The Emerging Asian Wine Market

2 Jun

There is a new frontier to be explored by U.S. wine producers, one where wine consumption is growing exponentially.  The combination of an expanding middle class and increased interest in wine has turned Asia, particularly India and China, into a lucrative new marketplace for those wishing to grow their wine business.  The Chinese palette is shifting from grain wines to more healthy grape wines, while Indians, who in the past drank primarily whiskey and beer, are increasingly gravitating towards wine as well.  While protectionist regimes in both countries have created trade barriers for those exporting wine to them, such as exorbitant excise taxes and complicated sales and distribution chains, the sheer growth of these markets and the gradual liberalization of wine policies in these countries illustrates their true potential.

The joint population of these two countries equals around 2.5 billion people, a little over one-third of the world’s inhabitants, which makes India and China massively untapped markets for wine consumption.  As these countries continue to improve their infrastructure, international business prowess, and level of education, they will undoubtedly challenge the United States’ position as the preeminent world power.  With all this growth comes an increased per capita spending power, an ideal scenario for the promotion and sale of wine.  The potential for growth can be seen by looking at per capita wine consumption.  In 2008, the U.S. consumed 9.8 liters per capita, while China consumed 1.08 per capita, and, astoundingly, only .01 liters per capita in India.  As the living standards in these countries continue to grow and disposable income becomes more readily available, wine has the potential to be a staple alcoholic beverage of choice for Indians and Chinese, just as it has become for many Americans.

India is the 10th largest growth nation for wine, and within Asia expected to be the biggest growth market, with annual consumption expected to double from 2009 to 2013.  Ten years ago India only had three vineyards, today it has 69.  The highest level of wine consumption is in the cities of Mumbai and New Delhi, bustling metropolitans comparable to New York and Los Angeles.  Other major cities such as Bangalore and Kolkata are seeing increased wine consumption as well.  A softening of traditionally negative views of alcohol by many Indians (the icon of Indian independence from the British, Mahatma Gandhi, was a teetotaler), combined with higher levels of disposable income and glamorization of wine culture by Bollywood, are all factors making India a prime candidate for increased wine consumption, and thus wine exportation from the U.S.

China is the 8th largest wine consumer in the world, and  consumption is predicted to increase by 32% from 2009 to 2013.  The high end wine market is succeeding in China, where uncorking a $1000+ bottle of wine is sign of generosity and culture, and becoming a typical way wealthy Chinese close business deals.  Wines of the opposite end of the spectrum, sold for a few dollars each, are also very popular.  The next step is to promote the sales of mid-level wines to consumers wishing to drink quality wines but not those of excessive prices.  Once this is accomplished China will truly be a wine consuming behemoth.

Both nations realize this enormous potential, and have enacted protectionist policies to benefit those producing wine within their borders.  India and China have both only become members of the World Trade Organization within the last 15 years.  As WTO members both are bound to certain caps on tariff rates, but still manage to circumvent these limits through additional taxes on top of the agreed upon tariffs.

For example, the state of Maharastra, home to Mumbai, charged a 200% excise tax on any imported wine, while local wine producers are exempted from the tax.  In India, a $10 bottle of wine here in the States may end up costing three or four times more, which combined with the low exchange rate for the Rupee makes purchasing imported wine costly and impractical.  All this taken into consideration, pressure from the WTO  in unison with globalization and an increased demand for quality imported wines will eventually erode these barriers.  Also, while customarily wine has not been allowed to be sold in groceries stores and malls in India, some states have liberalized policies to allow for wine to be sold at these retailers.  This could very positively impact a wine market in which most wine sales currently occur in restaurants and hotels.

China imposes a 50% tax on imported wine, also making it less likely for imported wines to be sold.  Further, the French have come to dominate the imported wine market by convincing the Chinese over the last few decades that their wine is of higher quality.  In 2008, the U.S. only made up 5% of China’s wine import market, while France held 46% of it.  Australian and New Zealand producers also have a distinct geographical advantage in exporting to both China and India because of their relatively closer distance.  Nonetheless, California wines are making progress as the Napa brand grows in recognition.  The Wine Institute has recently begun a campaign to educate Chinese wine drinkers on the high quality and exceptional terroir of California wines.

California has a great amount to gain from these new markets.  Of the total amount of wine exported from the U.S. around the world, 95% come from the Golden State.  California is also home to the most prestigious American Viticultural Area, the Napa Valley.  It would be advantageous for a state currently in dire economic circumstances to promote its strongest industry in the burgeoning markets of India and China.  The potential for wine sales in these countries is boundless, and U.S. winemakers would be wise in being forward thinking and innovative in exporting wine to this new and unique market.

Image credit to Arvind Balaraman / FreeDigitalPhotos.net

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