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What will it take for the Chinese to embrace Napa Valley Cabernet Sauvignon?

19 comments

 

The Holy Grail for California wine has been China. With its hundreds of millions of emerging upper-middle class consumers, Cali producers see a vast new source of demand. The problem is how to persuade all those Chinese that they want California wine.

We already know they want French wine. Parker has been investing his time and energy heavily in China for many years (I remember raised eyebrows when he started visiting with regularity, but he was ahead of his time, wasn’t he?), and now, of course, a Singapore outfit owns Wine Advocate.

RMP himself is now back tasting California wine. (Ironic, isn’t it? First he said he didn’t want to anymore. Then “the troubles” went down with Galloni, and The Man Himself was compelled to return to a beat he’d previously said he was tired of.) So, while the Wine Advocate is competition for the magazine I write for, Wine Enthusiast, I do think that Parker is in a position to publicize to wealthy Chinese consumers the Napa cult wineries he likes. If I were a cult Napa producer, I’d be all over Parker, inviting him to the winery, getting my wines into his hands, then keeping my fingers crossed for a 99 or even a perfect 100.

But I also think Wine Enthusiast has growing clout in China, a clout that will only increase over time. Last year we began a Mandarin edition of the magazine, and my understanding is that it’s doing quite well. It was, I believe, the first important English-language wine periodical to be published in the Chinese language. And, as that edition also reports on my scores and reviews of Napa cult wines, I think it’s likely that those scores will drive sales, too.

Of course, some Napa wineries don’t have to worry about scores. Yao Ming’s wines ($625 for the 2009 Family Reserve) were an instant hit in China, for obvious reasons. I suspect that Screaming Eagle and Harlan also are doing well. The kind of people in China who can afford them have extensive connections with the west. They tend to speak English and are aware of the consumer goods, including wine, that are popular and prestigious in America. They take their cues from rich Americans and are ever alert to symbols of status and preference. Since critics like Parker tend to rate these wines highly, that should make them in high demand in China.

What about the other hundred or so Napa cult Cabs?

It’s terribly difficult for individual wineries to market themselves in China. But the Napa Valley Vintners has been plying those waters for a long time. This article, from the Huffington Post, does a good job describing the general contours of breaking into the Chinese market, but to me, the bullet quote is from Harlan’s GM, Don Weaver“Trying to solve the China puzzle is the most exciting part of my job right now.” The adjective “exciting” is an interesting choice; Don might have used “challenging,” but when you rise to meet a challenge, and then perhaps exceed it, it is exciting.  (I felt that way when I was awarded my first Black Belt in karate.)

Napa wineries (and others in California) also recently got a boost from Gov. Jerry Brown, a longtime friend of the wine industry, when his April trade mission to Shanghai (which included Wine Institute’s CEO, Bobby Koch), promoted the state’s wines; the promotion also included a “Taste Napa Valley” event sponsored by Wine Institute.

These activities all are promising, and the people organizing and managing them are very good at what they do. But there’s a limit to how effective they can be at the individual winery level. If you’re selling a 93 point Cabernet for $100 or more, and you don’t have an ultra-famous name and have only been around for a few years, you’re going to have a tough time, whether it’s here in the States or in the People’s Republic. It’s those Napa Cabs I wonder about. Who’s buying them? Who will be buying them? Maybe their proprietors are so rich they can afford to break even, or even lose a little money, for a decade or two. I have a feeling they’re about to find out.

  1. Singapore is not Shanghai, nor is it in China…

  2. Hundreds of millions of upper middle class Chinese? Ummmm, no.

  3. Bill Haydon says:

    Well written article, Steve.

    I’m not sure that the Chinese will ever warm to Napa Cabernet. China is not only not a wine culture, but it’s not a drinking culture, period. Unlike the Chinese, the Japanese and Koreans liked to drink before discovering wine and were, therefor, in a much better starting point for learning and appreciating wine as an end in itself.

    In China, wine is viewed solely as a means of conveying wealth and status, and that is best done by slavishly taking on the affectations of the stereotypical upper class Englishman…..hence the obsession with Champagne, Claret (and to a lesser degree Burgundy) and Cognac. It’s the same drive that is fueling other British luxury goods in China from suits and handbags to Barbour Coats and Smythson of Bond Street iphone covers. Hell, London’s Financial Times recently had an article about how wealthy Chinese are fueling a surge in demand for traditional English butlers.

    Unfortunately for Napa, the model to which the Chinese are looking for their affectations of wealth is one with no track record of drinking California wine.

  4. It is so frustrating to hear you speak about selling wine, an aspect of the business which is not your current niche or specialty.

    Selling, “93 point Cabernet for $100 or more, and you don’t have an ultra-famous name and have only been around for a years” isn’t as difficult as you make it seem to be.

    Not every wine consumer is dependent on you, Laube, or Parker to put a silly number next to a wine and it’s vintage.

    Just because a wine has been labeled a number, which is merely an opinion mind you, does not make it tough to sell at a price point of $100.00 or above.

    I challenge you to visit Napa wineries and see who is sitting on pallets of unsold $100.00 Napa Cabernet Sauvignon, and sweating because they feel that it’s a tough sale. Who is having a tough time? Who is sitting on cases of 2007 Napa Cab, wondering how they are going to get rid of all of this unsold wine?

    I always like your blog. Seriously, you are my favorite voice in publicized wine and I thank you for all that you write, and the discussions that result are a testament to your provoking and intriguing point of view.

    I see so many wineries in Napa whose first vintage were not in the 90’s, but in the 2000’s and are quietly raking in $100.00 plus for their (quality is objective) Cabs.

    The $100.00 price point is an easier sale than the $85.00 or $90.00 price points. To most consumers, if you’re under one hundred, it means that you’re almost as good as a $100.00 bottle, but you’re not.

    Retailers outside of the winery may have a tougher time with wine that has been labeled by The System as 93 points, relatively unheard of at the $100.00 price point because in a retail setting, it’s just a bottle on a shelf.

    Napa wineries today, in 2013, are spoiled with the sheer quantity of consumers fighting for unheard of $100.00 Cab and quite frankly getting away with one in my opinion.

    It should be tough. You’re right. But the $13 billion doesn’t happen with sales of $24.00 Sauvignon Blanc.

    It’s almost unbelievable the rate of which the country’s top 1% flock to this 30 mile long, 5 mile wide valley with the sole intention of purchasing nothing but $100.00 Napa Cab, whether your Silly Number attached to it is 93 or 103.

    Economically, $100.00 Napa Cab is on the verge of selling itself.

  5. Bill Haydon says:

    JG, I’m not sure if you’re completely clueless to the current situation in Napa, are naive enough to believe the Valley’s continual refrain of “all is well” or are cynically spinning that refrain yourself, but as someone in the business of selling wine, nobody is fighting to buy $100/bottle Napa Cabernet these days regardless of scores.

    I spent a year consulting for a small group of Napa wineries (most with consistent 93-98 point scores; some for more than a decade) who had watched their sales in New York, DC, Boston and Chicago wither into nothing, who had been dropped by wholesalers or who couldn’t find representation in the first place. Despite the ridiculous level to which the winery owners would lie to me (and each other) about how well they were doing, a clear picture began to emerge through talks with winemakers, marketing managers and even the odd cellar rat. I spoke with management at various distributors who had kicked these wines (and you would immediately recognize the names were I to list them) to the curb. The reality is that vintages are stacking up. 95 point Cabernets are only selling half to two-thirds of the vintage. Wines that manage to hold onto distribution are being closed out at huge discounts. Distributors–particularly in the heavily Euro-centric markets above–clearly have adopted an Anything But California mentality. Those are the realities of the current wine market, and if you can’t see them or are willing to buy into the “all is well” tales of your neighbors, nothing I can say will enlighten you.

    Your post represents the distasteful “Emperor Has No Clothes” mentality that currently pervades Napa Valley and which is why I gladly abandoned this project when my year was up and would prefer a Chinese labor camp to ever working with “the valley” again.

  6. Bill Haydon-
    You are totally right.

  7. There are so many dynamics at play in China that work against the sales of wine in general and high end Napa wines in particular.

    The government recently changed and has officially put the lid on public displays of wealth and luxury goods. It also seems that expensive wines have become the ‘fruitcake’ of China – gifted and re-gifted but often never really served. The 40% value tax on US wines (0% for Chile, Australia and others) makes it really tough. couple the tax with distributor markups of 200-300% and your come out with wines that sell for $100 in the US costing several hundred dollars WHOLESALE in China.

    Another thing to consider is that the Chinese people are, in general, genetically bitter-sensitive and a large percentage have an inability to metabolize alcohol – alcohol dehydrogenase syndrome. This combination does not play out well for high-alcohol, highly extracted and heavily oaked wines. A very hard sell indeed.

    The final piece of the puzzle seems to be the descriptions and metaphors employed to describe wines in the West do not readily translate to the Chinese language, culture and values – something that I am researching with Sasha Paulsen and several parties in China, for our upcoming book to be published in Chinese. We are making a trip together in August to meet with Chinese consumers and professionals to continue our work on this project and I am making 3-4 trips a year for training programs in Hangzhou – educating myself more than I am educating the Chinese at this point. On my last trip I joined the Napa Vintners for a dinner and auction in Hangzhou.

    I certainly agree with Don Weaver – and exciting puzzle to be figured out indeed!

  8. Carlos T says:

    The per capita consumption of wine today in China is close to 200ml year. Just think of how much can be sold if they merely double the consumption.

    A vast (by miles) majority of wines bought by the chineses are the cheapest and lousiest possible ones from australia and europe. Why? Because most of these wines are given as gifts to politicians and people who open doors there (yes, there are millions of these people).

    I followed one chinese buyer for one week in europe as recent as 3 weeks ago.

    They all aim the sub euro wines. They change the dynamics of many wineries which reluctantly (at first) refuse to produce quasi-wine for the chinese.

    The wineries most of the times relinquish to the new overlords…and get back to making that ‘wine’again.

    Damn, i wish i had learnt mandarin instead of english first.

  9. Dear Tim Hanni, thanks for shedding so much light on this topic!

  10. Marlene Rossman says:

    “What will it take for the Chinese to embrace Napa Valley Cabernet Sauvignon?”
    Coca Cola!

  11. Jonathan O'Bergin says:

    I am writing from Xiamen, Fujian, China and will address two issues.

    First, it is unclear what Carlos T. is referring to by saying “sub euro wines”, but it seems to mean poor wine vinted specially for the Chinese market. This may indeed happen, however, the representation of excellent value to quality ratio French wines here is exceptional. Wines from the Ardeche, Languedoc and Cotes du Rhone are readily available on the internet and receive THOUSANDS of pity comments from consumers. For the last two years I have carefully followed the relationship between reviews and the quality I personally percieved after tasting the wines myself. My travels through the French wine regions began in 1978, and it is my opinion that the Chinese wine consumer (not collector/gift giver) loves good red wine and is becoming very savvy about quality. China is now the largest consumer of red wine in the world and consumtion is growing.

    Secondly, I receive offers nearly everyday from US based wine merchants and California wineries offering Cabernet “released” at $75 and up, for deep discounts. The Emperor indeed has no clothes. Anyone banking on breaking into the Chinese market with Californian Cabs in that range has a very difficult row to hoe.
    That niche is increasingly filled by homegrown Chinese Cabernet from regions such as Ningxia and Yantai.
    French trained winemkers, modern viticultural techniques and a growing belief (albeit a bit optomistic as of yet) that world class Cabernet, in particular, can be grown in China all are factors which work against the Californian Cabs in the catagory being discussed in this thread.

    Sales at Napa Valley farmgates does seem to be the best way for these wines to go.

  12. Dear Jonathan O’Bergin, thank you very much for your informative remark. I learned a lot from it, as I am sure my readers have. I hope you will weigh in with additional comments in the future.

  13. Carlos T says:

    I heard a nice remark from a spanish producer:

    In all my many years in the industry, i’ve never seen people who learn as fast as the chinese. After going 3 years back to back to mainland China they went from holding the glass by the bowl (like americans do on tv) to finding things in my wines i was unaware of.

    One chinese told me recently they find the europeans very lazy as they don’t work on saturday and sunday.

    Ever wonder their top 1% comprises 14,000,000 people?

    Steve, international topic, i loved it!!

  14. 3% RS

  15. Bill Haydon & JG

    I wonder if your disparate views are reconciled when you to take into account the sales stream?

    Distributor consolidation is making it even more difficult for small brands, no matter the scores, to get traction in major markets.

    At the same time, direct to consumer business for high-end wines has never been more healthy.

    So, unless one is talking about the luxury brands that make thousands of cases of the flagship wine, I think there is at least a balance of inventory to sales if not slightly too little.

  16. Reading everybody’s comments with great interest as I am preparing a slew of documents for a 300 case order of our high quality Napa Valley Cabernet Sauvignon for export to Mainland China – and by all means we never offer discounted prices. Affording a first class vineyard team, a top winemaker that actually gets his fingers red and makes the wine, custom equipment and a steady payroll for a small family owned Rutherford estate with all hands on deck, we cannot produce a great wine, sell it cheap and stay profitable.

    I’m certain most of you have never heard of us, but Martin Estate, established in 1887 as the H.H.Harris Winery, has been around since 1996. Quite old fashioned, but effective, we release our new vintage when the previous one is completely sold out – no 2007 here, “JG”, and the 2010 will be gone no later than fall.

    I was very pleased to see Jonathan O’Bergin’s comments, and agree with him on most accounts. We started wine tasting seminars in Chengdu in 2010, and visited Bejing and Shanghai frequently to introduce Martin Estate Cabernet Sauvignons to the market. For over two years, I have been writing a bi-lingual column about the Napa Valley for a glossy upscale Chinese Wine magazine available only in Mainland China. I find the Chinese consumer to be very interested, eager to hear about the Napa Valley, and perfectly capable to recognize a high quality wine. But I admit that there is a catch. Jancis Robinson poignantly wrote awhile back in her brilliant column for the Financial Times that when it comes to China, “without a Chateau it’s a no-go…” Bordeaux is undoubtedly the Gold Standard in China when it comes to high quality wine, and I have always admired the French for their outstanding marketing.

    Large U.S. producers, Napa Valley and beyond, with expanded vineyard contracts that allow mass production of wines labeled “Estate bottled” don’t appeal to the high end buyer in China, nor do custom crushed or wines produced off site. But a small historic chateau with a first growth vineyard, an excellent French trained winemaker, and involved proprietors that are comfortable with Chinese culture can have a faithful following.

  17. So much mis-information and a few kernels of wisdom.

    First, China is definitely a drinking culture. Domestic production of wines and spirits is immense and all of it is consumer in the domestic market. Brands like Dynasty and Great Wall are massive and are moving upmarket.

    Second, California wines are growing at above average rates of growth. Take as an example, Gallo, who are nearing the 650,000 case mark this year.

    Third, Napa wines are expensive relative to the market average and there are many better value. Bordeaux, Italy and Spain continue to offer Chinese consumers much better value for money than Napa.

    Fourth, Napa’s time will come. As the consumer becomes more familiar with the product and the quality inherent in a Napa wine the base of consumption will broaden.

    As reference, I have been here since 1985 and have built a very significant wine business for my prior employer. Currently, am involved with winesociete.cn, a Chinese language site for wine enthusiasts.

  18. Emilie S says:

    Working and promoting North American wines in China, primarily wines from Napa Valley, I can tell you first hand that there is a growing interest in USA wines. It’s thanks to prestige and cult wineries that Napa Valley obtains recognition in the Chinese market and this benefits all producers. Robert Parker points or other awards are not the only sales point. The biggest problem we face is the on-going commitment from wineries to support their brand abroad. A little goes a long way, such as providing marketing information (quality pictures or video), visiting during important trade shows or even additional tasting samples for product trainings.

    There will always buyers who are willing to pay high prices but recently that has changed dramatically. We all share the assumption that everyone keeps buying wine with their eyes closed and wallet out but everyone is feeling the pinch after the government cut down on banquets and spendings. Nonetheless, now buying overpriced wine is considered being ripped off and business people don’t like to lose face. The new focus is value for money, wines with ratings and a unique story. The whole package…. just like anywhere in the world.

    You’re articles are great! Thank you for always contributing and sharing your views on the wine industry!

  19. Bill Haydon says:

    Steven Mirassou,

    While I certainly agree with you that distributor consolidation is a problem in many (most?) markets, it’s not a universal problem.

    NYC has always had a vibrant wholesale scene. So much so, that Empire and Southern are pumping hundreds of thousands of dollars into legislative races in order to purchase rule changes to stifle the small distributors’ business.

    Chicago is literally choking on the number of traditioinal distributors and importers who self-distribute currently working the market. Recent accounts have the total at somewhere North of 120. In that market, the barrier to entry is incredibly low: $295/year for the license and you can contract out warehousing/delivery services to third party companies. Yet despite the glut of wholesalers, Chicago remains a virtual dead-zone for high end Napa/Cali wine.

    One of the more frustrating aspects to my consulting gig was a strenuous need to “blame the distributors” for all ills. It was–to my eye–almost a psychological crutch alleviating any need for self-reflection and any hard, clear-eyed appraisal of the market.

    I’m no apologist for the three tier system…believe me. One truism that I’ve found throughout it though is that distributors will always follow the path of least resistance. They rarely will drive the market. They don’t want to actually do the long-term work of building and managing brands. Rather, they are highly reactive to the demands of the market. If those distributors are dropping 30% of their high end California portfolio while doubling their high end European portfolios and if reps are constantly avoiding taking that $100 bottle of Cab out in favor of the $100 bottle of Burgundy or Barolo, that’s not some philosophical statement on their part but rather a crass and cynical restructuring of their company’s to meet the needs (demands) of their clients. That is a much harder pill to swallow and a much greater challenge to overcome for Napa than simply whining about wholesalers constantly.

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