SA wines get boost from dispute between Australia and China
With unmasked wine drinkers now the norm rather than the exception at China’s bars, Australia’s tariff headache has turned out to be SA’s gain
Recent figures from Wines of SA show SA wines gaining ground in the Chinese market, as was expected after diplomatic rows between Australia and China saw tariffs of up to 212% slapped on Australian wines. These tariffs, combined with cumulative years of promotional effort from the SA wine industry and the current state of the Chinese economy, couldn’t have come at a better time.
The resurgent — to the tune of 18.3% year on year in quarter one of 2021 GDP growth — Chinese economy has offered SA wine exporters a hard-to-beat market, as localised lockdowns and mass testing have ended social distancing in the country. With unmasked wine drinkers now the norm rather than the exception at China’s bars and banquets, Australia’s badly timed tariff headache has turned out to be SA’s gain.
As Australia’s gargantuan Chinese market share fell from more than 40% in 2020 to 5% in 2021, old-world favourite France picked up the lion’s share of the slack, with its wine market share now standing at just under 45% in 2021, compared to 25% the previous year. Chile now dominates among new world wines, gaining about 7% year on year, and even Italy and Spain now outweigh the Aussies in terms of market share. Though SA comes in just ahead of Germany in eighth place with a 2% market share, its 124% growth in total market share over the past year makes it the fastest-growing supplier in the Chinese market right now.
Growth has been concentrated in sales volume, with SA’s total wine sales volume to China growing by nearly 4-million units from 8-million to 11.8-million between 2019 and 2021, thus recovering from 2020’s disastrous numbers and gaining substantial ground. However, total value remained consistent from 2019 to 2021 at just north of R420m, seeing a complete recovery from the pandemic-induced decline in overall sales value through 2020. When it comes to the star performers of SA’s wine industry, however, white and sparkling wine seem to be driving growth — albeit from a smaller market of younger consumers.
As Australian tariffs slash red wine supply to China, SA’s world-class reds, especially its shiraz, may have an excellent opportunity to secure market share too. However, with growth from R2.5m to R8.3m from 2019 to 2020, which remained uninterrupted throughout the pandemic, SA sparkling wine perhaps has the greatest story to tell and future to look forward to in a post-pandemic wine market.
With the Chinese market’s exceptional adaptability to new products and ever-growing market of wine enthusiasts, SA has a rare chance to engage the market and elbow past some of the smaller market-share holders like Argentina and the US. Given a low risk of diplomatic disruptions to the flow of trade, SA's market share in China has been progressively built across the wine industry spectrum, from commercial wines to branded wines and even top-tier estate wines.
The current friendly state of China-SA relations has given rise to a basket of Africa and SA-focused initiatives from China’s side to boost much-needed trade in the post-pandemic era. While SA played a key role in the recent China-Africa Economic and Trade Expo in Changsha, the Cape winelands also recently hosted a large-scale China-South Africa wine expo, backed by China Construction Bank (CCB).
With representatives from e-commerce giant Jingdong’s international logistics division in attendance, as well as the China Council for the Promotion of International Trade, the contrast in treatment with wine producers Down Under could not have been more stark. As China’s banks and other big commercial players continue to roll out trade-focused platforms and initiatives as part of its diplomatic negotiations on the world stage, few economies stand to gain as much as SA in the post-pandemic recovery.
The current state of affairs might also lead to previously unthinkable opportunities for SA's wine producers. High tariffs might have blocked wine of Australian origin but their aggressive and successful China sales and marketing channels remain intact, allowing the opportunity for savvy Australian wine dealers to secure non-Australian wines of origin for sales in China under both established and new brands. This is apparently happening already, and the future might bring more Australian-SA wine partnerships for those strategically staking their claim. Previously Australia-employed wine agents in China have also naturally been forced to jump ship, now working for large Spanish and other brands, and are an additional resource to be considered.
Whether it’s in the wine sections of China’s Walmarts or Carrefours, in the exclusive wine dealerships of China’s first-tier cities, or on the wine best-sellers page of e-commerce giants Jingdong and Tmall, a good chunk of SA brands already have an established presence and are building reputations day by day. As more established international wine producers are forced to negotiate the challenging diplomatic tightrope with China, it remains to be seen how much slack SA’s producers can snap up in the short term.
Diversifying and increasing distribution channels in China is likely to be the key to success for SA producers who can offer great value, and are flexible and determined enough to succeed in China.
• Jones is cofounder of and B2C leader at Create Consulting, headquartered in Beijing.
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