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Special report: The next infant formula-like success story in China could be wine, as Australian exports to the country exceed $1 billion.

Wine Australia stats show that Aussie wine exports have risen over 1000 per cent in ten years, from $73 million in 2008 to $1.1 billion over the last year.

Australia is ranked second behind France in market share, but number one in the average price of bottled wine among the five biggest importers.

The boss of Aussie wine merchant Dawine (ASX:DW8), Dean Taylor, says the “explosive growth” is being driven by changes to tariffs on imported wine and changes in consumer demographics as the middle class gets broader and richer.

“The market for wine in China has always been at two extremes. At one end is the ultra fine wine market dominated by the French chateaus,” he told Stockhead.

“At the other end, it has been bulk wine sold very cheaply and pitched as more of a medicinal product because of its colour, being red, and its perceived as being good for health.”

Another glass for the next generation

What’s changing, however, is that a new generation is now embracing wine as part of their lifestyle, buying it for taste and for the status symbol that comes with drinking and being knowledgeable about wine.

Mr Taylor says this has done two things: it’s increased the demand for original branded wines – not pretend brands with Chinese labels artificially adjusted to suit Chinese palates — and an increased need for wines to be able to demonstrate their provenance.

That means original labels and tightly controlling who handles the wines through the supply chain.

The market is still tiny though. Mr Taylor says imported wines account for perhaps 1 per cent of China’s total alcohol consumption, and Australia’s almost-$1 billion of trade is just a small part of that 1 per cent.

“There is immense potential for that to grow significantly over the next decade as more and more Chinese consumers follow emerging trends, moving from consuming hard spirits and beer, to wine,” he said.

Controlling the supply chain

M Taylor is the new CEO of Dawine, after the company bought his venture Wine Depot, an integrated trading and logistics platform.

He is now shifting Dawine from direct-to-consumer sales into a B2B business to capitalise on Chinese consumers’ need for authenticity and provenance — they want to know their wine isn’t fake.

“The key part of the strategy is to provide a depot on the ground in China that carries a large range of potentially up to 25,000 different Australian wines,” he said.

“We will then accept orders from sales channels such as JD.com and TMall and drop them directly to customers. We’ll avoid the costly layers of distribution and other intermediaries and improve the customer experience immensely.”

Opening doors

Currently there’s only about 150 Australian wine brands with a presence in China.

Dawine wants to provide a simple channel for the other 5,000 Australian wine producers to access the Chinese market.

“Wine distribution in Australia is highly fragmented, ripe for consolidation and digital transformation. The wine supply chain in China is even more fragmented and consists mostly of traders only interested in short term transactions, rather than building relationships and long-term processes,” Mr Taylor said.

“The ‘smart logistics’ platform that we are taking there will allow Australian producers to connect directly with sales channels in that market. It will also provide Australian retailers the opportunity to participate in cross border trade by drawing on that resource.

“Given the problem with copy-cat production of Australian products, this provenance trail will be of great value for customers, retailers and producers.”

 

This special report is brought to you by Dawine.

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