenry has seen a lot of repackaged wine in China.

“When it started five or six years ago, there was a glut of wine and people emptied tanks and sent crap up there under different labels,” Mr McHenry said.

“You’d walk into supermarkets in China and see labels you’d never heard of.

“Now it’s starting to mature, with better quality wines and more regional influence.”

Mr McHenry has worked with Linkar since the export business started six years ago, and said Mr Fan had made a big difference.

“It’s an extremely difficult market,” he said.

“It’s not what we’re used to in other parts of the world, where you appoint a distributor.

“Lin has helped to break down the barriers.

“He speaks Chinese and he understands how they work.”

Mr McHenry said one of the useful things done by Mr Fan was to publish a wine guide for Chinese-speaking visitors.

“He’s been a fabulous person for the WA wine industry, he produces a book with Ray Jordan, the Chinese visitors get that,” he said.

“He’s also helped us change our website for the Chinese.

“What he’s done for the WA wine market has been phenomenal, I can’t speak more highly of the guy.

“And he doesn’t sit still; every day he has a group of Chinese people coming here and visiting wineries. We need more like him.”

Ashbook’s Mr Edwards also praised Linkar’s work in the Chinese market.

“It’s been an interesting road,” he said.

“Lin has bridged that gap between a very Western world, which we have here in Margaret River, to just a completely different world, the Chinese business market.

“He knows their trading philosophies and what to look out for, he’s very helpful to guide us through issues that can come up.”

Niche appeal

Peter Thompson says there are several factors working in favour of WA wines in China, including the declining dollar, the free trade agreement, and a growing disenchantment with the high prices of Bordeaux wines.

He also believes the market has settled after being battered over the past two years by a government crackdown on extravagant gifting.

Dr Thompson has teamed up with Hong Kong business KWines to sell a specially branded ‘CEO’ wine into the Chinese market.

KWines started three years ago, imported wines from the Barossa Valley.

“We looked for a new winery in Margaret River because we wanted to expand our range of wine,” director Keith Leung said.

KWine already sells in Hong Kong and four Chinese cities, and is looking to expand.

“In China we sell direct to corporate customers who enjoy drinking premium wine,” Mr Leung said.

“We plan to expand this year to Singapore, Malaysia, Indonesia, even Thailand and Vietnam.”

STRATEGY: Thompson Estate Winery's Peter Thompson with new business partners Keith Leung (left) and Keith Liu (right). Photo: Attila Csaszar

Based on the success of trial shipments over the past two years, Dr Thompson plans to sell 6,000 bottles into China each year.

The branding and packaging of the wine has been customised to suit the Chinese market – the ‘CEO’ brand hints at the aspirational aspects of the wine, while the bottles will be sourced from France, individually numbered and etched with a golden dragon.

“I’m confident this is going to be a very solid way of getting into the China market,” Dr Thompson said.

Tie-up

Burch Family Wines has partnered with Chinese agricultural company Joyvio Group, a division of computing giant Lenovo, for its renewed push into the emerging market

Commercial director Sue Henderson described Joyvio as an importer, rather than being a traditional distributor.

She believes Joyvio is a good partner because it has experience in agricultural produce, focuses on high-quality products, and is run by astute business people

“We share a lot of values; we’re pursuing excellence and they love that,” Ms Henderson said.

She said educating Chinese consumers about wine was a big focus.

“It’s all new to them; we know we will need to put a lot more time into this market,” Ms Henderson told Business News.

That meant it was especially important to have the right people on the ground.

“When you are selling wine, you need to have a belief in the wine, because you are educating people,” she said.

The Joyvio agreement follows the opening of a ‘wine chapel’ at the company’s Howard Park winery in Margaret River.

The new venue is a premium tasting room that showcases the ‘sights, sounds, smells and tastes’ of a working winery.

The chapel specifically caters for the Chinese market, with an audio-visual presentation in Mandarin, translated tasting notes, and an optional Mandarin-speaking translator for pre-arranged bookings.

Chinese-owned

Of all the WA wineries, Ferngrove Vineyards – or more specifically its Chinese owner Xingfa Ma – has made the biggest investment in the Chinese market.

After moving to full ownership of Ferngrove last year, Mr Ma has backed the opening of 60 retail outlets in China to sell Ferngrove wines.

Ferngrove exports 65 per cent of its total production, a much higher proportion than most other WA wineries.

The only other big winery that comes close is 3 Oceans Wine Company, which is also Chinese-owned.

3 Oceans was established in 2008 when investors led by Xibo Ma bought the remnants of the failed Palandri wine group.

3 Oceans exports 55 per cent of its output.

By comparison, Fogarty Wine Group – which is WA’s largest wine producer, according to the updated BNiQ database – exports 15 per cent of its wine production.

Fogarty has pipped Accolade Wines, which is owned by CHAMP Private Equity and includes brands such as Houghton, Goundrey and Amberley.

Burch Family Wines, including the Howard Park and MadFish brands, is ranked third in the BNiQ database, followed by ASX-listed Treasury Wine Estates.

Other big producers include Geoff Barrett’s Watershed Premium Wines, Paul Holmes a Court’s Vasse Felix and Mike Calneggia’s Wine Shack.

Other markets

While China is seen as a big growth opportunity, WA wineries are certainly not putting all their eggs in one basket.

Mr McHenry said the UK remained the biggest export market for McHenry Hohnen.

“We decided to stick at it, when a lot of other brands pulled out,” he said.

“We’ve put up with being paid in pounds and not doing very well for six or seven years, but the exchange rate has now come around.”

He believes the lower Aussie dollar will also help local exporters with quality wines get back into the US market

“The US is going to be the new market; everyone bailed out six or seven years ago, and they will all flood back there,” Mr McHenry said.

While for Ashbrook the Singapore and Japan offered the best export opportunities, Mr Edwards said also sees potential in the US and UK.

“Now that the dollar is softening, its opening up a lot of opportunities in both those markets,” Mr Edwards said.

He sees the shift in the US away from bulk wines toward premium as a potential bonus.

“They have discovered they don’t want the really cheap bulk wine,” he said.

“It’s in a rebuilding phase but there is a lot of promise there for boutique producers, if they have a driven wholesaler, because without a driven wholesaler you are on a hiding to nothing.”

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