China and Wine: We’ve Not Seen Anything Yet

By now most wine lovers have heard that the Chinese are having an enormous impact on the world’s wine market.  But the current wave of wine buying frenzy by the Chinese may seem tame compared to the potential tsunami coming in the future.

The Chinese have been paying stratospheric prices for high-end French wines, especially the Bordeaux first growths.  The prices paid for Bordeaux at auctions in Hong Kong make your head spin.  At a March Acker Merrall & Condit Hong Kong auction, a case of 1982 Lafite sold for $68,821.  The Chinese’s entry into the market has pushed up the prices for the classified Bordeaux in general. Simon Tam, Head of Wine for Christie’s China says, “The Chinese are willing to spend (on wine),” because they feel it is under priced in general compared to other antiques.  Even if they pay a premium, they still believe they are getting a bargain because the entire category is a bargain in their view. He adds, “The Chinese will always go for the highest quality when collecting, be it Ming vases or wine.”

The Chinese thirst is not limited to the auction markets.  Over the last few years, the number of Chinese and other Asian buyers attending en primeur week in Bordeaux has skyrocketed.  Emanuel Cruse, owner of Château D’Issan, a third-growth Bordeaux, and head of the Commanderie de Bordeaux, says that he could be in China every week with promotions.  Elin McCoy reported for Bloomberg News that Château Margaux sold one-third of their wine in China, Hong Kong and Macao.  The Asian interest seems to be spreading past Bordeaux, as the number of Asians bidding at Burgundy’s famed Hospices de Beaune auction has increased dramatically over the last few years.
How Many New Customers?

That a wine culture is becoming firmly established in China is all the more amazing because a genetic abnormality prevents many Asians from metabolizing wine properly.  (Those afflicted flush and turn red-faced when they drink even small amounts of wine).  Still, there are many signs that wine drinking among the Chinese is spreading from the Shanghai millionaire businessmen impressing their colleagues to the broader population.  How much the habit will penetrate the culture remains to be seen.  But just imagine the impact if a similar proportion of Chinese as Americans, 10% of the population, embrace wine:  The market will be looking at another 200 million wine-drinking customers.
Consumption Patterns Have Changed

As recently as five years ago, the only Asians drinking wine with their meals would be found in Western restaurants having business meals with Westerners.  According to Benjamin Graham, the restaurant manager of the J.W. Marriott Hong Kong, a hotel long known for its wine program, there’s been a “Considerable up-tick” in consumption of wine with meals over the last year among the mainland Chinese, who comprise just over a quarter of their guests.  Graham notes, “They are spending money and enjoying wine.”

And so are the locals. Graham has also noticed an increase in Hong Kong Chinese customers who stop into their Q88 restaurant, which offers 60 wines-by-the glass, for a sip of wine after work.

Bordeaux producers have shifted promotional tactics to reflect the new interest and customer base, according to Graham.  Instead of holding tasting dinners in the hotel’s Western restaurants, they prefer to use the Man Ho, the Marriott’s acclaimed Chinese restaurant, and match the wines with Cantonese cuisine.  In March, at a Ducru-Beaucaillou event held at Man Ho, all the guests were Chinese.

Simon Tam of Christie’s explains that although entertaining guests is still done frequently in karaoke bars rather than at home, the experience is different.  In the past, there would be a grand ceremony of preparing to serve the wine, usually something like Pétrus or Lafite, with fruit–similar to a tea ceremony–turning it into extremely expensive Sangria.  The bottle would be brought to the table already uncorked, allowing that bottle of “Chateau Pétrus” to be sold multiple times (a unique type of bottle recycling).  But today, Riedel stemware and decanters appear and the bottle is opened tableside as the Chinese are learning “the proper way of service,” according to Tam.
Face Remains Important

Graham agrees with the common perception that the brand of wine is critically important to the Chinese.  Aside from the First Growths, he mentions Lynch-Bages, Lascombes and Cos d’Estournel as examples.  There is great “face value” to selecting expensive wines “to show the worth of your guest and to honor him,” according to Graham.  But is this focus on status really more prevalent in Chinese than in Western culture?

Peter M. F. Sichel, a prominent figure in the international wine trade for more than 40 years and a former owner of Chateau Fourcas-Hosten in Bordeaux, is familiar with Chinese culture, having lived in Hong Kong for three years in the 1950s when he was CIA bureau chief there.  He agreed that the Chinese concept of “face” is driving the current market, but in combination with speculation, noting that, “The Chinese love to gamble and wine is a wonderful thing to gamble on.”

Nevertheless, Sichel believes that the Chinese “Will broaden the base” and that market will expand beyond the most popular trophy bottles of the present.  He doesn’t think Burgundy will ever catch-on in China (even though it may be better suited to the cuisine) because it doesn’t have the investment track record of Bordeaux.  That said, at the March Acker Merrall & Condit auction, a case of 1978 Henri Jayer Richebourg sold for just over $210,000 and a case of 1999 Vosne-Romanée Cros Parantoux went for about $62,000.

Derek Ho, a marketing executive with ASC Fine Wines, a major importer in China and the exclusive agent for Louis Jadot and Vega Sicilia, emphasizes that “Education is key.  The Chinese consumer needs to be educated about enjoyment of wine instead of using it just for show.”  Many of ASC’s events revolve around pairing wine with different kinds of Chinese food.  He notes that the Hong Kong wine market is more mature than the mainland market, but “consumption in China is a bomb waiting to explode.”

Andrew Manktelow, ASC’s sales director, says that Hong Kong is about 10 years ahead of China in terms of wine culture because much of the population in Hong Kong has had exposure to Western culture.  He believes that although the wine culture in China is still based on the top 10 or 15 Bordeaux labels, far fewer of them are being mixed with Sprite.  And he’s seen a marked increase in the sales of other wines as many Chinese acquire a taste for wine, as opposed to just buying it for show.
Why the Sudden Interest?  And Will It Last?

Two relatively recent events have helped to spark interest among the Chinese.  The return of Hong Kong to China in 1997 eased access for moneyed Chinese from Shanghai and Beijing to visit and acquire a taste of Western culture.  More importantly, when the Chinese dropped the tax on imported wine into Hong Kong, prices fell, but even more significantly, anyone could buy and import wine directly from the château.  Wine shops opened all over town.  (It’s ironic that there’s direct shipping to Hong Kong under Chinese rule, but direct shipping to consumers in Massachusetts and many other states is still prohibited).

Whether wine drinking among the Chinese is just another fad remains to be seen.  Cognac consumption rose but then fell during the 1980s, and the same thing happened to Vodka sales in the 1990s.  But ASC’s Ho thinks the phenomenon is here to stay, and points to police reports.  Authorities have been stopping boats and finding 10 or 20 cases of smuggled wine among the contents.  “When smugglers get involved, you know it’s important.”

May 31, 2011