Wine imports give Chinese firms a hangover

Chinese consumers' growing preference for imported wine is expected to pile further pressure on beleaguered domestic wine brands, according to industry analysts.

Imported wine currently accounts for around 25 percent of the Chinese market, industry analysts said.

The nation imported 200 million liters of wine in the first half of the year, up 12 percent year-on-year, with a value of $1.1 billion, up 24.1 percent, according to www.haiguan.info.

Wang Zuming, secretary-general of the wine branch of the China Alcoholic Drinks Association, said the rivalry between imported wine and domestic brands has never been so intense.

France, Spain, Chile, Australia and Italy are the major sources of China's wine imports, accounting for 82 percent of the total.

Between 2006 and 2010, wine imports grew from 114 million liters to 283 million liters, up 65 percent.

Zhang Zhigang, an analyst at Rising Securities, said domestic brands face challenges from foreign wine brands in terms of price and distribution.

Imported wines in China previously occupied the high end of the market but can now be found on the shelves of local supermarkets after their prices were lowered due to the global economic slowdown, posing a major challenge to domestic brands.

Given Chinese consumers' relative lack of awareness of foreign brands, their profit margins can be a lot higher than local brands, Zhang added. He predicted that imported brands will eventually account for around half of the Chinese market.

The impact of imported wines will be felt by the industry for at least three to five years, according to a report from China Merchants Securities. The report said China's wine imports have grown at an annual rate of 50 percent in recent years.

The domestic wine industry has recently been plagued by quality problems, the growing popularity of imported wine and a decline in consumption.

Media reports said that, following tests conducted by the National Food Quality Supervision and Inspection Center, residual volumes of germicides were found in some of the products of Changyu Group Co, a long-established wine producer in Yantai, Shandong province.Following the report, Changyu's shares on the Shenzhen Stock Exchange fell 9.83 percent on Friday to a two-year low.

Changyu said in a statement posted on its website on Saturday that the level of two germicides found in its wine during the tests was much lower than limits in the European Union.

Leading domestic wine brands such as Changyu, Dynasty Winery Co Ltd and China Great Wall Wine Co Ltd have performed poorly in the past year.

Changyu's revenue declined in the first half of this year for the first time in five years, falling 2.51 percent year-on-year to 3.01 billion yuan ($470 million), according to the company's interim report.

China Great Wall Wine Co Ltd's sales declined 2.1 percent year-on-year in 2011, and the Sino-French joint venture Dynasty Winery saw a 10.5 percent year-on-year slump in its income in 2011.

But the country is regarded as having great potential in terms of wine consumption.

Per capita wine consumption was less than 0.5 liters in 2010, while the global average was 7 liters, according to the 12th Five-Year Plan (2011-15) for the Wine Industry published by Ministry of Industry and Information Technology and the Ministry of Agriculture.

By 2015, wine production in China is expected to reach 2.2 billion liters, an increase of 100 percent, at an annual growth rate of 15 percent, according to the plan.