Chinese wine drinkers are ripe for the picking

Tapping the China market will be a key source of growth for wine-makers wanting to get ahead in Asia. Kluge Estate, a US high-end winery, is one estate that is looking to take an early lead in the market.

When it comes to wine, one would be excused for not knowing where to find Albermarle county. This new-world wine-making region is in the heart of Charlottesville, Virginia, and with soil and climate conditions likened to Bordeaux, its reputation as a wine-producing region is expected to grow.

Kluge Estate is located in Albermarle and is Virginia's leading wine producer. In its pursuit to become the first Virginian wine to make it big in Asia, it hit the road in April to seek out a stakeholder base in the Greater China region.

"The more established the winery, the more the China market is perceived to be a place for incremental on-the-side growth," said William Moses, chief executive officer of Kluge Estate. For the bigger players in the industry, China has typically been a place to sell excess production. For Kluge Estate, which has been struggling in the stagnant US domestic market, cracking China as a main export market could be a major growth strategy.

"In the US and Europe, the most established wineries focus on the markets they know," said Christian Pillsbury, a Hong Kong based wine consultant. Within these markets, Europe is in consumption decline and the US intake is still considered to be growing at a rate of 2.5% a year. In Asia, particularly Hong Kong, China, Thailand, Singapore and Korea, there is still a lot of headroom for growth.

The volume of consumption in China alone is staggering. "One potential customer we met within China had a consumption capacity of 150,000 cases a year," said Moses. This is almost three times the total annual production of Kluge Estate. Therefore, for a winery looking to establish an early market position in a region that is experiencing 10% to 20% growth, there is significant opportunity here.

"We see companies all fighting for a little piece of this non-growing pie in Europe and the US and gutting each other to do it," said Pillsbury. "There are very few wineries coming [to Asia] and saying, we're making a strategic choice and mutual commitment to the market here," he added. "China has much more to offer than just being a dumping ground. There is so much opportunity for real, long-term strategic partnership."

The market is ripe for the picking and wineries that come to China in the early stages of the market's development will benefit.

Kluge and Moses

Kluge Estate is a family-owned business that was set up by husband and wife duo Patricia Kluge and William Moses in 1999. It is the largest vineyard in Virginia both in production and acreage, covering an area of 2,000 acres.

Currently it is exporting red wine and a limited amount of sparkling wine to Hong Kong.

"I think in the long term the sparkling market will grow in Asia because the consumer will realise that champagne can be drunk with everything," said Moses. "Right now it's only a celebratory drink, but eventually it will grow to be an everyday drink."

Given the growth potential in Asia, Kluge Estate is looking to sell a portion of the group to a China-based investor. "Part of the reason we're doing this is because, if we're going to make this a key market, we want somebody that has got the experience and mindset of what the market is about," Moses explained. And this means finding a Chinese investor that will be a partner with the US-based winery in the main holding group.

The estate is a high-end winery that produces wine in two tiers. "We make 3,000 cases of a blended Bordeaux wine from the best blocks on the estate," explained Moses, "And then we make 15,000 cases of a second label, which we get from the next best lots on the estate."

Kluge Estate has also started producing a sparkling wine, which is moderately priced as it is still being introduced into the market. Annual production of the sparkling wine is currently 10,000 cases. However, despite this being a relative newcomer to the market, Kluge's sparkling wine range is quickly gaining a reputation, particularly in Asia, as the quality drop to drink.

At the Cathay Pacific International Wine and Spirits Fair held in Hong Kong in November last year, Kluge Estate walked away with six medals. The Kluge SP Rosé 2004 won silver medals in the sparkling wine and dim sum food pairing categories. The Kluge SP Blanc de Blanc 2004 also won a sliver in the sparkling wine category plus a bronze in the dim sum food pairing category. Both the Kluge SP Reserve 2004 and the Kluge SP Blanc de Noir 2004 were awarded bronze medals in the sparkling wine category.

Hong Kong and wine

According to the Global Agriculture Information Network, Hong Kong imported $40 million worth of wine from the US last year. This is equivalent to 4.1 million litres and in volume equates to a 13% growth from 2008. The leap in imports could be attributed to Hong Kong's tax-free stamp on imported wine that came into effect in 2008.

As noted in a previous study done by Vinexpo, Hong Kong consumers predominantly prefer red wine, which accounts for 80.6% of sales. White wine accounts for 16.1% and rosé 3.3%.

During his recent visit to Hong Kong, Moses found that customers were catching on to sparkling rosé. Through exhibitions such as Vinexpo and the International Wine and Spirits Fair, the demand for sparkling rosé is picking up. As one end customer put it to Moses: "Sparkling rosé is a little bit more soft and sweeter than the blanc de blanc, which is more suited to the palate here. We think it's going to sell really well."

Virginia and wine

It was said that in 1607 King James ordered the US to go out and find a new world wine colony for England. In the end, the commissioned pioneers found Virginia and established the settlement of Jamestown. One of the conditions placed on settlers that wanted to make a home in Jamestown, was that they needed to sign a contract to say they would establish a vineyard. Very quickly Virginia became the wine exporting colony back to England. To this day, Virginia remains the largest source of natural grape in the US.

Despite this, Virginia's wine reputation has slowly dwindled over the centuries. It has been eclipsed by the better-known wine producing regions such as Napa Valley in California.

In 1979 Virginia had only six wineries. In the same year, the state government passed a wine farming bill that encouraged farmers back to the sector. By 1989, there were almost 100 vineyards set up and by 1999 this number had grown to 180.

Virginia is now the fifth largest wine state in the US and it is expected that the number of wineries will exceed 200 this year.

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