Market Analysis: Bordeaux in China

by Natalie Wang

During the good old days for Bordeaux in China, sipping a glass of wine from the region was a huge social signifier among deep-pocketed nouveau riche. Nowadays, China’s frenzied buying of clarets has all but fizzled out. Its downturn was accelerated during the pandemic despite a short spurt of growth following Australia’s exit.

Yiftach Bar, founder of Diva China – the Beijing-based Chinese branch of Bordeaux negociant Diva – deftly sums up the predicament: “Bordeaux is not anymore the center of interest for the Chinese market.”

THE DOWNTURN

The elation with Bordeaux seen in 2000s and 2010s pushed China to become its biggest export market, but from 2018 onwards due to previous years’ overheated buying and excessive stocks, Bordeaux exports suffered.

A confluence of factors – China’s ensuing economic slowdown, trade wars with the US, and most damagingly the country’s unforgiven ‘zero covid’ policy during the pandemic – means that its appetite for classified Bordeaux never fully returned.

In March 2021 when China officially slapped up to 218% tariffs on Australian wines, Bordeaux caught a respite. Exports to China surged to the point that one in five exported Bordeaux in 2021 ended in the market, according to data released by the Bordeaux wine industry body, CIVB.

But what has become clear in China’s post-Australian wine era is that Bordeaux was caught in a somewhat awkward position. For the upper tier of prestige wines, wine drinkers are courting more rarefied Burgundies and for value-for-money bottles, Chilean wines are quickly taking up the space, leaving Bordeaux in a bind.

Mario Aron, COO of China’s leading wine importer ASC Fine Wines, echoed the sentiment. “Overall, the French category and the Chilean category benefited most from the departure of the Australian wines from China. Bordeaux, however, saw increased demand in the upper range of the fine wine market but the rest of France, especially Burgundy picked up more market share than Bordeaux.”

“Every importer and every distributor is asking for Burgundy at this stage. The demand for Bordeaux stays with the more traditional importers and older ones. It’s not the first demand that we receive today,” says Diva China’s Yiftach who has been living in China since 2008.

For Diva China, Bordeaux’s sales have been declining since 2019. However, the wine merchant added that in 2020 there has been a comeback for classified Bordeaux wines after China’s row with Australia, although this has also been true for other regions, he notes. “More interest for South Africa, Italy, Spain, South America but mainly on entry-level and generic wines,” he adds.

BORDEAUX WINE GLUT IN 2022

What complicates Bordeaux’s wine market in China following last year’s surge is what wine merchants complain to be an overstock problem. The glee that greeted the strong comeback was tempered with dismays brought by months of disruptive lockdowns imposed across the country’s main wine consumption hubs from Shanghai to Shenzhen.

Merchants who bullishly stocked on Bordeaux in 2021 are stuck in a rut – the inevitable wine glut caused by prolonged sales disruptions after repeated lockdowns, and an uncertain future as China goes through the travails of reopening.

“Bordeaux exports and demand for the AOC ranges surged in 2021 but then reached an overstock situation in 2022 due to the Covid restrictions,” explains Aron. “Many wine importers and distributors not only sit on high existing inventory, but also lack confidence in the future of the wine distribution and demand. Everyone buys on demand rather than creating long-term strategic positioning at this point in time,” the China veteran comments.

As a result, exports have stalled and importers retreated, emblematic of a broader pull-back that extends beyond Bordeaux from merchants amid economic uncertainties.

“Importers indeed didn’t order much with the covid situation in China and repeated lockdowns, not only from Bordeaux, but from all areas, even if Bordeaux suffered probably more due to the high inventory that wineries in France have from 2021 vintage,” says the China general manager of one of France’s top three wine groups who spoke on the condition of anonymity as he is not authorised to discuss the matter.

In the first eight months of 2022, the country’s wine imports plunged by 12.65% to US$984.7 million compared with the same period last year, according to data released by China Association for Imports and Export of Wine & Spirits (CAWS). Bordeaux’s drop was even sharper, says the China general manager. In the month of August alone, Bordeaux exports to China plunged 40% in volume and 28% in value, he shared.

DIMMED FUTURE FOR BORDEAUX FUTURES

Perhaps one of the biggest signs that the Chinese are retreating from Bordeaux is the trade’s lukewarm reaction to the French wine region’s flagship event – En Primeur.

Yiftach of Diva China admitted that the En Primeur for mainland China has been declining in the past 10 years. “This is due to multiple reasons: the pandemic plays a part but the larger and more important part- is that the difference between En Primeur and in bottle stock prices does not seem attractive enough for the Chinese importer to sees En Primeur as an investment,” he explains.

The ones who are still buying En Primeur as he says are simply doing so to secure future supplies. “All in all, I do not see China coming back to play a very important role in the En Primeur market, unless there is exceptional financial growth in China in the near future – but things do not seem to be pointing to that direction,” he adds.

Aron of ASC Fine Wines agrees and confesses that En Primeur is “not as important as it was before” chiefly because of lowered investment value.

The wine merchant’s parent company Suntory itself owns the vastly popular Bordeaux brands Château Beychevelle and Château Lagrange in China. “The investment opportunity becomes less and less obvious and many people could not travel to participate in the events in Bordeaux. The pricing is more transparent, and margins are difficult to create. This mix creates less demand for En Primeur,” he explains.

The cooling down effect on En Primeur in part helped give rise to a shift towards consumption type of wines. The market will likely trade down from Grand Cru Classé bottles to second labels or lesser classified wines, predicts Yiftach.

Aron of ASC Fine Wines also adds that the shift to more affordable wines is a natural evolution of a maturing market. “Counterfeit wines and smuggled wines especially from Bordeaux created some disturbance in the market and more affordable wines are available at reasonable prices with good value for money. So I believe that Bordeaux wines are on a comeback for the everyday consumer,” he commented.

FAKE WINE

A key thing that the interviewed merchants agreed on is that there are fewer fake Bordeaux wines circulating in the Chinese market, thanks to CIVB’s tireless efforts to protect trademarked Bordeaux GIs, and Chinese authorities’ more effective enforcement.

“There are fewer fake wines in the market, while at the same time there are more instances of fake wines detection by the government. It serves as a deterrent for many of those companies that engage in these practices, and helps AOC level wines overall,” says the ASC Fine Wines executive.

Or perhaps more cynically, the fewer fakes mirror the chill on Bordeaux demand. As the unnamed China general manager wryly puts it: “With less demand for Bordeaux in general on the market, fake wines from Bordeaux has also dropped…Now we see more copycat Conti than Lafite.”

The exact scale of fake Bordeaux wine production in China is unknown, nor is there any eagerness to calculate the loss caused for Bordeaux wineries. Even today, Thomas Jullien, the long-time China presentative of Bordeaux’s CIVB wine bureau, says there are simply no reliable statistics on it.

However, he cautions that a large portion of the fake Bordeaux wine production is done domestically. “China is a wine producing country, which means all parts of the wine supply chain from wine production to dry goods manufacturing to bottlers and so on can be sourced domestically. So components of a counterfeit wine generally come from China but, depending on cost opportunities, imported bulk wine can also be used,” he explains, adding that wines of all price points are targeted by fraudsters from blue chip bottles to AOC wines.

The rampant fakes that used to plague China’s biggest wine and spirits fair in Chengdu certainly have become less visible in the past two years but that might be a sly trick from fraudsters as they shift online.

“Fairs provide a platform for the wine industry to recruit customers, and even though counterfeiters have taken advantage of the growth of online channels, they are still present in offline premises as well,” warns Jullien.

For much of the wine trade keeping a wary eye on the fake wines popping up in China, over 330 members consisting mainly of wine merchants in China share a steady feed of fakes, lookalike and copycats they have encountered in a fake wine watch group on WeChat.

Not a day goes by where the chatroom is not abuzz with fresh rounds of fake alerts.