The Emerging Wine Giant China - Mouton Cadet Bar Opening

Picture: China - The Great Wall

The Emerging Wine Giant China - Mouton Cadet Bar Opening

It has been announced that Baron Philippe de Rothschild will open a wine bar in China. It will be the world’s first Mouton Cadet wine bar in restaurant No. 9 Garden in Guangzhou. Look for the Mouton Cadet wine bar to open in mid-March 2010.

The wine producer Baron Philippe de Rothschild SA, owner of the famous First Growth Bordeaux Chateau Mouton Rothschild and its distinguished lieutenants, Château Clerc Milon and Château d'Armailhac as well as the premium wine Mouton Cadet is arguably one of the big players in the global wine market. Baron Philippe de Rothschild was one of the first to invest in California and created Opus One with Robert Mondavi in 1979 and he was one of the first to go to Chile, where he entered a partnership with Concha y Toro in 1997.

Picture: Robert Mondavi and Baron Philippe de Rothschild, New York Times

Now, Baron Philippe de Rothschild SA is opening its first wine bar in the world in China. This is clearly another sign that China is becoming a major player in the international wine market, both in terms of production and exports and in terms of consumption and imports.

Production

The wine industry in China is developing at a remarkable pace. China could become the world’s largest producer of wine in 50 years time, experts predict.

China has a long tradition of producing all kinds of wine, but produced practically no vinifera wine before the economic reforms of the early 1980s. It now ranks 7th in terms of production, ahead of Germany, South Africa and Chile and almost at par with Australia and Argentina, and it is likely to overtake Australia soon. China already produces more wine than Spain and Portugal combined.

Much of the wine industry is run by the Chinese Government. The wine industry is dominated by three giants. Great Wall, Changyu and Dynasty Estates are the big players of China’s burgeoning wine industry.

The wine production area largely rests in the Yantai region. Located roughly 300 miles southeast of Beijing, the peninsula is part of Shandong province. Its proximity to the Bohai Sea and the Yellow Sea gives it a maritime climate, shielding it from the cold winters of northeastern China, not very different from Bordeaux in France. With some 10,000 hectares of vineyards, the area is home to many well-established wine companies producing Cabernet Sauvignon, Merlot and Cabernet Franc.

Picture: China with Yantai Peninsula in Shandong

China’s first winery, the Changyu winery, was established in 1892. It won gold medals in the 1915 World Expo for their Roses and Rieslings. Its cellar is the largest wine cellar in Asia. Changyu puts out a million and a half bottles of wine annually. Dynasty Estates is a joint venture of the state and the French company Remy Cointreau.

The renowned Pauillac estate Chateau Lafite Rothschild, partnering with CITIC, China's largest state-owned investment company, is in the process of setting up a winery in China to produce grand cru wines there. The French wine maker plans to plant on 60 acres in the Shandong province. Chateau Lafite has an extraordinary reputation in China - so much so that the property's second wine, Carruades de Lafite, commands the same price as other first growths such as Haut Brion.

Like Mouton Rothschild, Lafite Rothschild also has a track record of pioneering ventures around the world. As well as its Bordeaux properties it has prestigious estates in the Languedoc - Chateau d'Aussieres, Vina Los Vascos in Chile and Bodegas Caro in Argentina.

Apart from the large wineries, the Chinese wine industry is also littered with smaller, privately owned wineries. Many people say it’s like being in Napa 35 years ago; there’s a buzz, the industry is still in its infancy but you know it is bound for greatness.

Consumption

China already ranks behind Germany on fifth place in terms of wine consumption. Given current trends, China will soon overtake Germany.

One of the main features of the China wine market, as supposed to western markets, is the predominance of red over white wine. Around 85 per cent of the wine drank in China is estimated to be red. However, as more Chinese women develop a taste for wine, white wine drinking is expected to rise relative to red wine.

There are two market segments.

First, the lower end mass wine market. Growth in demand in this market segment --- the easy drinking, low quality cheap wine --- is expected to be high. At 0.4 liters per person a year, wine consumption is still quite low by international comparison. In France, where wine is culturally embedded, people drink 50 liters a year with consumption in Australia, another major wine producing nation, 25 liters and in the United States 15 liters. If China's per capital wine consumption was to only increase slightly because of the scale of the population it could easily shift the center of gravity of the world's wine industry.

Second, the other market segment, where China will be increasingly present is the top wines. Since 2000, expensive red wines, in particular from France, have become very popular in China among the rich and the famous. Red wine, in particular French red wine, has become a symbol of the elite and the rich. Within a decade or so, China’s rich have gone from mixing red wine with Coke to checking Parker points when ordering a wine and being ready to pay top dollars. They have become a major player in the top market segment.

The fact that expensive, red wine are more a status symbol and that they are often not consumed privately at home with friends but in public with business partners or given as present, has led to an increased price differentiation of wines depending on the condition of the label in the international market. Bottles with labels that do not meet the highest aspirations and cannot be used as a present for a business partner are suffering a steep discount at auctions or are not sold at all.

Exports

Most of the wine is produced for the local market. China still has a low profile outside of Asia, but many are watching to see if this industry becomes a global player. Experts predict that China could become the next Chile within a decade – a destination for affordable and quality wine production.

Imports

Imports are small but growing. Clearly, Baron Phillip de Rothschild SA with its Mouton Cadet is well placed to participate in this boom. Young Chinese consumers are also now showing a preference for foreign imported wines, although they still make up only 11 percent of the wine drunk by volume in China.

A lot of quite low-tier foreign wines sell at a high price in China. Consumers in China have very limited knowledge about wine. It is very difficult for them to assess the quality of either branded or even non-branded wine. Consumers still find the process of buying imported wine difficult because even in international supermarkets like Carrefour or Tesco there is little information on the label to tell them what the wine is.

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