China: Uncorking a Market for Organic Wine?

Over the past decade, a plethora of food scandals have plagued China - from rat meat being sold as lamb to rice containing arsenic - leading to enormous mistrust among consumers. A McKinsey study conducted in 2016 indicated that 72% of Chinese consumers worry that the food they eat may be harmful to their health. As a result, the organics market in China has grown 244% from 2011 to 2015, and 30x over the past 10 years.

Given that perceived health benefits are repeatedly cited as contributing to growth in wine consumption in China, this trend may present an opportunity for organic wineries who find themselves stigmatized in the US market to not only to sell their wines in China, but to position organic wines to Chinese consumers as superior to their non-organic competitors.

Given the enormous investment of time and resources necessary to develop and oversee relationships with distributors in China, I stand by the strategy of selling organic wine through an online platform like Alibaba's Tmall. In addition to e-commerce providing faster, more widespread DTC reach for importers, e-commerce in China is growing rapidly. Sales on a single online shopping day in China have grown 1,000x in the past seven years; overall online sales in China amounted $581.61 billion in 2015 and are expected to grow 20% annually by 2020. Almost half of wine drinkers in China buy online (~21 million buyers). According to a consumer survey, 49% of Chinese wine drinkers reported having bought wine online in the last six months, second only to specialist wine shops (61%) and ahead of import food and drink stores (42%). A survey conducted by Wine Intelligence also found that 75% of upper-middle-class wine consumers in China go online to look for wine information and 62% use social media as a source of information, which is extremely important as since Chinese wine consumers lack knowledge of wine but consider it a status good, we can anticipate their researching before purchase. E-commerce creates opportunities to leverage such pre-purchase consumer behaviors: rather than leaving home and to search for a wine you just read about, a buyer can click through a link and purchase immediately. Lastly, e-commerce penetration amounts to 89% in Tier 1 and 2 cities where wine consumption is highest, indicating a strong fit with the current market, and Internet access growing in Tier 2 and 3 cities where brick-and-mortar retail options are fewer and less sophisticated, presenting future opportunities -- and beyond the China, selling online also enables Chinese tourists to more easily find and order wines they discovered on their travels. 

Also of interest, though the Chinese market for wine has traditionally been driven by price, online buyers citing quality as the main driver of their purchases increased 18% to 26% from 2014 to 2016. 

Currently, Chinese consumers associate region with quality; however, when it comes to food and beverage products more broadly, they associate an organic label with quality. To this end, if organic growers can convince Alibaba to create a separate market on their site for Organic wine, they may be able to leverage China's lack of wine education (and therefore stigma around organic wines) and interest in health and organics to position organic wines as premium in the Chinese marketplace. Vineyards might even be able to A/B test this theory by selling the same wine in the regular and organic marketplace (though one would anticipate significant noise in their data created by the number of organic wines relative to non-organic). Given our conversation in class about the extent to which consumer preferences are driven by advertising and branding, China seems to provide an opportunity for organic wine to receive the recognition - or at least sales - it deserves.