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Marketing Your Products
 
Selling wine in China
May, 2007
 

Martyn Mills operates a small medium enterprise called MCM-China from Cape Town, which services China with wines and other products. He developed his own SA wine label for exports after a request in 2004. Kim Maxwell asks him about supermarkets versus hotels, price points and less standard opportunities.

1. Your company sells buchu oil, tours and wine. Why? It's an unusual combination.
Initially my objective was only to export wine. However I found huge synergies between Chinese tourists and Chinese government officials who visit South Africa, and the limitless impact this can have on launching not merely a product but a country's brand. Tourism goes hand in hand with the product relationship the consumer takes back home. The buchu oil is quite different, but gives SA a unique foothold with the Chinese consumer because its health properties appeal to the core of Chinese medicinal and health systems - the kidneys.

2. What is your background in the wine business?
I started wine investigations into the Chinese market in September 2002. I had no knowledge of the wine industry or the process of wine exports. I had even less knowledge of China and its drinking customs. I had a request for a private label in 2004, so I developed my own brand 'Martyns Red'. After more than four years, I'm a proficient wine exporter to China with invaluable market intelligence. I've also connected to Chinese people with an acquired emotional intelligence that is essential to doing business there.

3. This market is known for its red tape. Why China for wine?
China has had one of the fastest-growing economies over the past two decades. With China's entry into the World Trade Organisation and its normalized diplomatic relationships with South Africa, it seemed a tremendous opportunity. I enjoy challenges and the unusual. If the majority is going downstream I'll paddle up. China seemed the next obvious business decision and I looked for a product with high global standing that for the majority of people was to be enjoyed. Hence the choice of wine.

Western businesspeople have to mentally incorporate a Chinese way of operating. From a business perspective, entering the Chinese market requires open-mindedness and adopting the parameters of a completely different culture. Like many new businesses trying to break into China, I had no understanding of their language, culture, etiquette and protocols and this placed me at a huge disadvantage initially. I approached the Chinese market from a Small Medium Enterprise (SME) perspective, but my experiences are identical to what multi-nationals encounter; the difference being in the amount of resources either entity can throw at the challenge.

4. What was your motivation for launching your private label with a red blend?
Red wine is the predominant wine of choice in China and is used as a celebratory beverage and for toasts at banquets, ceremonies and special occasions. Some white wine usage has developed in some cities however, largely because there is less confidence in the "local" red wine production. The thinking is that it may be easier to "see" the imperfections and additives in local white wines.

Initially I exported private wine labels for Chinese buyers, plus a few estate wines. I soon realised that the best way to secure my future business in China was to have my own wine brand so I launched 'Martyns Red'. It's a blend of cultivars, with 50% Pinotage which I view as a South African USP. The wine seemed to offer the characteristics and style to satisfy Chinese drinkers. I later expanded into single cultivars and a small offering of white wines under the 'Martyns White' label.

5. Explain the standard price point tiers and where you've pitched your own wine.
Unlike some icon wines from SA that can command top price points in China, it's my belief that a wine priced at the low end could achieve maximum exposure and access to more traditional wine channels.

To achieve icon status in China or elsewhere takes time, investment and recognition, before an importer can price the product where they'd like. Not all products reach this status, and I believe an approach based on tackling the ground roots and establishing a network can be successful in selling a medium-priced wine. From a business perspective, volume is key in establishing the brand amongst the masses. At a price perceived as reasonable, relative to its brand perception and quality.

In five-star hotels in Beijing, Shanghai and Guangzhou a lot of wines are listed from ¥350 to ¥600 (a currency roughly equivalent to the Rand), but I don't see much wine consumption. It's probably good from a PR angle to have a wine listed in these establishments, but I'd rather extend the enjoyment of wine drinking to a broader income base. 'Martyns Red' retails for ¥110 to ¥148 directly to the public.

Restaurant fees are slightly higher, while Governors functions and banquets will have negotiated a price based on volumes for that occasion and subsequent functions. A small "commission" to the buyer in the catering office is also standard practice.

6. Do your wines sell in restaurants/hotels, at functions or in supermarkets?
Please outline the pros and cons of the respective categories. The wines I've exported have been sold in various ways, depending on the importers' connections. The buyers are specialised in their own areas and concentrate on private business individuals, restaurants and special functions such as weddings, Governors' events and so on. Wine would be sold for around ¥140 in this segment.

Supermarkets aren't an attractive option in many respects, as the direct competition is low-cost local producers offering two bottle packs for the price of one. There is also little consumer awareness of imported products, and it's impossible to be focused in targeting specific consumers. Fees have to be paid to supermarket buyers annually, yet there aren't great relationship-building opportunities with these buyers. Chinese-made wines sold in supermarkets start from ¥20 up to ¥50, compared to imported wines starting from ¥90 for a very basic white. Typically imported reds start at ¥120 per bottle. Unless the supermarket shoppers are expatriates, I can't see how volumes move through this medium.

On hotel wine lists, on the other hand, a few wine companies have controlled access, so it's difficult for new or smaller brands to access these lists. Top-end distributors' portfolios are full, and they're very selective about their wines across a range of countries' brands. Working in this market means shifting lower volumes at higher price points; typically ¥350 and upwards.

Good access to restaurants depends on how good your contacts are, and the strength of your relationship with a specific restaurant. For listings in restaurants decent stock levels are required, and in-house promotions with gifts for consumers are expected. Wedding banquets are a good alternative, as they occur in a restaurant or hotel environment, and move bigger volumes of wine.

7. What about indirect sales opportunities in China?
It's possible, with the right connections, to supply wine to government functions. This usually happens through dealing with the main buyer of a particular province or local area. To facilitate it, paying a commission to the buyer is standard practice - and quite acceptable - in Chinese culture.

Another valid possibility is selling through an unofficial network of individuals; they could be relatives or business associations. A key requirement is an import company with a liquor license to import the wine in the first place. You'd also need individuals with money who can take a share of say, 100 cases each. They put the money up in advance via the import company, then sell the wines to their friends and so forth. This would be a completely Chinese approach to overcoming the vast sums required to import this quantity of wine, and would depend very much on each syndicate's ability to co-ordinate the payments in advance.

By Kim Maxwell


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