Washington Grapes into China: Ripe for the Picking?

Growth of Washington Wine Industry
The history of Washington wine dates back to 1825 when grapes were first planted at Fort Vancouver. Washington’s fertile land continued to be cultivated over the next century by early French, German and Italian settlers. In 1960, the Washington wine industry was born with the first commercial-scale plantings by predecessors of Chateau St Michelle and Columbia Winery. Both wineries, under the mentorship of international vintners, established vineyards in what is now the Yakima Valley Appellation. Since then, the Washington wine industry has exploded in growth, most notably in the last decade, going from about 150 wineries in 2001 to over 700 wineries in 2011. Today, a winery surfaces just about every 15 days. The Washington wine industry stands proud; ranking as the 2nd largest producer of wine in the United States (1st is California) and generating more than $3 billion to the state’s economy.1
Wine in China
Across the world, wine in China is experiencing a parallel growth. Since 2003, the wine market has experienced an average annual growth rate of 17 percent by volume and currently holds a retail value of $7.15 billion. Over the same time period, China’s imported wine market has grown by 37 percent AAGR, holding a current customs value of $381 million.
Several factors have influenced this growth. One, with communist suppression a thing of the past, Chinese citizens are finding ways to differentiate themselves. Wine is one product that if purchased, promotes an identity of ‘Western’, luxury and upper class. Two, with China’s economical growth (GDP), Chinese citizens have disposable income to spend; income of which they have been spending on specialty items like wine. And three, with increased health consciousness related to wine, women that culturally have not been encouraged to drink alcohol now add wine to their drink lists or those that already drink alcohol switch from local spirits to a healthier alternative. Furthermore, wine’s well established image of sophistication prompts a greater percentage of Chinese women to partake. It is estimated that 40 percent of wine drinkers in China are women.2
Many countries recognize this new appetite for wine. France, Italy, Australia, California and Chile already have substantial presence in China. Since 2003, foreign wine exports into China have grown 274%, with 2008 sales reaching over $380 million. French wine clearly dominates, amassing 46% of the imported wine market share.
Wine in Hong Kong
Many wine distributors looking to export into China have found favor with Hong Kong. The 2008 abolition of the 40% import tax makes it cheaper to import wine and certain requirements that are necessary in China, such as bottle etching and label changes, are not requirements in Hong Kong. Further, the appetite for wine is just as healthy in Hong Kong as it is in China.
In 2010 at an auction in Hong Kong, British auction house Christie’s sold a case of what is known as the classiest wine in the world: Chateau Lafite 1982. The case sold for roughly $90,000. Five years ago, that same case of wine would’ve gone for $10,000. That’s a mark-up of 1111%! Other premier auction house, Sotheby’s has similar responses in Hong Kong. “It has been a meteoric rise. We’ll now sell over $50 million worth of wine this year in Hong Kong. That’s almost double our total in London and New York combined.”3
As promising as Hong Kong is, the size and profitability that China offers is difficult for an investor to ignore.
Challenges
Given the data above, it’s difficult to imagine that Washington wine has not made an aggressive entry into China thus far. Of knowledge, Chateau St. Michelle and Columbia Winery have a presence in China. Top Cellars of Washington, a local Washington wine exporter to China, includes a small smattering of low to mid-level priced wines in their portfolio.