The first five years of the Babich wine company’s foray into China were slow and characterised by the occasional wrong-turn in terms of distribution partners.
But a year ago, the company signed a rare deal with a national distributor and this year China leapt into the top five of Babich’s 35 export markets.
Martin Tutty, director of sales and marketing for the 90-year-old family business, says: “It’s been a five or six-year overnight success.” Tutty says China has the potential to be Babich’s third largest market by 2015.
Late last year, a report commissioned by New Zealand Winegrowers showed the industry could double its exports by concentrating on China and the United States. The Price Waterhouse Coopers report said that by 2021, the New Zealand wine industry’s sales potential could grow by 170 million litres a year to reach almost 400 million litres – and China and the United States could account for half of that growth.It’s going to require money, hard work and a lot of worn-out shoe leather. It’s a big country, both geographically and in terms of markets. Time in that market is incredibly important in terms of understanding how it operates.
Tutty says Babich has learned valuable lessons about working with the right people and using networks to get a feel for how well a candidate might fit with the company. After a couple of false starts with distributors who failed to deliver on their commitments, Babich invested in sending Tutty to an expo in Asia where his small booth cost around $6,500 for three days. He talked to everyone he could and developed valuable market instinct and made the contacts which led to the successful relationship with his current importer.
“It’s about creating your own luck,” he says.
It has cost significantly more to establish in China than any of Babich’s other markets.
Tutty visits China four times a year, for up to three weeks, and has appointed a full-time in-country Chinese sales manager. He says a company which cannot afford to invest significant time and resources should not attempt to take on China.
“China is more complex than any other market we’ve been involved with. There are entire categories which don’t exist in other countries, such as banqueting and bulk-purchase for gifting. But now the pay-off from those years of perseverance is starting to show."
Tutty says success in China has complemented the business’s other markets because, where the rest of the world favours white wine, the Chinese favour red. It is expected this favouritism may dilute over time as a new generation discovers white wine, but for now China’s preference is providing a welcome market for Babich’s pinot noir and Bordeaux-style red.
The volume of New Zealand red wine sold in China between 2003 and 2009 grew by 153 percent annually, while growth in white wine over the same period was 269 percent.
Philip Gregan, chief executive of New Zealand Winegrowers, says dozens of New Zealand labels are in China. The industry clearly recognises China’s potential but Gregan warns the spoils will not come without hard work.
“It’s going to require money, hard work and a lot of worn-out shoe leather. It’s a big country, both geographically and in terms of markets. Time in that market is incredibly important in terms of understanding how it operates.”
Annual wine exports to China have grown from $3.06m in September 2008 (the month before the FTA was implemented) to $17.0m in 2011, representing 456 percent growth. New Zealand’s share of the imported wine market in China is around 1.6 percent – the eighth largest exporter of wine to China in 2010 in dollar terms, and the 11th largest in volume terms.
Of the top 15 exporters of still, bottled wine to China (which collectively make up 99 percent of the volume), New Zealand’s average price per litre is the highest, at US$8.22 per litre against an average of US$4.49 per litre. The next highest is France, at US$5.01 per litre, followed by Australia (US$4.90) and Germany (US$4.43).
Wine Intelligence’s China Landscapes 2011 report estimates a target audience of 18.6 million upper-middle class Chinese who are based in urban centres, aged 18-50, and regularly drink imported wine.