Personal Observation of the Chinese Wine Market

Since we are discussing the Chinese wine market this week, I thought it would be interesting to share my personal observation of the Chinese wine market from a consumer's perspective.

Wine has always been a symbol of elegance and wealth in China since the economy opened up to the Western world in late 1970s. Today, wine is still very much a refined taste and a foreign concept. Considered as a luxury product among alcoholic beverages, wine is priced at a premium to beers and distilled Chinese liquors, especially French wines. It is quite common for a $10 bottle of regular Bordeaux wine, or even a sub-$5, non-AOC French wine (Vin de France),  to retail at ~200-300 yuan ($30-50) in China, if not more.

Given the lack of wine knowledge of the general public, less savvy wine drinkers in China usually use a couple of (not so accurate) rules of thumb to guide their selection of wine. Consumers are most focused on region (France is best, then Italy/Spain/California), year (older is better), and design of the bottle (people love chateaux or extravagant looking coat of arms). Counterfeit is also a problem, although less severe in the non-ultra-premium market. However, given the general lack of trust of both the quality and the price of wines sold by local retailers, Chinese consumers love bringing back bottles of wine from duty-free shops when they travel abroad.

Buying wine (especially a good bottle at a fair price) has not been easy in China. In the off-line market, wine is mostly sold through local specialty retailers (alcohol & tobacco shops) and supermarkets. The specialty retailers' target clients are more often gift-givers (premium alcohol and tobacco are common gifts in China) than everyday wine drinkers; therefore, the price mark-up is quite significant. In supermarkets, there is usually a wide selection of wine, but the ones at affordable price points (~$10/bottle) are usually from low-quality local producers.

Recently, with the rise of online retail, wine shopping has become a lot easier and the markups significantly squeezed online. Government regulation is much friendlier in China than in the US (ID law is not enforced and no issue shipping across provincial lines), and many of the top retail websites (T-Mall by Alibaba, JD.com, etc.) offer a great selection of wines. Going forward, the online retail prowess of leading Chinese tech companies will make it tougher and tougher for off-line retailers to compete. It would be interesting to see how the market shakes out in the next couple of years.

Wine & Blockchain: A Perfect Pairing?

One thing I have been thinking about lately is how Blockchain could help solve problems of counterfeiting in the wine industry.

In our Iniskillin case, we learned about the problems of cheap counterfeit icewine in China and what it has done for consumer introduction to the category. There are two applications that I think could be interesting:

1.       Verification of a varietal – e.g. confirming that a bottle is actually champagne or ice wine or even that is from a certain region e.g. that is Livermore wine

2.       Verification of a specific product type (e.g. that a bottle is a ’82 Chateux Margaux), especially as it changes hands over the course of its life

Would be curious if any other classmates who are Blockchain-saavy have thoughts on if this would work! 

The value of a delicious wine - what is your WTP?

In exploring the food and wine culture in Los Angeles this weekend at one of Venice’s hot restaurants, Rose Café, I was struck by the question one of my dinner mates asked the in-house sommelier – what is the best value wine you have on the menu? Being the value-capturing, business school students that we are, we thought this question to be straight forward and to be interpreted as what was the cost conscious yet delicious white wine option on the menu. This was not how the sommelier interpreted the question though as the first wine suggestion he gave was one with a $110 price point that was not listed on the menu and was supposedly the last of its kind in the restaurant wine cellar.

Surely there was a large sales component that played out in this interaction but it did lead me to consider what value means in this industry. Should values in taste differ amongst low-priced versus high-priced wines? And in a restaurant scenario how does one confer their preferences without ending up with >$100 suggestions? What callouts on a menu might connote quality? Or, should one do what I’ve recently done and research the ratings of every wine that sounds remotely interesting before buying?

In an article by the HuffPo,  How to Order Wine at a Restaurant: Avoid Embarrassment, Save Money, and Pick Something Divine, Peterson details a couple quick tips that I’ll have to put into action next time I’m perusing the wine menu: 1) Don’t be afraid to go for the cheapest bottle on the list, 2) Avoid the house wine, and 3) Don’t fall into the anchoring effect which occurs when you see expensive wines listed and abandon the price point with which you’re comfortable.

On the ordering side, the most important things to convey to your server or sommelier

·      Red or white (or rose ;))

·      New World (fruit-forward) or Old World (earthy)

·      Body of the wine (light, medium or full)

·      Price point

Peterson suggests a conversation like this: “Hi there! I’d like to order a bottle of red wine to share for the table. We generally prefer medium-bodied new world wines that are nice and fruit-forward. Brian hates Pinot Noir (blasphemy!), but other than that we’re totally flexible. I am considering a bottle like this (point to price), but would love to hear your suggestions based on our preferences.”

After this bit of research I’m feeling more comfortable ordering my next bottle of wine while out. Any fun(ny) wine ordering stories out there? Any ordering tips not mentioned would also be very received! I’m trying to become a wine ordering master by end of quarter ;)

Why (can)'t we?

I was interested in a number of the the parallels between the wine and craft beer/spirits markets in class this week. The ability to mail products direct to consumer in the wine industry, while a bit painful, is a solution that developed when producers came together to contest the regulatory status quo. It was suggested by Tracey that she expects the craft beer and spirits industries to follow suit in the near future. As I was thinking about the interconnectedness of all these industries I started wondering if there are any trends that we'll see flow in the other direction?

The first one that came to mind was canned beverages. For a long time the craft beer industry was almost exclusively bottles, but within the last several years there has been a significant move to offering a canned option. There are many benefits to moving to canned, including lower transportation costs, ease of recycling, and a lower carbon footprint. Within the last year I've noticed canned options popping up at Trader Joe's, and I think there are some interesting benefits associated with canned wine. Opening a bottle of wine when you only want a single serving is a pain, especially if you don't know when you'll be able to drink the rest. With still wine there is an option to re-cork and consume it within a few days. Sparkling wines and Champagne go flat if you don't finish the bottle in one sitting - cans seem like a great solution! Cans also seems like an interesting way to try new wines without committing to a full bottle. I feel like there's a potential market for a canned product, but is there a stigma attached to drinking wine from a can? Is part of the experience opening the bottle, or do consumers associate luxury with wine and budget with cans?

A quick internet search suggests that the canned wine market has doubled each of the last two years. Is canned wine a fad, or is there potential staying power??

Wine and Cannabis: A Duo In the Making?

During Thursday's class, the discussion regarding regulation within the wine and cannabis space peaked my interest in understanding how mass wine producers are dealing with the growing cannabis industry. Constellation Brands invested for a 10% stake recreational pot company so it is a matter of time for the wine industry to also invest. After some research, I found the product called No Label which is a line of pot-wine that leverages the robust and daring flavors of California wine to inject the effects of her 20 different strains of cannabis. It even has endorsements from Melissa Etheridge!

According to the company who owns No Label (Greenway), California wineries have been producing pot-wine for decades but this is the first time that a product has launched so openly (especially with a celebrity endorsement). Working with over 6 grape varietals and 20 cannabis strains, the company has a number of promising directions to go. Unfortunately, their legal team is quite busy, especially as they are currently battling the courts with allowing intra-state transport of the product.

I am interested in seeing how this product grows now that cannabis has been legalized in California and if it expands, will larger wine companies feel the need to invest or even acquire their operations? As a larger wine company, I would feel apprehensive about the cannabis industry and would try to follow suit with beer competitors who are already investing in relevant cannabis start-ups.

#2 Keeping it in the family

Survived the first blog post. Have not been publicly shamed, nor academically disciplined. A sign of compassion or simply luring me in, only to strike later? Let’s find out. The year is off to a fast start. The fire hose is open, and I’m thirsty. Bad combination. Dropped a few classes. Quality over quantity. Still in GDotWI... My more socially inclined friends have labeled the classes causing my reticent social behavior as prefixes to my name. Barging through my door at 11pm on a weekday night, thrusting a beer into my hand, they indignantly announce their displeasure with d.School Ravi. Where is Summer Ravi. Bring him back.

So much to choose from. I want to explore entrepreneurship. I want to enhance my public speaking and presentation skills. I want to step across the street, into the law school, into engineering, into the social sciences. I want to immerse in Professor Nemerov’s poetic worlds that exist within the instance of a single photo. A sponge can only retain a certain amount of water. As I bounced across Stanford this year, I’ve accepted the limitations of time and focus.

My story continues at Trader Joe’s. My hipster level rises half a point as I enter the store, ready to pay a premium for organically grown green apples that fell naturally from the tree onto Egyptian cotton air-pads, before spending an hour in the presence of a Sufi Yogi. My sense of purpose and belonging is reaffirmed. I make my way across to the wine racks. California. Spain. France. No South African wines? Seriously? There’s pink Himalayan sea salt packaged in South Africa, but they haven’t managed to find a few bottles of De Toren, Hamilton Russell, Chocolate Block, Kevin Arnold, Paul Cluver, Kleine Zalze, or Tokara? Urggh. No choice but to randomly pick wines but from different regions. Without a plan, strategy, or the requisite skills and knowledge, I set about acquiring a selection of wines.

It was with a similar feeling to my Trader Joe’s wine experience that I read the Rothschild case. An uneasy sense of someone standing in front of a map of the world, without a clear idea of how he was going to navigate it. At first I wasn’t quite sure whether I was missing something. Was there an insight into old-world estates growing into new markets? Perhaps consolidating or redefining their brand? Perhaps it was about changes in the global agricultural property market? A nagging uneasiness suggested no coherent strategy to their expansion. How did this come about? Was this the consequence of an unbalanced executive team?

This case sparked some interesting thoughts. A growing market of new wine drinkers + lower barriers to entry + lower production costs in other countries + low customer switching costs + rapid brand creation = market ripe for disruption?

How do family wineries capitalize on this changing dynamic? Do they encourage succession planning that retains as much familial influence as possible, but which may risk siloed thinking or a lack of holistic executive talent. Or do they bring in talent, but risk family disinterest and shifting power dynamics which might even result in either selling or partitioning the land, and consequently losing the power base of critical mass? Or are they best suited as lifestyle businesses focused on quality retention and not mass-market domination?

As the baton passes hands, behind the veneer of staged photos, lies both an incredible opportunity and lurking uncertainty. “Someone said drink the water, but I will drink the wine / Someone said take a poor man, the rich don’t have a dime / Go fool yourself, if you will, I just haven’t got the time / I’ll give you back your water, and I will take the wine.”