Wine is an alcoholic beverage with the alcohol by volume ranging from 10% to 15% typically made from fermented juice obtained and extracted by squeezing and crushing various types of grapes. It is produced by fermenting crushed grapes with various types of yeast. Yeast consumes sugars in the grapes and converts them into alcohol. Wine is usually made using various types of grapes, including Pinot Noir, Chardonnay, Cabernet Sauvignon, Gamay, and Merlot.
In the past two decades, with the rapid economic growth and the increasing disposable income in China, the sales volume of wine has increased continuously and reached 1.72 million kiloliters in 2016, which leads to the rapid development of winemaking. Currently, there are more than 1,000 winemaking enterprises in China, with the production volume of wine increasing from 78.0 thousand kiloliters to 11.4 million kiloliters from 1980 to 2016, representing a CAGR of 10.9%.
In recent years, China has become one of the major wine grape-producing countries in the world, and has been introducing foreign grape varieties along with adopting modern agricultural techniques to improve and cultivate them. As a result, there are a number of grape varieties such as Cabernet Sauvignon, Merlot, Chardonnay and Cabernet Gernischt being cultivated in China. Moreover, different wine grape-producing regions possess different varieties of wine characteristics, depending on the unique geographical conditions. Diversified grape varieties and modern production technology are the new growth engines for winemaking. The value chain of the Chinese wine market can be divided into 3 streams as shown in the diagram above. Firstly, the upstream sector of the Chinese wine market is viticulture, which refers to the study and cultivation of the main raw materials of wine, such as, Pinot Noir, Chardonnay and Cabernet Sauvignon. Secondly, the midstream sector of the Chinese wine market relates to the processes involved in wine production. The major production processes include crushing and destemming, fermentation, vinification, sterile filtration and bottle filling. Lastly, the downstream sector of the Chinese wine market relates to the sales of wine products through different channels.
There are more than 10,000 wine distributors in the Chinese wine market. Most wine brands, especially foreign brands, usually sell their products through distributors and they usually have several first-tier distributors to cover different major sales regions in China, in addition, those distributors will redistribute their products to the second-tier distributors in order to increase sales. As for consumer habits, Chinese consumers tend to select wine products based on the brands instead of the distributors. As such, retail sales channels including supermarkets, restaurants and hotels usually procure wine products from distributors based on the consumers’ preferences on the brands.
From 2012 to 2014 the sales volume of wine in China decreased from 1.77 million kiloliters to 1.55 million kiloliters at a negative CAGR of 6.4%, due to the tightened restrictions on the PRC government’s frugality campaigns. However, in light of the popularisation of wine amongst consumers, the consumption model has shifted from official banquets to business and family gatherings, resulting in the recovery of wine consumption in 2015 and 2016. Those trends are expected to continue going forward. In 2016, the per capita wine consumption in China merely reached 1.2 liters, which was still far below the developed countries. Underpinned by the increasing disposable income and the awareness of health, wine consumption becomes a tendency in China and results in an increased per capita wine consumption. Moreover, many Chinese consumers lack advance knowledge of wine, symbolising the initial development stage of the industry and rooms for development of China’s wine market. With the infiltration of western culture, Chinese consumers are likely to have a better understanding of wine culture. Regarding the age group of wine consumption, the young generation is anticipated to be main consumers of wine. The transformation of drinking culture among young generation and the improved consumption level of wine among the middle class are likely to become the main driving forces of China’s wine market. As such, sales volume of wine anticipated to reach 2.4 million kiloliters by 2021, with a CAGR of 6.8% from 2016 to 2021. Moreover, the sales revenue of wine in China has experienced similar trend. In 2016, the sales revenue of wine in China was RMB80.3 billion and is expected to reach RMB122.8 billion in 2021, with a CAGR of 8.9% from 2016 to 2021. Since 2013, the sales volume of sparkling wine in China has experienced rapid growth, representing the increasing popularity of sparkling wine in China. In 2015, the sales volume of sparkling wine in China reached 12.0 thousand kiloliters, with a CAGR of 5.2% from 2012 to 2015, and is expected to reach 16.4 thousand kiloliters, representing a CAGR of 5.3% from 2015 to 2021. In 2015, the sales revenue of sparkling wine in China was RMB896.6 million and is expected to reach RMB1,251.9 million in 2021, with a CAGR of 5.7% from 2015 to 2021.
Main Wine Grape-producing Regions
China has eight main wine grape-producing regions, namely, Xinjiang, Wuwei in Gansu province, Changli in Hebei province, Northeast China, Jiaodong peninsula in Shandong province, Qingxu in Shanxi province, Helan Mountain in Ningxia and Southwest China. Amongst those 8 main wine grape-producing regions, Shandong, Hebei and Xinjiang have the highest production volumes.
• Shanxi wine grape-producing region: Shanxi has regional advantages such as strong sun light, large temperature difference in spring and moderate precipitation. Summer is hot, short and rainy, while winter is long and dry. The wine grapes in Shanxi are usually extremely deep in colour because of viticulture in the mountains. The grape varieties such as Cabernet Sauvignon and Merlot, have been widely cultivated in this region in recent years.
• Ningxia wine grape-producing region: Ningxia is the largest newly developed grape-producing region in the northwestern part of China. The climate in this region is dry and diurnal temperature variation is substantial. The eastern part of Helan Mountain is famous for its special geographical characteristics for cultivating wine grapes, since it possesses fertile soil and sufficient sunshine. Helan Mountain became the third region to obtain “Wine National Geographical indications Protection Products” certification in 2003. The region mostly produces Bordeaux grape varieties, such as Cabernet Sauvignon and Merlot. In addition, Ningxia possesses vast area of land with optimum soil, therefore, it is relatively easy to find land for grape cultivation in Ningxia.
• Jiaodong Peninsula Wine Grape-producing Area: This area has a moderate climate, fertile soil and abundant sunlight. Grape-production areas are mainly concentrated in Qingdao and Yantai.
• Changli Wine Grape-producing Area: It has abundant sunlight, large temperature difference between day and night, which are very suitable for plating wine grapes.
• Xinjiang Wine Grape-producing Area: The representative regions in Xinjiang are Turpan and Yili Valley. The main grape varieties are Cabernet Sauvignon, Camry and Grenache. The temperature in Turpan is extreme high in Summer, the wine produced in this area has high sweetness.
• Wuwei Wine Grape-producing Area: It has abundant sunlight, the wine grapes cultivated there are without pests. This area cultivates various grape varieties such as Merlot and Chardonnay.
• Northeast Wine Grape-producing Area: This area has fertile chernozem soil. The representative regions in Northeast are the piedmont of Changbai Mountain and Northeast Plain.
• Southwest Wine Grape-producing Area: Yunnan plateau and Panzhihua in Sichuan province are the main wine grape areas. It has abundant rainfall. Those areas are suitable for the cultivation of Eurasian grapes.