Reds' star rises in East

Top: The vineyard of Chateau Leoville Poyferre. The chateau plans to hold a special promotion of a wine it adapted for the Chinese market. Above: The Bordeaux Wine Festival held in June. The region has seen a rapid growth in its wine exports to China. Photos by Wang Dong / for China Daily

Bordeaux wines see bright future in China amid euro gloom

As the global economic downturn hits Western demand for French wines, Chinese buyers are being viewed as saviors of the industry. The Bordeaux wine region, most recognized by Chinese consumers, has seen a three-digit growth of its wine exports to China since the country overtook the UK and Germany to become its largest client in 2010. According to figures released by the Bordeaux Wine Council (CIVB), China imported 58 million bottles of wine at a price of 334 million euros ($410 million) from Bordeaux in 2011, an increase of 103 percent from the previous year. The sales value generated from the Chinese market, including Hong Kong, accounted for 35 percent of Bordeaux's total wine exports.

The lucrative sales have wooed Chinese State-owned companies, such as COFCO Group, as well as private businessmen, who have flocked to the region to acquire vineyards and chateaux in the hope of gaining control of the wine supply and eliminating intermediaries in the distribution chain to expand profit margin.

It was estimated that more than 25 chateaux in Bordeaux were bought by Chinese companies or individuals in the past year, and 30 more are expected to close deals by the end of this year.

Despite the recent price plunge of top-growth Bordeaux wines, and concerns over a bursting bubble inflated by the surge of China's interest in luxury goods and Western tastes, the Chinese thirst for French fine wines shows no sign of abating. The country's seemingly insatiable demand has prompted many companies to draft even more ambitious plans.

Lushang Group, a State-owned conglomerate in Shandong province, has shipped 150,000 bottles of wine worth 400,000 euros back to China since it purchased the little-known Chateau de Gugat from a Swiss owner a year ago in the Blasimon region near Bordeaux.

"The production capacity of the chateau is about 220,000 to 250,000 bottles per year, which is far from meeting the demand at home. With our strong distribution and retail network, it can be sold instantly," says Tan Xingang, general manager of the chateau.

Setting up a wine trading entity in Bordeaux is the Shandong company's next step, which will enable the company to not only sell its own wines but also gain a much wider access to wines from neighboring estates and other wine brokers.

The company is not the only one that is eyeing the potential opportunity in the traditional negociant trading system of the Bordeaux wine market.

The recent move by Chinese group Bright Food, acquiring 70 percent of shares of Diva Bordeaux, a leading wine trading company, heralded a trend of Chinese companies expanding from vineyard and chateau purchases to investing in the wine trading business.

Bright Food's move caught some by surprise, as it was the first time that a Chinese company had invested in a Bordeaux negociant. French newspaper Le Figaro described the deal as a step by Chinese investors to "finally plant the flag in the heart of French gastronomy".

"In my view, the deal with Diva is a genius move by Bright Food, as the wine trading business is usually the most value-adding in terms of brand creation and brand management, as well as the most profitable in the wine industry supply chain," says Xu Qinghua, head of China business services at accounting firm Ernst & Young in France. "And wine traders are the ones who have the most up-to-date market intelligence."

He believes it will give the company access to a much wider range of wines, get a sniff of the market and identify first hand those most in demand by Chinese consumers. It may also help pave the way for future acquisitions by Bright Food and give it the advantage of being the first to shape the taste of the relatively immature Chinese wine market.

For Diva Bordeaux, the investment reinforces the company's capital position and brings it closer to China's huge customer base, which already accounts for 45 percent of its total sales, says its managing director, Jean-Pierre Rousseau. The company posted a total turnover of 33 million euros last year.

"I think with the help of Bright Food, we can easily double the turnover in three to four years," he says.

Ripening enthusiasm by China's growing wealthy and middle classes for luxury goods and a Western lifestyle has meant a massive rise in wine consumption in the country.

Eager to go with the flow, to date, most Chinese investors have been targeting mid-range chateaux in Bordeaux at a cost under 10 million euros. With the advantage in the distribution and retail network back home, new Chinese chateaux owners usually ship their entire production back to China.

The main distribution channels for Bordeaux wines in China are private clubs and luxury five-star hotels where a 4-euro bottle of wine can be easily sold for 1,000 yuan ($157, 127 euros).

"The wide profit margin is definitely the major motivation behind the Chinese acquisitions," says Lin Lan, manager at real estate company EC Immobilier in France. "Some Chinese buyers would look for chateaux that have a similar-sounding name to famous first-growth chateaux such as Lafite Rothschild, hoping to cash in on the 'Lafite effect' in the home market."

While wine producers and traders in Bordeaux are well aware of the risks of putting all their eggs in one basket, the temptation of the Chinese market is just too hard to resist. Many top-tier chateaux in Bordeaux have stepped up their promotion efforts in China, hoping to capitalize on China's surging interest.

Hiring Chinese-speaking assistants, opening Chinese social media websites, designing labels that appeal to Chinese consumers, and organizing tasting events in China are common ways for French chateaux to attract Chinese buyers.

"You have to be there to build the brand. You have to show your face and your wines for a market that is very eager to learn and to taste different wines," says Anne Cuvelier, public relations officer for Chateau Leoville Poyferre, a second-growth chateau in the Medoc region.

The chateau is gathering ideas for a special promotion of a wine that it has adapted for the Chinese market. "We want to make sure they understand the wine and the work behind it. It would be a pity if a bottle is opened just because it is expensive," she says.

Volume over value

So far, Chinese consumers have been buying either at the very top or the very bottom end of the Bordeaux range, as the main purpose of wine consumption is still predominantly based around entertaining and gift giving. But the trend is gradually changing as Chinese buyers are becoming more knowledgeable and sophisticated about wines, reflected in the rapidly growing demand for mid-range wines.

"We don't expect three-digit growth to happen forever," says Georges Haushalter, president of CIVB. "What is very interesting to notice in China now is that we actually have a growth rate higher in volume than in value, which shows that we are going from a position where people are looking at the most expensive wines as social trophies, to a position where more and more people drink wines for their daily consumption."

CIVB's president for Asia, Thomas Jullien, says: "We are seeing a turning point in the Chinese market where growth is likely to be slower. But we are comfortable with it because it means that people are starting to care about the long-term prospect of the market."

Diva Bordeaux's Rousseau says that the company has been selling mostly 2-euro wines or bottles costing more than 50 euros over the past two years. But now wines priced between 4 to 10 euros from the Saint-Emilion and Graves areas are becoming increasingly popular among Chinese buyers.

"These wines are consumed by the middle class, who hold huge potential in China. And demand in the second- and third-tier cities has just begun to grow," he says. "That's why we think, for a great part, the future of Bordeaux's wine market is in China."

lixiang@chinadaily.com.cn

(China Daily 08/03/2012 page16)