Why Guangzhou Is the Future For the Wine Industry?
Why Guangzhou Is the Future For the Wine Industry?
2017-11-25



Why Guangzhou is the future for the wine industry?

A Comparative Study of the Hong Kong and Guangzhou Wine Industries

 

by Carlos Miranda, 

International Manager Interwine
 

With increased westernization of Asia in general and East Asia in particular, not to mention the rise in the living standards of the middle classes, the wine industry has seen a tremendous growth in Asian economic powerhouses like China, Japan and India. Despite rice wine having been a common commodity in East Asia for centuries, grape wine is relatively new to the masses.

 

However, as has been the case with most of the financial developments of the decade, it is China that continues to steal the limelight as it is gears up to overtake the likes of Britain and France to become the second-biggest wine consumer in the world in terms of value, behind the US¹. The growth of the Chinese wine market has been mainly supported by regions and cities like Hong Kong, Beijing, Shanghai and Guangzhou. In this article, we shall evaluate the contribution of China’s traditional wine hub, Hong Kong, and the rising importance of Guangzhou as wine fever takes over the Red Dragon.

 

 

Home to nearly seven million people, Hong Kong has a highly developed wine market meant to cater to its affluent inhabitants besides underlining its own reputation as a major export hub in the world. However, with a much larger population at its disposal, Guangzhou is, in no way, lagging behind.
 




Exhibitors and visitors lining-up to enter to the Foreign Hall at Interwine May 2017
 

With nearly 20 million inhabitants equipped with a high purchasing power (this figure goes up to a whopping 60 million if the neighboring cities of Dongguan, Foshan, Shenzhen and others are included, all of which together make up one of the largest urban agglomerations on the planet), Guangzhou offers a huge market for any product with a decent price-quality ratio

 

The Guangdong province, of which Guangzhou is the capital, is home to nearly 110 million people. These numbers, along with the fact that Guangzhou is located in mainland China and has, therefore, direct access to a much larger market than Hong Kong, underline the growing importance of the Rice City. Located at just a stone’s throw from Hong Kong (one hour to be precise), Guangzhou finds itself in an enviable position as far as trade potential is concerned.
 

 

On the other hand, having a strategically perfect location with respect to the foreign market, Hong Kong is undoubtedly China’s best bet for boosting its exports. However, the same domestic location has proven to be a double-edged sword for Hong Kong, which means Fragrant Harbor in Cantonese, as the sub-tropical climate there is not favorable for growing grapes, which explains its negligent domestic exports. Almost all exports and re-exports (98.5%²) are directed at Asia. The Chinese mainland and Macau make up for 95.1% of those exports (85.9 and 9.2, respectively³).

 

Hong Kong’s unfavorable climate for grape cultivation necessitated the need for importing wines from other parts of the world. Major partners include countries like France, Italy, US, Chile and Spain. Australia has also made deep inroads in the Chinese wine market in the recent years.


Guangzhou skyline


With an eye on the ever-increasing demand for wine in the Asian market, the Hong Kong government took the major step of removing all duty-related customs and administrative controls for wine in February 2008. The move was aimed at not just making Hong Kong the region’s wine trading and distribution center, but also boosting other wine-related businesses such as auction, catering, retailing, transportation and warehousing. The deregulation of the wine market turned Hong Kong into the world’s most important market for ultra premium and iconic wines. 

 

Deregulation has thrown up some really fast and astonishing results, with an 80% surge in the wine imports in the first year itself being the highlight. Another area in which Hong Kong seems to have the upper hand over Guangzhou is the CEPA.
 

Visitors discussing new agreements in Interwine May 2017
 

Signed between the Mainland and Hong Kong, the Closer Economic Partnership Agreement (CEPA) confers a special status onto all products of Hong Kong origin, including wine. This translates as a tariff-free treatment with effect from January 1, 2006. Under CEPA, wine imports can go into China without any tariffs. On the other hand, non-Hong Kong made wine is subject to a maximum tariff rate of 20% when entering the Mainland. But Guangzhou more than makes up for this handicap with the one crucial ace it has up its sleeve.

 

 

Years of dominance as China’s (and Asia’s) wine capital has taken Hong Kong to its saturation point. As of 2009, Hong Kong had a total of 3,550 wine-related companies, underlining the cut-throat competition prevailing in an area encompassing around 1,000 kilometers only! On the other hand, the relatively lower competition in an area stretching to a monstrous 11,000 kilometers, along with the ever-increasing purchasing power of its inhabitants (both permanent and temporary), make Guangzhou the future capital of the Chinese wine industry.
 


Guangdong province ranked the second volume of wine market in China with 25% and
number 1 regarding total value of wine with 42%!! Thousand of FCLs are entering everyday to Guangdong!

 

In addition, the Guangdong province boasts of one of the highest urban household average per capita annual disposable incomes in the country, recorded at 26,897 CNY in 2010. An average individual living in Guangdong can spend as much as 216 CNY per annum on wine. In 2013, the per capita disposable income of the highest-income households stood at 74,712 CNY, whereas the per capita consumption expenditure of the highest-income urban households stood at 56,181 CNY. Given the huge target market and taking into account the fact that low-end Chinese wine amounts to somewhere between 30 and 50 CNY, Guangzhou is an unexplored market in all regards.

 

 

With French wine having registered its presence across all price spectrums in China (including the low-end price segment), there is no reason why other international exporters cannot dream big in China. And what better place than Guangzhou to start from?
 


Visitors enjoying and exploring new wines at Interwine May 2017
 

Furthermore, Guangzhou boasts of a booming private economic sector. The mega-city recorded an astounding 709,000 individually-owned businesses, a rise of 5.3% from the end of 2012. Being arguably the biggest hub in Southern China, Guangzhou witnesses a heavy flow of people, goods, capital and information. For a city whose total imports and exports amounted to USD 130.6 billion in 2014, the nascent wine industry has a huge potential to tap on. If that is not a reason big enough to invest in Guangzhou’s booming wine industry, having a look at Guangzhou’s demographic profile will certainly be.

 

China’s sixth population census threw up an interesting figure. 81.9% of the city’s permanent population was aged between 15 and 64, the ideal target market for wine sellers. Another peculiar feature of Guangzhou, also famous as the Southern Gate of China, is its large migrant population. With a registered household population of just around 8 million, Guangzhou is truly a migrants’ city. The city’s transient population of tourists from other parts of China and overseas, business travelers and many migrant workers is a testimony to its diverse wine tastes. The differences among different customer groups in terms of cultural background, income level and consumption preferences are reasons that explain why Guangzhou is a vibrant wine market in the making.

 

Another interesting point about consumer behavior in Guangzhou is their predilection for food items and beverages. They enjoy fresh, novel and distinctive food products. So, if your wine can really whet the appetite of a highly appreciative market, Guangzhou is the place where you ought to be plying your trade.




 

¹Source: Data released by the International Wine and Spirit Research (IWSR)

²Source: Data released by the Hong Kong Trade Statistics, Census and Statistics Department

³Source: Data released by the Hong Kong Trade Statistics, Census and Statistics Department

 

Let’s see the opinion from those who participated in different wine exhibitions in Guangzhou and Hong Kong.

 



Fernando Silva, from Chile, is theChina Office Manager of a famous Chilean winery named Agroverdi (or Casa Verdi). He has been selling wine in China for more than 5 years and the  business seems going well thanks to his wines and  beautiful smile.

 

I: Interwine

F: Fernando

 

I:Regarding your experience in both cities, what are the main customer's sales channel in Hong Kong? And in Guangzhou?

 

F:In Hong Kong, they have direct distribution to fine wine shops, and agents, but not many due the market is not so big as Guangzhou.

 

In Guangzhou, the distribution is with their own franchises stores, other wine shops, distributors and also agents (not only in Guangzhou, also to other provinces ). One interesting thing is that during the last few years in Guangzhou many of our customers are opening new sales channels, for example online sales,  growing and growing very fast!

 

I:Do you appreciate any difference between Hong Kong and Guangzhou wine market?

 

F:Here we have to consider that between Hong Kong and Guangzhou, although they are very close from each other, we can find some differences (we have to consider that the Hong Kong population is very small compared to Guangzhou).

 

In Hong Kong many of the importers who visit the exhibition are looking for one of the main brand of our winery. On the other hand, in Guangzhou many of them are looking  for some new, interesting and attractive designs.Fortunately we can offer both, and with same good quality wines.

 

For us, Hong Kong and the Guangzhou market are important and we can offer what customers are looking for, quality wines, beautiful label designs and a  good service.

 

I:What are the main differences for you after participating in Hong Kong wine exhibition and Interwine Guangzhou? (number of visitors, industry, quantity and quality of visitors, events,..)

 

F:Both exhibitions have a good number of interesting visitors from the wine industry, professionals, importers, agents, etc,  all this makes us happy and keep us busy, That's good!

 

In Interwine the organization is very professional, they care about all, and during the exhibition the visitors can attend to wine tastings and some master classes, they have the chance to lear more about different countries wines.

 

We have the chance to introduce our products for different markets, while in Guangzhou we have the chance to meet customer from different provinces of China, in Hong Kong we meet people from other asian countries.

 

We are very happy with Interwine and thats why we will attend again, and we will wait for all of that people who want to learn a little more about our geography, climate and and enjoy our quality wines.

 

Do you want to contact Fernando? 

Shot him at: fernando.silva@agroverdi.cl



~~~


Víctor Coll comes from Spain and he is the CEO of Vinita Wines, a well-known importer representing 5 excellent wineries from different regions of Spain. He has been selling wine in China for more than 4 years and he has established offices in Shanghai and Hunan. He is a regular customer of Interwine participating for many years.

 

I: Interwine

V: Victor

 

 

I:Do you appreciate any difference between Hong Kong and Guangzhou wine market?

 

V:At a first glance it seems that Hong Kong market is much more mature in the wine knowledge and consumption of wines from around the world compared to the Guangzhou market, but I feel year after year Guangzhou (and the South of China) wine knowledge is increasing a lot.  As for the average price and be able to have access to wines of higher quality,  the exemption of taxes influences a lot because in China Mainland are higher compared to Hong Kong.

 

I:Regarding your experience in both cities, what are the main customer's sales channel in Hong Kong? And in Guangzhou?

 

V:The sales channels are similar, mainly all of them sold to distributors, as well as catering, and also to companies and individuals. Importers are increasingly trying to serve all channels as distributors are leaving less and less room for the oversupply that exists on the Chinese market and the number of options available to distributors to find importers of wines from anywhere in the world.

 

At least in the South of China they open new sales channels while in Hong Kong they just keep their traditional channels. Lot of Hong Kong wine companies depend of Chinese customers and many of them cross the border to find customers in the South of China, more and more developed.

 

I:What are the main differences for you after participating in Hong Kong wine exhibition and Interwine Guangzhou? (number of visitors, industry, quantity and quality of visitors, events,..)

 

V:In both fairs we can find as visitors both distributors and "wine lovers" who buy wine for their own consumption and for friends.

 

Interwine is a fair more focused to the Chinese market as in addition to numerous wineries exhibiting. The reason we participate in Interwine is because we can find our target at the same fair, very near to us and we really appreciate it. Furthermore, in Interwine they organize a lot of tastings, events and Gala Diner. Excellent way to meet new importers or distributors with the perfect atmosphere. The market in the South of China is more dynamic.

 

On the other hand for Vinita Wines is favorable to contact with numerous importers and make the first contact (going to their stand) and we have them all together exposing. It is a good opportunity to be present and arrange later meetings.

 

Do you want to contact Victor and taste his excellent wines? 

Add him on wechat!: VINITAWINES


 

With the 19th Interwine China scheduled to be organized from November 12 to 14, it could prove to be a perfect opportunity for wine dealers from all over the world to build a launch pad for their high-, medium- and low-end wines in a huge and hitherto unexplored market.

 

Contact Carlos for further information at: international01@interwine.org

 

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