Andrew Kemeny talks liquor retailing in China
By Melissa Parker
While in Hong Kong, National Liquor News spoke with Andrew Kemeny, who launched his own retailing business called Cellarmasters (not Woolworths) in Hong Kong. Here he discusses the quirks of retailing wine in China.
What defines the Chinese liquor retail landscape and makes it different from your Australian business?
The Chinese market is far more convoluted than the Australian trade, with so many suppliers able to easily import without tax restrictions the number of wine companies and SKUs in the market make it a confusing landscape for consumers.
In Hong Kong the wine market is maturer than China. Volume is trending away from restaurants and bars towards retail as consumers are now educated and confident enough to select their own wines. Mark up in Hong Kong restaurants is high, much more than Australia, so consumers are using their wine dollar to buy bottles and premium wine in retail and finding occasions to enjoy wine at home or BYO in restaurants, which is a change in culture from five to 10 years ago.
In Australia our (Kemeny’s) traditional retail presence is as strong as our online. In Hong Kong real estate costs are so high it makes sense for us to build our business model online. Interestingly while known for its embrace of all things technological, the digital direct marketing industry in Hong Kong is not as advanced as China so presents a good opportunity to trade without a physical space.
The on-premise trade in Hong Kong is also a difficult space to play, not just with regards to competition between distributors and importers, but again because of the cost of real estate. It is not uncommon for a successful restaurant to close down or move premises due to astounding rent increases that landlords impose when they know their tenant is successful. This makes keeping track of accounts and updating databases fraught as venues can be trading one month and be closed the next.
The sale of bulk wine and containers into China is a fast moving price driven exercise often yielding little margin with high volume required to make dealing worthwhile. This channel is difficult to infiltrate and heavily relationship driven requiring regular contact and visits to the mainland. Fortunately over the last seven years we have built a great network of customers and friends throughout China.
Growth in China retail is thought to be in convenience-based ranging, such as 7-Eleven and Circle K outlets which have very small gondoliers, a high cost to play and often restrictive terms around consignment – some requiring the supplier to collect their unsold goods from individual stores if sales targets are not met and the chain de-ranges the SKU.
However, a successful brand in this convenience space has a huge potential for success as this sector of retail has an extremely high number of stores and reaches much further across China than any other retail type.
Overall the key to trading in Hong Kong and China is to keep your costs low and build strong relationships. There is significant room to grow in the underutilised online space – and with China as the last emerging market for wine in the world – it’s an exciting time to be finding ways to trade into the mainland and be a part of the volume growth and changing trends.
What types of wine/styles are the Chinese mainly attracted to buying and why?
Similar to the wine trade in Australia back in the 1960s and 1970s as a population we drank very cheap, sweet fortified wines after dinner, which were Australia’s major production. With an influx of German, Greek and Italian immigrants, who brought with them vine cuttings and the culture of producing and drinking dry style table wines, at lunch and dinner that gradually influenced the industry, culture and wider population.
By 2000, Australia was one of the biggest wine producers in the world. In 40-50 years, the culture and production of wine in Australia changed dramatically in style and volume, this without social media, brand managers and marketing campaigns as we know them today.
In China, as their taste/palate for wine, becomes more affluent, we will see similar changes in China, just at a much faster rate given the explosion of wealth, sheer population size, modern technology, communication and digital marketing. Expect big changes in the next five to 10 years.
The Chinese consumer decision-making process when making a wine purchase is first and foremost based on brand recognition. A well-known brand has benefits of face, expertise, indicates education experience and wealth etc. Second is country of origin, Brand France has done a very good marketing job on the Asian population and they truly believe French wine to be the best in the world, without exception. Penfolds has done an amazing job building the Australian brand throughout China, although flooding them with so much Rawsons and Blass in forced bundle buys will have severe ramifications in the near future if changes are not made soon.
It is encouraging to see a slight trend away from French towards New World wines. The New World Wine Style of forward fruit is a better match for the Asian palate, so this should see steady growth for this category. The brands attending Vinexpo Hong Kong at the Wine Australia Stand in May certainly had excellent feedback from the attendees and it’s not surprising that the feature of Grenache across ‘International Grenache Day’ was very well received.
Presentation is possibly more important than the product in the bottle, so there are many cases of cheap bulk wine being presented in heavyweight bottles, with luxurious thick stock labels and corks hand dipped in wax. Traditional presentation is preferred over modern designs and gift boxing can make or break a deal. And while I believe in screw cap over cork, Australia will have a better chance of competing in China if they seal their stock in cork – at least the reds.
There is little knowledge beyond ‘Bordeaux is best!’ ‘Burgundy is the pinnacle of wines’ or the 1st Growth Classification Chateaux. Any information below that is not widely understood so small independent producers go largely disregarded.
Outside of collectors and investors, consumers often ask for the most recent vintage as they believe the current to be the best and at most wine tastings, people ask to taste your ‘Best Wine’ – when you ask them what make a wine the ‘best’ in any given selection, the answer is always very simple – they always want the most expensive.
For the full interview with Andrew Kemeny, including what he thinks Australian liquor retailers can learn from the knowledge he has acquired from setting up shop in China, see the July issue of National Liquor News. To get in touch with Andrew Kemeny visit the Cellarmasters website www.cellarmasterwines.com.