Exporting Washington Wine to the China Region:
An Emerging Market Opportunity
Updated March 2008
Jonathan Ryweck Transnational Ventures, Inc. Port Townsend, Washington
Table of Contents
The China Region Market for Imported Wine…………………………. 5
Challenges to Overcome in the China Region……………………………9
The Opportunity for Washington Wine…………………………………12
Going to Market in the China Region…………………………………...14
Appendix I – TNV Inc. Projected Timeline of Key Activity…………...20
Appendix II- Projected Three Year Market Development Budget…....21
Appendix III - Sales Projections- Three Years…………………………22
Appendix IV - About Transnational Ventures, Inc…………………….23
The China Region, including Hong Kong, Macau, Taiwan and Mainland China, is
arguably the most dynamic economic region in the world today, with economic growth
on the mainland exceeding 10% each year since 2000. Recently surpassing France and
the United Kingdom in gross domestic product, China is poised to overtake Germany in
the near future to become the world’s third largest economy. While the mature Hong
Kong economy is growing at a much slower rate, in 2006, Hong Kong's per-capita GDP
ranked as the 6th highest in the world at US$38,127, ahead of countries such as
Switzerland, Denmark and Japan. Macau, with a small population of some 530,000, is
noteworthy because it became the world’s largest venue for gaming revenues, topping
Las Vegas in 2006 for the first time. It has in recent years become one of the world’s top
tourist destinations, with 25 million visitors expected in 2007. Taiwan, while also a
maturing economy like Hong Kong, still grew its GDP by a robust 4.6% in 2006 and had
a per capita GDP of US$27,600. Already the sixth largest importer of US agricultural
products in the world, The American Exporter magazine quotes the US Agricultural
Trade Office (ATO) in Taiwan as citing wine and spirits as one of the “Best Prospects for
U.S. Exports” for this country.
As China has the world's largest population, its market for wine is projected to become
the largest in a few decades, even though the current consumption of wine in China is
only 0.35 liters per person. At the moment, a few large domestic companies, such as
China Great Wall Wine Co., Ltd. and the Dynasty Wine Ltd., dominate the market, with
50 thousand tons of wine produced annually under the Great Wall label. The total
production in 2004 was 370 thousand tons of domestic production, a 15% increase from
the previous year. The total wine consumption market grew 58% between 1996 and 2001,
and 68% between 2001 and 2006.
While imported wines only make up about 5% of the volume consumed, the overall
annual increase in wine consumption has averaged 20% per year in recent years.
Several separate and distinct trends are converging to make the export of Washington
wines to the China region an emerging market opportunity:
1-the outlook for continued annual double digit growth in Chinese wine imports
for the foreseeable future, with wine, and especially high end imported wines,
increasingly becoming a status symbol in Chinese society;
2-the emerging prestige on the world stage of Washington wines, and the
increasing perception of Washington wines as coming from a uniquely gifted
region for wine grape growing;
3-the long term forecast of relative dollar weakness versus the currencies of Asia,
as opposed to the stable or appreciating currencies of other world wine
competitors such as Europe and Australia, increasingly makes Washington wines
more competitive in price;
The market in the China Region for imported, quality wines is a new and rapidly
evolving sector with many of the key players in the industry only several years in
existence. New distribution centers for wine are literally sprouting up across the region
as this is being written as the prospects for continued strong growth are universally
acknowledged, and the key players seek to position themselves for future growth.
Now is the time for those Washington wineries that are geared up and capable for
expansion to invest in this emerging, ground floor opportunity. Their actions today will
secure market access and positioning for many years to come in what is developing into
the world’s largest market for wine consumption.
The China Region Market for Imported Wines
The market for imported wines in China is enjoying significant major growth, paralleling
the robust growth of its economy and its nouveau riche and burgeoning middle classes.
According to an article in The Washington Post on January 28, 2007, wines priced at over
$10 a bottle grew by 110% between 2001 and 2005, while wines priced at less than $5 a
bottle grew by only 19% during that same period. Quoting Zhou Ning, a market strategy
manager of a Beijing-based real estate company whose ads often feature young couples
drinking wine or beautiful women lounging with a glass of wine, “we include wine in our
ads because we want to tell potential customers that people living in our apartments are
elegant and cultivated and they pay attention to quality of life.” The article goes on to say
that “the role wine is playing in enhancing people’s status has made it a tool in the
endless dinners that are an essential part of doing business in China. ‘Face is important
in China. Wine is part of the show,’ said Alex Remy, manager of the Beijing office of
Sopexa, which promotes French food and agricultural products worldwide. ‘Lots of
people buy wine for the status, not only what it brings to a person but also to the person
you give it to.’ ” Nowhere is this more clearly demonstrated than in the prestigious wine
shops, upscale supermarkets and duty free shops in Shanghai, the country’s financial hub
and leading city. This trend is supported by a government which is friendly towards wine,
and is encouraging people to drink more grape wine for its reputed health benefits.
The fact is that more Chinese people are adopting wine as their drink of choice, and
significantly this is especially true amongst the young urban professionals and business
people in the main cities of Shanghai, Beijing, Tianjin, Guangzhou, Shenzhen, Hangzhou
etc. Wine is seen as classy and sophisticated among this group that is often referred to in
China as “young white collar.” It is appearing more often in the popular media -- in
magazine articles, lifestyle sections of newspaper, movies, and the Internet.
Though many Western experts recommend lighter white wines such as Riesling or
gewürztraminer as the best match for Asian food, the Chinese continue to prefer red
wine, estimated by various experts, at eight or nine to one over white wine. It is not
however, uncommon to see both red and white wine on the turnaround, which rotates
around the middle of a Chinese dinner table, holding the collection of tempting food
The explosion in Chinese wine imports corresponds to China’s accession to the World
Trade Organization several years ago, when China reduced its import tariff on wine from
65% to 14%. “Now the reduction of the tariff has opened the floodgates to a deluge of
foreign wine producers…experts say that Chinese wine imports in 2010 will reach
400,000 tons, double that of 2003, ” according to World Wine China Expo 2006.
There are three complementary trends that are powering the increase in foreign wine
consumption in China. First and foremost is consumer demand which is driving foreign
wine sales. In the past, only the well-to-do preferred and could afford to buy foreign
wines. The rapid growth of the middle class and white-collar segment of the population
and their embrace of foreign wines has led to a steep increase in foreign wine
consumption. Second, there are more venues for people to consume foreign wines. In the
past, consumers mainly drank imported wines at home or in top-grade hotels. In the last
few years, the availability of imported wines has spread to more restaurants, bars, wine
shops, high end supermarkets, karaoke bars and night clubs. Third, imported wines are
spreading beyond the more affluent large coastal cities and into the vast interior and to
the second tier smaller cities.
Interestingly, the value of imported wines is rising even faster than the actual quantity.
For example, in 2007, imports of foreign wine into relatively affluent Guangdong
province rose by about 20% by volume, but by almost 100% by value.
An analysis of the four markets making up the China Region, emphasizing some of each
region’s unique opportunities follows:
Hong Kong- As in the case of Macau, all wine consumed in Hong Kong is imported.
Excluding mainland imports, France has the largest market share with 46% of total wine
imports, valued at $60 million, followed by Australia with 17% market share valued at
about $22 million. Wines imported from the US totaled less than $5.6 million in 2006,
but were up 19% over 2005.
With the 80% tariff on wine imports slashed to 40% on April 17, 2007, and then to zero
on February 27, 2008, the outlook is very positive for further growth in Hong Kong.
Indeed, following the slashing of the tariff, a major Hong Kong restaurant group, Lan
Kwai Fong Entertainments, announced immediate reductions in their wine prices by 10-
15%, each time the tariffs were cut. John Tsang, Hong Kong Finance Minister, in
explaining the tariff elimination, said the government believed that with this move would
enable Hong Kong to become a world leader in wine auctions, trading, storage and
overall retail sales, projecting an industry to grow quickly to a half billion dollars US.
Macau- With over 27 million visitors in 2007, Macau projects having 38 million visitors
by 2010. With the opening of the Sands Macau, the largest casino in the world at the
time as measured by total number of table games, in 2004 and Wynn Macau in 2006,
gambling revenues from Macau's casinos were for the first time greater than those of Las
Vegas (each about $6 billion), making Macau the highest-volume gambling centre in the
world. In October 2007, The Venetian Macau, the second largest building by volume in
the world, opened its doors to the public. Other casinos and hotels slated to be opened
through 2009 are: Four Seasons (2008), MGM Grand ( Dec 2007), Ponte 16 (Dec 2007),
Far East Consortium Complex (Dec 2007), Grand Hyatt (2009), Galaxy Cotai Megaresort
(2008), City of Dreams (2008), Oceanus (2008), Mandarin Oriental (2009). While the
rate of economic growth between 2001 and 2006 averaged 13.1% in Macau, the
accelerated pace of hotel and casino development in the last year has resulted in GDP that
grew by over 22% in the last six months of 2006, and by 30% through the first half of
2007. Indeed one has to see it to truly understand this unprecedented boom in
construction; what took Las Vegas fifty years to create is happening in little more than
five in Macau. Reflecting this growth, overall US exports to Macau doubled from 2005 to
2007 to over $200 million.
The new hotels and casinos in Macau are primarily aimed at the newly prosperous
mainland Chinese consumer, though Hong Kong tourists currently supply a large
percentage of the clientele. Interestingly, all signs that are required legally in The
Venetian Macau are in traditional Chinese characters and Portuguese, the two official
languages of the Macau Special Administrative Region, but hotel and other commercial
signage are all in simplified or mainland Chinese characters and English. This indicates
whom the commercial interests are targeting as their primary consumer.
The implications for wine imports into this Special Administrative Region of China, with
its long standing tradition of European (i.e. Portuguese) wine consumption, are
considerable. New wine import companies, as well as new Macau branches of
established Hong Kong importers, have been created only in the last year or so to grasp
this new opportunity. A few American companies, some with ties to the same Las Vegas
interests that are building the great majority of the hotels and casinos in Macau, have
gone into business importing and distributing California wines. Two of these have
expressed interest to Transnational Ventures, Inc. in expanding into Washington wines for
the Macau hotel/casino trade.
Taiwan- With a more developed economy then the mainland, Taiwan, like Hong Kong, is
considered an excellent springboard into the mainland market. This is partly due to the
fact that an estimated one million Taiwanese business people operate and live on the
mainland, and influence mainland culture and development. While French wines have
over 50% market share (according to the Australian Trade Commission), US exports are
in second place with a value of about $7.5 million, slightly ahead of Australia’s 15%
According to EuroMonitor International, the trend in the more mature Taiwanese market
favors higher quality wines. “Instead of drinking more, consumers are tending instead to
emphasize quality. Gift giving continues to boost value sales, especially during Chinese
New Year, Mid-Autumn Festival, Dragon Boat Festival and Father's Day, when
consumers splurge on their loved ones and bosses to display their generosity and respect.
With the increasing awareness of wine and its health benefits, consumers, particularly
women, have another reason to indulge in drinking.”
Mainland- The US Agricultural Trade Office in Shanghai issued a GAIN Report on the
China wine industry in 2006 that was full of insight into Chinese wine trends and
preferences many of which bode well for US wines:
About 80 percent of the wine consumed in Shanghai and across China is red wine.
This is partly due to positive media on red wine’s health benefits and the growing
market for eating out. Interestingly, in blind taste tests, Chinese prefer white;
however, because of wine’s function as a symbolic gift and not for personal
consumption, red wine sales continue to be strong. Wine pairing with food is as
yet uncommon. Most Chinese prefer the appearance of red wines to white (red is
also the color of good luck), so they tend to choose reds for all dishes. White wine
sales tend to be to foreigners who are attuned to food pairing and to local women,
who prefer white wine to beer. Women often drink it straight or mix it with soda,
making a type of spritzer. White wine sales increase significantly during the
summer because it can be enjoyed chilled.
Shanghainese prefer the fruitier, fuller tastes of U.S. wine. 65 percent preferred
the taste of California wine in a blind taste test against French, Chinese, and
Australian wine. However, the participants associated this taste with French wine,
indicating a lack of awareness for U.S. wines. Because purchase behavior is so
strongly linked with wine’s image, to succeed in the local market U.S. exporters
need to promote their product image as quality, prestigious wine.
Although there is some discrepancy between Chinese figures and US figures for
mainland imports of US wines, the Wine Institute of California reports the US
Department of Commerce figures for US wine exports to China in 2006 were $9.286
million, up 53% over 2005 numbers. US imports were 12% of the total Chinese wine
imports for 2006 which were $77 million, more than three times the figure for 2004.
In 2008, the above positive trend accelerated, with Chinese imports of US wine climbing
to $16.16 million, or a 74% increase over 2007.
Challenges to Overcome in the China Region
Despite the rapid growth of the market for imported wines, numerous issues and
challenges remain for those exporting wines to the China Region. One of the most
concerning areas is the lack of regulations regarding Chinese wine production. While this
seemingly does not directly affect imports, and in one sense enhances the value and
prestige of imported wines, this lack of regulations on the mainland has led to much
confusion and is a potential threat to the whole wine industry in the region. Most other
leading wine producing countries subscribe to standards, which mandate a minimum of
85% of wine from the appellation, grape, and vintage. China will need to resolve these
issues in order to take its rightful place in the global wine market. This is especially
important because of food safety issues that have already occurred in China. If there was
to be a safety issue with wine, it could seriously harm this fledgling industry. Conversely,
as standards develop and regulations are tightened, high quality imported wines should
benefit from the ensuing clarity afforded Chinese wine consumers.
A second issue has to do with inadequate distribution infrastructure on the mainland.
Though there are reported to be more than 300 distributors in China and more than 1000
importers, with quite a number of parties playing both roles, it is still complicated to get
imported wine to a retail establishment. This mainly has to do with lack of temperature-
controlled trucks to transport wine, as well as temperature controlled facilities in which to
store or sell it. Even if the wine is delivered in a refrigerated ship container, it may sit for
a couple of days at the dock in very hot or cold temperatures. A few of the larger
distributors and retailers have taken it upon themselves to purchase the appropriate
equipment and facilities, but this has caused their overhead to be quite high -- requiring
them to increase their percentage mark-ups. This in turn causes imported wine prices to
be even higher. While this issue presents challenges, insulated containers, the growing
sophistication among Chinese importers, as well as the fast developing infrastructure
throughout the country will gradually resolve this issue.
A third issue has to do with the fact that although rice wine is deeply ingrained in the
Chinese culture, grape wine is relatively new and foreign. Therefore, the Chinese are still
learning about grape wine and have difficulty distinguishing quality levels. This is
exacerbated by the national practice of toasting with rice wine and then draining the
glass. The term used to describe this practice is "gam bei," which means "dry glass," and
it is considered rude not to participate. Now many Chinese business people are using
grape wine, instead of rice wine for this practice -- because grape wine has less alcohol
and is perceived as more healthy. One distributor described a business dinner in which
they "gam beied" two bottles of Chateau Lafite. He said it was very frustrating not to be
able to sip such a great wine and enjoy it. Instead he had to "shoot" it like tequila shot.
Because of this practice, the Chinese do not have much experience in analyzing the
quality of a wine.
An indication of the newness of grape wine culture in the region was reflected in courses
offered to Asian Wine Industry professionals like those offered in Singapore in October
2007 called “Wine for Asia 2007”. While not exclusively focusing on wine education,
the course significantly highlights this subject with course modules being described as
helping to “Understand your sensitivity to taste as well as on how to identify common
faults in wine. You will also get to appreciate notions like balance, body and critical acid
level in wine, which is useful in selecting wines for your business” , adding that the course
“Gives you an understanding on the factors that determine wine qualities as well as an
understanding on the main countries’ wines and how to select them for your business”.
This fairly elementary subject matter reflects the both the unfamiliarity of western grape
wine culture to the even those in the business and their determination to quickly come up
to speed so as to influence and build the market.
A fourth issue has to do with the low profile to date of American wine, and the practically
non-existent profile of Washington wine in the China region. While American wine
exports to China in 2006 exceeded $9 million, they were just 12% of the $77 million in
the value of imported wines to the country. Unquestionably this low recognition factor
will result in few Washington wines being placed initially in the China market, and those
that gain placement will require marketing strategies to broaden their appeal.
Finally, high tariffs and value added taxes on the Mainland and in Taiwan, severely
restrict the affordability of imported wines to the top tier income groups. While this fact
enhances the status and prestige afforded to imported wines, overall it vastly undercuts
the market potential. The US ATO Shanghai GAIN Report notes:
At present, only a few imported wines are able to get product in to market at a low
enough price level so as to compete with domestic wines, meaning the majority of
imported wine is limited largely to foreigners and upper-income urban Chinese.
Distributors in Shanghai cite strongest sales in up-scale and/or western bars and
restaurants, supermarkets frequented by expatriates, home delivery to foreigners,
and corporate or free-flow events. Online sales are also on the rise. As incomes
rise and more Shanghainese become familiar with imported wine and learn to
enjoy the taste, imported wine consumption will continue to increase in bars and
restaurants (western and Chinese) as well as in retail.
Exporters of Washington wine to the region should therefore roughly calculate that their
product will retail on the mainland for about twice what it retails for in the domestic US
market. While this is a sobering reality, it is important to understand that all imports into
the region faces the same taxation hurdles, and while restricting the market’s overall size,
these affordability issues are not stemming the double digit annual growth rates being
experienced in all of the China Region markets. On a further positive note, the
downward trend in tariffs and taxation is expected to continue which will eventually
vastly increase the overall market for imported wines. For example, Hong Kong’s recent
elimination of all tariffs and taxes on wine will have huge impact on sales to both
residents and tourists. On the mainland, tariffs and consumption taxes are regularly being
cut by the Chinese government as the growing awareness that it is in China’s best interest
to have a less lopsided trade imbalance with the West, and a less export driven economy,
takes hold among government policy makers.
Tariffs and taxes for imported wines for the various markets are currently as follows:
Mainland China: Import, Consumption and VAT taxes combined: 48.2%
Taiwan: NT $7 for each percentage of alcohol or about $3.00 US for a bottle containing
14% alcohol, plus 10% import tariff and 5% GST
Hong Kong: Zero taxes and tariffs as of February 27, 2008
The Opportunity for Washington Wine
Speaking to the Tri-City Chamber of Commerce in late November 2007, one of the
founding fathers of the Washington wine industry, former Chateau Ste. Michelle CEO
Allen Shoup conveyed in his remarks the excitement and enthusiasm of today’s
Washington wine industry when he exclaimed “We’re just beginning, we should be able
to grow exponentially now. Today (Washington) is easily the most successful and even
the most exciting wine region in the world.”
This bullishness may be dismissed by some as over reaching, but the facts support these
assertions. Since 1980, the production of Washington wine has soared from 300,000
cases per year to 8,000,000. With only about 6% of the vineyard acreage of that of
California, Washington’s 500 wineries win a disproportionate share of awards within the
In its 2006 GAIN Report on The China Wine Market, the US Agricultural Trade Office in
Shanghai had these observations relevant to the Washington wine industry:
The greatest potential consumer group is young-to-middle-age Chinese with
higher incomes that drink wine in high-end hotels, restaurants, clubs and bars.
Shanghai’s Xintiandi (pronounced “shin tyen DEE”), a complex of carefully
assembled up-market bars and restaurants frequented by white-collar locals and
foreigners, is one such venue. Establishments in Xintiandi, and similar up-scale
locations, are carrying increasingly diverse selections (in terms of origin, type and
price) of wines. Even after the businesses add their own margins, typically
doubling the beginning wholesale price, the wines sell quite well. U.S. wines can
be readily found at most price-points, alongside the $12 wines from Chile and
Argentina as well as the $1,000+/per bottle French wine.
Washington wines have an advantage over high end European wines in the Chinese
market due to their taste profile, which is more fruit forward and less acidic than
European wines. The irony is that the much heralded, market dominant European wines
in general match up less successfully with Chinese cuisine than Washington wines. The
latter’s white wines, particularly those with a little residual sugar, marry up quite well
with Chinese cuisine. Both Washington reds and drier whites are fruit forward enough on
the palate to be delicious for sipping at cocktail parties. European wines with higher
acidity and structure, were never intended to be sipped independently of a meal, but are
designed to accompany the flavors of European cuisine. Being relatively new to western
grape based wines, many Chinese are still grappling with how to best use wine. With
repeated exposure over time, Washington wines will prove their mettle and earn a more
prominent and deserved place in the pantheon of Chinese wine culture.
Washington wines enjoy the trend over the last several years whereby the Chinese
currency, the RMB, is steadily increasing in value in relation to the US dollar, but
declining in value in relation to the Australian dollar and the Euro, the currencies of the
major competitors of wines imported into China. Reflecting this trend, in the last two
years, the RMB has increased about 12% against the US dollar, and declined in the last
year by almost 3% against the Euro and by 4% against the Australian dollar. Almost all
forecasters predict continued appreciation of the RMB against the US dollar for years to
come. The prognosis of the RMB against other currencies is more problematic to predict
but given China’s reluctance to fully float its currency strongly suggests that the RMB
will continue to struggle if not decline in relation to the Euro and the Aussie.
Another factor favoring Washington wine competitiveness are the weather related issues
facing drought stricken Australia. Estimates for 2008 indicate that Australian wine
production will fall by at least 30%. The prognosis for wine grape growing is so dismal
that some 13% of Australian grape growers are expected to go out of business over the
next year. Thus the leader on the value end of the imported wine market, Australia, has
both weather and currency issues that make its ability to continue its current position
The lopsided trade deficit with China and the resulting opportunity afforded with literally
hundreds of un-used or under used containers returning to China each year makes
shipping the product a very reasonable proposition. Although the containers themselves
will be inexpensive, it should be noted that all fine wine shipped by container must be
insulated against heat and rapid temperature fluctuations, and this additional expense will
somewhat offset the savings afforded by the low cost of container shipping back to Asia.
Finally, another short term factor that will probably have long lasting impact on boosting
imported wines consumption is the 2008 Olympics to be held in Beijing. It is hard for
Americans, who have experienced the Olympics numerous times in a half dozen or more
venues over many decades to fully appreciate the impact that these first Olympics ever to
be held in the China Region are having on the Chinese throughout the region. In the
Hong Kong subway system’s Central station, for example, is a large billboard stating
“Hong Kong – Beijing: Partners in the 2008 Olympics” and an electronic clock counting
down to the second when the Olympics are due to start. The whole region is being
galvanized around this event, which will turn the eyes of the world on China like it has
never been before. With the onslaught of hundreds of thousands of foreigners coming to
see the Olympics, there will be a unique window of opportunity for gaining distribution
for Washington wines during the first half of this year.
A similar opportunity for Washington wine will emerge with the 2010 Shanghai World
Expo, which will attract exhibitors and visitors from around the world and introduce the
increasingly cosmopolitan Shanghai population to a wide array of global tastes and
Thus from a global perspective, Washington wines represent a niche market of high end
quality wines at increasingly affordable pricing, well positioned to take advantage of the
rapid growth in demand for these products in the China Region.
Going to Market in the China Region
The current dynamics of the China wine market shows all the signs of a young industry
very much in a rapid phase of growth and maturation. Most of companies involved in
importing and distributing wine on the mainland have only been existence for a few years
and they are engaged in the process of rapid expansion, putting in additional distribution
centers around the country. Several of them are established Hong Kong companies that
have recently made forays onto the mainland and Macau, sensing the unique
opportunities that are occurring in these markets. The Hong Kong market itself, while
well established, is undergoing a significant increase in growth, powered by the recent
drop in duty on wine from 80% to 0%. This drop, which occurred in two incremental
moves, the first on April 1 2007, and the second on February 27, 2008, is expected to be
largely passed onto to the consuming public, and make imported wines affordable to a
much wider circle of consumers.
With its huge internal market, the United States has traditionally not focused on exports
in general and this is particularly true for the wine industry. The world’s fourth largest
producer of wine, the USA produces more than twice as much wine as Australia but
exports less than two thirds as that country. Even Chile, which produces less than one
third of the wine that is produced in the USA, exports about 20% more wine. According
to the Wine Institute of California, US exports of wine totaled $876 million in 2006, with
95% of the sales originating from California. Total sales were up 30% over 2005 by
value, and up 4% by volume. US exports were in “China, up 53 per-cent by value;
Singapore, up 68 percent by value; and Hong Kong, up 19 percent by value (prior to the
cut in Hong Kong tariffs). In 2007, US exports to China increased an additional 74%,
and US wine sales to Hong Kong jumped 34%. "China's increased growth rate is
significant because of the market's huge potential, the country's economic growth and the
number of consumers who can afford imported wine continues to grow. Our trade
missions have brought new brands to the market, and our participation in trade shows and
retail promotions have been successful in increasing the sales of brands active in China,"
said Eric Pope, Wine Institute Manager of International Winery Programs. "In addition,
Hong Kong has again become a growth market and should continue to increase now that
the import tariff of 80 percent has been cut in half," he added. The experience and
growing success of California wines in the China Region market can point the way for
success for Washington wines, albeit on a much smaller scale.
Despite the significant progress enjoyed recently by California wines in the China
Region, the French have the kind of market penetration that is exceeded probably only in
France itself, with over half of the SKUs in the premium import category. In Hong Kong
for example 46% of the sales by value are French wines, followed by Australia with 17%
of the sales volume. French wine clearly has the market cornered on perceived prestige
and Washington and American wines are not going to change that reality overnight.
The strategy proposed by Transnational Ventures, Inc. does not target the market leader,
France, but rather banks on the rapid broadening of the market and growth in
sophistication of Chinese wine consumers that is underway. TNV Inc. seconds the advice
and observations of the US ATO Shanghai GAIN Report on the China Wine Market:
Events such as wine tastings for trade professionals, wine dinners, and trade
shows are typical ways to introduce wines to hotel and restaurant buyers and
distributors. France and Australia, for example, have consistently installed large
pavilions at trade shows dedicated to their wines. Today they have the highest
market shares for bottled wine.
TNV Inc. made an exploratory trip to the region in November 2007, attending the Wine
& Gourmet Asia Show in Macau and the Food and Hotel China Show in Shanghai, as
well as examining the market at retail in Hong Kong, Macau and Shanghai. Contact was
established with over two dozen distributors and importers, as well as several key
retailers, in these markets. While several importer/distributors had immediate interest in
the product and pricing of Washington wines, most had more of a long term interest.
Mathew Bahen, the Brand Ambassador – North America for ASC Fine Wines, one of the
largest importer/distributors on the mainland, told TNV Inc. the following: “…at this
time we are not looking to expand our portfolio but I have shared your information with
our senior management in the event that this position changes in the future. On a more
positive note, I can say that the demand for Washington wine, whilst still small, is
growing rapidly and more and more industry decision makers are actively seeking out
quality products from the northwest”. Acknowledging the rapid growth of both their
companies’ business and that of the market for imported wines in general, most other
distributors/importers speculated that if they did not have an immediate need for a
portfolio of Washington wine to offer to their customers, they in all likelihood soon
would. Thus they were eager to establish contact with TNV Inc.
In discussions with representatives from the US Agricultural Trade Offices in both Hong
Kong and Shanghai, several themes emerged. One was a lamenting of the fact that
American companies in general are ignorant of the opportunities afforded to them by the
China Region market. They are not geared to export, and don’t take this opportunity
seriously. Specifically regarding wine, the ATOs see this as a significant and emerging
opportunity, despite acknowledging the entrenched market position of the French. The
rapid growth of wine consumption and wine imports in the region virtually assures
greater market penetration for American wines in the near future. The growth of Macau
as an international gaming and vacation center was one obvious opportunity for
American wines, while the rapid growth of a mainland Chinese affluent class, eager to
adopt many of the cultural norms of the west, and viewing imported wines as a symbol of
sophistication and status, was another. The ATO representatives cited success that they
have enjoyed working with California groups in promoting those wines with influence
makers in the region. A key service that they offered was to use the prestige of their good
offices to sponsor wine tasting events to key potential importers, distributors, retailers
In going to market in the China Region with high end quality wine, the targets at retail
will be high end restaurants, wine stores, and specialty supermarkets that specialize in
imports and luxury goods. The mass market supermarkets are for the most part not the
right venue for these products currently, though several years down the road, as the
market broadens, this may change. The targeted retailers are looking for new quality and
innovative products to introduce to their customer base, and once exposed to the excellent
taste profile of Washington wine should be receptive and responsive.
TNV Inc.’s strategy for market penetration in the China Region market involves working
with WUSATA (Western United States Agricultural Trade Association) and the funds that
they make available to small companies attempting to export product abroad. WUSATA’s
branded program makes government money available for up to five years to cover up to
50% of the costs of export activities, such as trade shows, market advertising, and private
tasting events targeted at opinion makers in both the media and the wine retail and
TNVI’s plan is to represent three to four mid-size Washington wineries and enter them
into the WUSATA branded program to obtain eligibility for export assistance. The
Market Development expenses outlined in Appendix II will be largely born by TNV Inc.,
with participating wineries supporting the program with a samples allowance for
tradeshows and customers. Reflecting the long term nature of this project, and the fact
that wine sales in short term will be modest and not a sufficient return on investment for
either the participating wineries or TNV Inc., wineries will be required to sign exclusive
representation agreements for the China Region with TNV Inc. that run five years.
TNV Inc. will receive purchase orders from importers, help consolidate orders and
shipments, and receive a 10% commission on the FOB winery selling price.
Initial market penetration will be achieved through established contacts and trade show
presence. Educating the Chinese “market makers” i.e., influencers to the unique qualities
of Washington’s terroir, resulting in world-class wines and how these wines pair up better
with Chinese cuisine and wine drinking purposes will be a focal point at the tradeshows.
There are five key points to focus on to achieve successful market penetration:
Following up on leads established at the November 2007 trade shows
Showing and tasting the wines in 2008 at key tradeshow venues,
Explore the possibility of teaming up with the Ste. Michelle Wine Estates Group
to sponsor US ATO events for key China Region importers, buyers, retailers and
opinion makers in conjunction with 2008 tradeshows;
Producing and distributing bi-lingual brochures and point of sale materials in
Mandarin and English; TNV Inc.’s use of Mandarin in its business dealings gains
instant rapport that is often lacking with other American companies seeking to
penetrate the market.
Establishing long term, sustainable relationships with importers, buyers and at
retail. It’s critical that a long term view and commitment to the market prevail in
all trade dealings.
TNVI has identified four key tradeshows to participate in that maximum market reach
while minimizing tradeshow and travel expense:
Wine and Gourmet Food Asia, Macau, November 5-7, 2008 -7300 trade visitors
in 2007, with 45% coming from Macau and 55% coming from abroad (many from
nearby Hong Kong). Key object at this show is to get hotel/restaurant/casino
distribution and exposure in the Macau market.
Food and Hotel China, Shanghai, December 4-6, 2008 -17,043 visitors in 2007,
two thirds of which came from Shanghai itself.
SIAL China May 2009
Vin Expo Hong Kong May 2009
Three large importer/distributors have the lion share of imported wine distribution in the
mainland market currently. One of the three, ASC Fine Wines, already carries several Ste.
Michelle Wine Estates items. ASC, which is less than a dozen years old, is one of the
older more established imported wine distribution companies on the mainland, with
several Hong Kong based companies scrambling to share in the fast developing markets
in both Macau and the mainland. Based upon our recent experiences in November 2007
contacting these companies, and confirmed in discussions with US ATO Shanghai
representatives, the three majors are more conservative and cautious in bringing in new
wines. However there are over a dozen “second tier” more recently established
companies that are rapidly growing in the market, and these are more likely to be
receptive to bringing in Washington wines from independent producers. This supposition
by the US ATO representatives correlated with TNV Inc.’s experiences at the recent
tradeshows. Thus targeting members of this second tier group would be the thrust of TNV
Inc.’s market strategy.
Since several of the wine importers/distributors are currently expanding their operations
across the region, or are in the process of doing so, they are likely to request exclusive
distribution rights for an area greater than their current area of effective market
penetration. They will do this to protect their future growth plans, and will likely have to
be accommodated in this regard. This is in the nature of an immature and rapidly
evolving industry, and thus choosing the right long term partner will be critical to the
success of the overall program to export wine to the region.
TNV Inc. believes that obtaining initial distribution with six to twelve Washington wine
SKUs from mid-sized independent wineries is attainable in 2008. This will have to be
followed up with programs of support to ensure product placement at retail. Trade show
exposure is key in obtaining this objective as representatives of the key retail channels are
in attendance at the shows. For wine shops and specialty stores, point of sale materials,
which are in little evidence currently in the market, have the potential to play a role in
gaining consumer acceptance. In all likelihood, the wines that achieve initial market
penetration will see their product offerings expand over the next several years as the
China Region market continues its expansion.
As Washington wines win accolades, awards, and worldwide recognition, the
accompanying publicity will slowly but surely build the reputation of not only the wines
that win the actual awards, but will enhance the market position of all Washington wines.
Put another way, “Washington” should be the brand, first and foremost in going to market
in the China region, and building this brand will build sales for all Washington wines
with placement in the market. Along these lines, Washington wines should seek to
leverage the other widely recognized high prestige brands of Washington State, i.e.
Boeing, Microsoft, and Starbucks. Associating Washington wines with these quality
brands will create awareness and raise the prestige of Washington wines. “Washington
State USA – First we brought you Boeing, then Microsoft and Starbucks- now check out
our award winning, top quality wines,” is a theme that would bring instant recognition
and raise the level of curiosity among Chinese consumers for Washington wines. In
Shanghai, China’s largest and most prosperous and cosmopolitan city, there are boats
with electronic advertising billboards that cruise up and down the Huangpu River that
cuts through the center of the city. In conjunction with achieving a certain level of retail
distribution, a Washington wine ad along the lines of the aforementioned theme could be
a powerful way to stoke interest and drive sales.
Washington wineries interested in TNV Inc. representing them in the China Region
market or requiring more information or clarification on the above topics should contact
the author of this business plan at email@example.com.
Rarely do opportunities appear that have clearly converging trend lines and as large
potential as the current opportunity to export quality Washington wines to the China
Still in its infant stages, the wine culture in China is not too dissimilar from where it was
in the United States shortly after World War II. At that time, although wine was regularly
consumed by the southern and central European immigrant populations, it was largely
absent from the table of the vast majority of Americans. Per capita annual American in
1947 was just .67 gallons. There was little general understanding or appreciation of wine
in America until the 1970s, when two major cultural trends converged. One was the
beginning of the decline of jug and fortified wines used primarily to achieve inebriation,
and with it wine’s unsavory reputation among large sectors of the population. The second
was the growing “Europeanization” of American culinary culture that saw wine, among
other European foods and beverages, enter the American mainstream.
American wine consumption passed over a gallon per capita only in 1967 and rose in
1985 to 2.43 gallons where it has largely remained to this day, with per capita wine
consumption estimated at 2.77 gallons in 2006. Chinese wine consumption while
growing rapidly, stands at a paltry .35 liters per capita, but is estimated by Vinexpo, the
French wine industry trade show group, to grow by 36% between 2005 and 2010,
compared to expected worldwide growth during these same years of only 4.8%.
According to Robert Beynat, Vinexpo’s director general,"…the volume of imported wines
is expected to grow by 53% between 2005 and 2010." Thus a transformation of historic
portions, much liked what occurred in the United States in the latter half of the 20th
century is underway in China today.
At the same time as this historical transformation of Chinese culinary culture is taking
place, the profile of Washington as a producer of excellent wines is emerging with greater
and greater worldwide acclaim. Hence the opportunity to “get in on the ground floor” of
these converging trends is now.
Many obstacles and challenges remain on the path of achieving significant market
penetration into the China Region, and the project won’t be accomplished without the
kind of focused effort and commitment to the project that TNV Inc. provides. But the
long term outlook is all but assured that Washington wines will be successful in this
Appendix I – TNV Inc. Projected Timeline of Key Activity
Spring/Summer2008 - Market plan to interested wineries, securing representation
contracts with no more than four wineries. Secure WUSATA funding commitments for
these brands; renew contact with targeted importers/distributors, sending pricing and
product samples where appropriate.
Fall 2008 - Exhibit wines at China Region tradeshows (no more than 12 SKUs for initial
placement). Participate with US ATO events aimed at important industry opinion makers
and influential persons. Vet potential importer/distribution partners in the China Region
seeking out those that match up best with the long term goal of building the overall
market building. Secure export partner or partners to the region. Appoint
importers/distributors and work with them on coordinating a marketing effort and retail
penetration. First wine shipments to region.
Winter 2009 - Re-assess market position, successes and failures and re-formulate
strategy with partners to address problems and drive more sales. Re-evaluate tradeshow
results, possibly reducing participation and focusing activities at retail marketing.
Spring 2009 - Exhibit at China Region tradeshows, with the focus on introducing new
SKUs to established accounts, as well as seeking out increased distribution of top selling
items to new accounts. Special focus on Shanghai market in conjunction with the 2010
Shanghai World Expo.
Summer/Fall 2009 - Follow-up on program to broaden distribution of items to existing
Winter 2010 – Aggressive marketing and distribution push in Shanghai market as a lead
up to 2010 Shanghai World Expo; market to appropriate exhibitors and food outlets at the
Spring/Summer 2010 – Exhibit at China Region tradeshows; May 1- October 31,
2010 Shanghai World Expo
APPENDIX II Sales Projections - Three Years Based on average bottle cost FOB Winery of $12.00
1st qtr 2nd qtr 3rd qtr 4th qtr Total
2008 32256 32256 64512
2009 40320 80640 120960
2010 96768 120960 217728
1) Total sales of participating wineries based upon obtaining 9 SKUs combined in distribution in 2008,
increasing to 12 SKUs in 2009, and 15 SKUs by 2010
2) Sales based upon selling in full pallet increments
3) Sales based upon securing one distribution point each in Hong Kong/Macau and Mainland in 3rd qtr 2008;
and in Taiwan 3rd qtr 2009
4) Sales growth estimates factor in any recent changes and trends in currency exchange rates, tariffs
and taxes on wine
Appendix IV- About Transnational Ventures, Inc.
Transnational Ventures, Inc. is a start-up company founded by sales and marketing
professional and entrepreneur, Jonathan Ryweck in February 2007. TNV Inc. seeks out
opportunities afforded by globalization and the cross fertilization of significant cultural
trends in today’s rapidly changing and continually evolving worldwide business
environment. A summary of Jonathan Ryweck’s skill set and experience is below:
2007- Present- Founded Transnational Ventures, Inc., Port Townsend, WA, a company
engaged in wine retail consulting. TNV is exploring projects such as exporting
Washington wines to the China Region, and developing Pacific Northwest tourism
opportunities for Europeans.
2002-Present- Co-owner, Ham & Rye LLC, Port Hadlock, WA. Commercial real estate
venture that developed and built a 30,000 square foot, multi-use four story building in the
historic district of Port Townsend, WA. While retaining ownership of 15,000 square feet
of multi- use commercial space, including retail and mini-storage space, eight view
condominiums were sold off in 2005.
2002-2007- Co-owner, Aldrich’s Market, Port Townsend, WA. Operated historic
grocery store with a special emphasis on wine, gourmet and natural foods and perishable
departments. Ownership position sold in February, 2007.
2000-2001- Account Executive- Action Sales and Marketing, Seattle, WA. Focused on
building the natural foods side of the business. Developed marketing concept and plan
for “Viet Cuisine” line of products in concert with VW Trading Company and Vietnam
1995-2000- Director, Natural and Specialty Food Sales, Associated Grocers, Seattle,
WA. Developed and expanded natural and specialty foods program for the largest
independent grocery distribution company in the Northwest. Spearheaded the
development of Western Family’s Natural Directions brand of organic and natural
1985-1995- Vice President Sales and Marketing, NutraSource, Seattle, WA. Developed
successful start-up natural foods distribution company into becoming the largest
distributor of natural foods in the Northwest, reaching sales of $45 million annually by
the time the company was sold to Mountain People’s Warehouse of Auburn, CA.
Foreign Languages- Proficient in French, some knowledge of Spanish and Mandarin