Exporting Wine to China Scenarios

The average bottle of red sells to HK/China from USA at about $2.50 a bottle.  Say a winery has a market for 5000 cases wholesale at $20.00 per bottle in USA. Then the winery has a wildly productive year, and they end up with 10,000 cases.  This can be bad. How easy is it to double your market to move the wine?  (And not all wine gets better with age).  You have to bottle it, because you cannot let it sit in vats.  You cannot pour it down the drain, because it is hazmat.  So what to do?

Click to enlarge - John Spiers 2012

Well, in an ideal year above, a market for 5000 cases and production of 5000 cases, all is good.

In an overproduction year how can they move the excess?  Cut prices?  See Overproduction Year Scenario One, in which they cut prices enough to move the product, from $20 to $10.  The revenue yield is the same, except they have had to pay for the infrastructure to move twice as much wine, plus they have reduced their perceived value in the USA market.

So go to scenario two, where they release only the ideal 5000 cases onto the USA market, and then dump the rest in China.  The infrastructure in USA need not be beefed up, the price is maintained as is the perceived value in USA of the brand, plus they increase revenue by $150,000. Dumping in China is good business, especially when USA govt subsidies impel massive malinvestment in the form of overinvestment, as is the case of the wine industry.  (USA is the #1 export dumper on planet earth.)

Now this example is just illustrative.   In reality, most wineries are set in a vinyard as a tax-write off.  The vinyard does not grow the right kind, let alone enough grapes for wine production, each winery buys its grapes from big grape brokers.  So getting "caught" with overproduction is unlikely.

Nonetheless, one way or another, it happens enough to where in 2008 nearly six million litres of red wine were exported to China from USA at an average of $2.85 per bottle.  Email me for a .pdf report.

This cheap wine, when it gets to China, is abused in distribution, so when a bottle of USA is opened, the impression of the drinkers is "yecccchhh..."  Hence, the USA subsidies ruined the market for USA wine in China, the fastest growing market in the world.

To address the problem of wine abused in distribution, Crown Transport of Hong Kong, a logistics company, bought the caves the Brits used to store ammo in Hong Kong, perfect temp for storing wine, and set up a wine storage and distribution biz...  http://www.crownwinecellars.com/  Chinese have been moving their collections from Europe and UK to Hong Kong.


Like every other situation in business, it ain't the cards you are dealt, it is how you play the hand.  I m not in the wine business, but I am delighted to be advising some people who are, as to how given the facts on the ground, building sustainable market for USA wine in China.

Feel free to forward this by email to three of your friends.

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