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Chinese demand for Napa Valley Cabernet only just beginning

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What will happen when the Chinese discover Napa Valley Cabernet Sauvignon?

For the answer, we look to Bordeaux. China is now Bordeaux’s largest export market, a position long held by Britain. As a result, prices for Lafite, Latour and company, already high, have soared, placing those wines effectively beyond the reach of all but the world’s one percenters, including those in China. Chinese people are buying up Bordeaux chateaux, with at least six now so owned. It’s impossible to forecast an end to China’s Boreaux-mania. Indeed, there’s no reason at all why it should stop. It’s just getting started.

The laws of supply and demand being what they are, it’s likely that prices of the top Bordeaux will continue to rise. They’ve been going up for years, anyhow, making this one of the longest sustained periods of steady increases in Bordeaux’s long history, to judge by Eddie Penning Rowsell’s record-keeping in The Wines of Bordeaux.

But even a wealthy Chinese collector must blanch to some of these prices. What happens when top tier Bordeaux starts to be too expensive in Beijing, Hong Kong, Shanghai? People look to second tier Bordeaux. That’s exactly what we see happening: Decanter just reported that, despite some softening in pricing for Lafite and other First Growths on the auction market, prices for “blue chip second wines” are “robust,” a phenomenon that “is almost certainly due to the Chinese market.” The Chinese, it seems, will pay more for a wine like Carruades de Lafite (from Chateau Lafite Rothschild) or Chateau Margaux’s Pavillon Rouge than will an American or European.

So we already see incredibly high pricing pinching the prices of First Growths in China, leading to increased demand for “lesser” but still prestigious Bordeaux. What does it mean for Napa Valley Cabernet Sauvignon?

Pretty obvious. After Bordeaux, what’s the most famous region in the world for Bordeaux-style wines? You got it. Chinese interest in Napa Valley is on the rise. A delegation of Chinese wine industry types recently visited the valley, and of course Yao Ming is going to further raise Napa’s visibility in his homeland when he starts selling his own wine there.

You can see where this is heading. it can be only a matter of time before the top ranked Napa Cabernets hit China bigtime. (I suspect the Chinese will have a harder time with Meritage-style wines with proprietary names.) The Napa Valley Vintners, sensing opportunities, last year sent a major league delegation to the PRC; it included Amuse Bouche, Rubicon, Dalla Valle, Wilver Oak, Moone-Tsai and Heitz. Janet Viader, who also was part of the mission, told the Napa Register on her return, “I was very inspired to pursue opening the Chinese market for us.”

Truer words never were spoken.

  1. Steve,

    We just shipped our first order, 300 cases, to China. No Cabernet either!

    Adam Lee
    Siduri Wines

  2. I speak conversational Chinese and have a mix of friends that are Chinese living in America as well as American friends living in China. We frequent several areas where many young Chinese gather, like the Starbucks on Cliff Drive in the Mesa neighborhood of Santa Barbara. Sit there for a Saturday afternoon on the patio area and you can watch a parade of 18-24 year old Chinese students in $40,000-$80,000 cars and designer everything. Many hail from cities like Shenzhen, a special economic zone of China. Their parents are often business owners, factory owners, and the kids are here to study in the US because it is a sign of prestige back home.

    The important thing to remember is that China, with a huge portion of the population in poverty, still has a middle class the size of the entire United States and an increasing segment of that class is very wealthy. While I would hate to generalize, many of my friends from China under the age of 30 or 35 (who came of age in New China after the 1989 Tiananmen Square crackdown), have a high interest in quality products, from clothes, to cars.

    Steve is right on here. Napa, Sonoma, time to practice your Mandarin!中国是未来! (China is coming)

  3. Ryan Flinn says:

    I wonder though if these prices increases on the high end hurt the unheralded producers in the middle and low ends. The reason being, the wine drinking public sees stories about astronomical prices being paid for Bordeaux’s best, and just associate Bordeaux wine in general as expensive (or more so than they previously did), and look elsewhere for values. Sales of Bordeaux under $50 have been falling in the US, I believe. They’re trying to offset this by boosting marketing: http://www.bloomberg.com/news/2011-11-07/bordeaux-fights-price-fear-with-buff-tastings-labels-under-50.html

  4. Steve

    Living in China for the past 30 years and being actively involved in wine education in China, I have a less optimistic view of Napa’s potential.

    Yes, China’s imported wine market is poised for a decade of sustained growth (the 5 year estimate is to 50 million cases) and Napa’s share will increase off of a low base. But Napa’s prospects are clearly limited by a lack of investment in the market.

    When one looks at the ongoing efforts by the Bordelaise, it is easy to understand why they dominate the market. Figures on wine imports, released this week, show Spain and Italy growing faster than France. New Zealand’s bi-lateral agreement with the PRC allows a decrease in their base tariff rate for 2012 and onwards.

    In summary, there is no reason that Chinese consumers are going to embrace Napa wines in the absence of investment. Unlike France, Napa is not well known, lacks the imagery that Chinese consumers associate with France or Tuscany, and (if we can generalize about Napa) has wines that are not well suited to the current Chinese palate.

  5. Michael McNab, no doubt Bordeaux had the jump on Napa. But in today’s speeded up Internet age, that will change quickly. Napa Valley Cabernet Sauvignon is simply too sexy for the Chinese to ignore. And I disagree about the Chinese palate. I’ve drank Napa Cabernet with all kinds of Chinese foods and it goes well.

  6. Michael McNabb says:

    Steve

    Let me calibrate this for you. There is one retailer in Shanghai with a reasonable selection of Napa Cabs – in a city of 22 million.

    There are thousands carrying European wines……

    It’s a steep slope.

  7. It’s only a matter of time before the Chinese take to Napa Valley wine. Granted, worldwide recognition of Napa cabs is not any where near that of Bordeaux but if prestige is any part of what they seek to gain with their emergence into the wine industry, then, again, it is only a matter of time

  8. Over the last 4 or 5 years I have shipped at a minimum 30,000 cases of wine to China. I have even gone through much trouble to find, fairly price and support the customer with wine from Napa. In short, they will not pay the price, at least the people I have been dealing with won’t. It seems they will however be much obliged if I were to simply make the label say the wine is from Napa even though the wine is not, which of course I absolutely refuse to do. Oh I’m sure there are other’s who will pay for the highest quality but not lately……. they think it has to taste like Brett to be of any value.

  9. In my days as a Somm in Chicago and Indianapolis I poured plenty of of first growth to plenty of visiting Chinese businessmen. Despite having some great Napa estates on our list, the notion of non Bordelais was never even entertained. I can honestly say the interest that I saw in Napa from anyone not from the US was decidedly thin. I personally am a big fan of Napa. In fact when I originally wrote the list of 700 wines, I had a great selection of Napa wineries. Our clientele was heavily international however and the CA wines simply collected dust. So I had to readjust quickly and expanded our Bordeaux and Burgundy selection.

    I should also note that the vast majority of Asian guests rarely even cared what they were drinking, so long as it was expensive and rare. I had one table of five spend 6 grand on a Margaux and then proceed to mix it with coke.

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