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Chilean Winemakers Set Sights on China
2012-10-12
Brief:China is currently Chile's sixth most important market for bottled wines. Chile plan to spend $1.5m to promote wine in China.
It is a bright, spring morning in Chile's Maipo Valley and at the sprawling vineyard of Cousiño Macul, one of Chile's smaller wine producers, a tour guide asks visitors to guess what its newest export market is. "China," he tells the astonished group.

Sales abroad have more than quadrupled since 2000, reaching a record 700m litres with a value of $1.7bn last year. Those figures have helped turn the country in to theworld's fifth-largest wine exporter.

Now the sector is eyeing the world's most populous country. Wines of Chile, the trade body that represents more than 100 producers – and 95 per cent of the industry's exports – is targeting what it thinks will fast turn into one of its largest export markets. China is currently Chile's sixth most important market for bottled wines, compared with 24th in 2005.

Wines of Chile has a marketing budget of $1.5m for the next 18 months, the biggest online campaign in its history, and hopes to gain market share in a country whose growth and standards of living are increasing more quickly than in the mature markets of Europe and the US.

"We're really looking to win over the 25- to 35-year-olds," says Claudio Cilveti, the organisation's managing director. "China is a market that is just beginning to understand wine. The potential is great."

Chile's biggest producers are attempting to obtain a foothold. Companies are busy setting up regional offices and establishing distribution networks.

Probably the most active so far is Concha y Toro. Latin America's largest wine producer – it accounts for about 33 per cent of Chile's total wine exports – has beefed up its offices in Singapore with a staff of 20 and, in 2010, it teamed with Manchester United, the English football club, as part of a joint venture to promote the two brands in China. Often known as the Red Devils, and with a huge following in China, Manchester United provided a near-perfect fit with Concha y Toro's Casillero del Diablo (roughly translated, the devil's cellar) brand.

Sebastián Aguirre, the winemakers' international marketing manager, says its exports to Asia have risen from 573,000 cases in 2005 to 1.8m last year. Today, they represent 12.8 per cent of the company's total exports, compared with 9.1 per cent last year and 4.9 per cent in 2005.

Exports to China rose to 164,274 cases last year, with a value of $4.6m – an increase of 86 per cent compared with 2010. In 2000, China bought just 780 cases from Concha y Toro. "China has really surprised us," says Mr Aguirre. "Whatever you do there just goes crazy."

Gaining ground in Asia has become all the more urgent, given trends in other international wine markets. During the first six months of this year, Chile's exports of bottled wine rose 22 per cent compared with the same period of 2011.

In the case of China, Chile has also been able to export more expensive wine: the average price per case is now $34.91 compared with $29.10 as an average in other markets. A year ago, the value of exports of Chilean bottled wine to China was $36m compared with $50m for wine sold in bulk then bottled in China. Today, those figures are $71m and $49m, respectively.

Yet Mr Cilveti says the Chinese market is far from straightforward. For a start, he says, people readily associate luxury products with Europe. "France and Italy are points of reference for Chinese consumers."

Second, many Chinese wine drinkers are used to Australian brands, which sometimes seem so familiar they are considered local.

But perhaps the biggest challenge is establishing distribution networks. China's vast geography is an obvious hurdle. Another is understanding consumption patterns.

Mr Cilveti says: "Large companies and the government are much bigger buyers of wine in China than they are in other markets, so companies have to adopt different marketing and distribution strategies."

Experts say that China's emergence as a significant wine consumer implies a need to expand production. According to some estimates, China could reach almost 4bn litres a year by 2017 compared with one-third of that at present.

To meet that demand, Wines of Chile aims to increase total exports to $3bn by 2020, a goal that will require adding 40,000 hectares to the country's 124,000ha of vineyards. It also needs to expand storage capacity by 400m litres.

The investment over the next eight years is expected to be about $1.8bn. If producers can tap in quickly enough, China will almost certainly become one of the sector's top five markets, says Mr Cilveti.

FT.com

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