By Justin Cohen1, Carl Driesener1, Ava Huang1, Armando Maria Corsi1 and Filippo Sbalchiero2
1Ehrenberg-Bass Institute for Marketing Science, University of South Australia
What other alcoholic beverages are competing for consumers’ attention in China and what does this mean for the imported wine category?
The sheer size of the population in China and the rapid transformation of the fiscal landscape has created an attractive market for imported goods. One such category that is trying to take advantage of this boom is the wine industry. We are investing significant time and money into creating demand in this exciting yet challenging marketplace.
It has been reported by Wine Intelligence that there are roughly 50 million upper middle class imported wine drinkers in China – or at least 50 million heavier imported wine drinkers (Wine Australia 2017). This is a large number in the context of Australia’s population, but a mere 3.5% of China’s vast 1.4 billion people. While we can debate the real size of the pie in the context of income levels and price, leading global management consultancies report the size of the urban middle class in the magnitude of 500 million.
This number will continue to rise as China urbanises and becomes more affluent. This suggests that roughly 10% of China’s urban population are heavy drinkers of imported wine. Not a bad number considering the nascence of the category in China and the significant cultural differences. Admittedly, these are rough estimates and worthy of deeper research. However, this should cause contemplation and generate research questions.
A common misconception is that all of a brand’s value is generated from its heavy buyers. The book ‘How Brands Grow’, by Byron Sharp, and the collective work of the Ehrenberg-Bass Institute have proved that value and, importantly, growth comes from the acquisition of light buyers. This leads us to execute fundamental R&D around the globe documenting patterns of buyer behaviour. ‘How Brands Grow: Part 2’, by Jenni Romaniuk and Byron Sharp, extends the laws of marketing reported from established markets to emerging markets including China.
A key element of brand growth is recognising the importance of all category buyers to sales and growth and, thus, ultimately the need to consider light and current non-brand buyers in market research, marketing communications (of all sorts) and distribution decisions. While it may make sense in the short term to focus on a small group of buyers for strategic reasons, over the longer term all category buyers (especially light, infrequent buyers) need to be included and reached with all aspects of the marketing mix if a brand is seeking sustainable growth.
We are appreciative of the support of digital insights company Toluna for helping us conduct this study in China to establish the prevalence of alcohol consumption and its sub-categories amongst urban internet users – arguably the urban middle class. This is an important element in our research, which is generously supported by Wine Australia. Understanding the habits, behaviours and perceptions of light buyers and potential buyers is the evidence-based pathway to sustainable growth. Currently, however, most wine-orientated research in China is focussed on heavier buyers and misses out on generating insights on a potentially much larger buying base.
Our question is, what is the potential opportunity for the other 90% of the urban middle class to consume imported wines?
We surveyed 1140 urban internet users in Tier 1 and 2 cities from December 2017 through February 2018, asking which (if any) sub-categories of alcohol they had consumed in the prior 12 months. The starting point for this analysis is that nearly 90% of urban internet users had consumed alcohol in the prior 12 months. Table 1 shows the penetration of various alcohol sub-categories (those that consume the sub-category at least once in the past year) in China amongst the alcohol-consuming cohort.
A typical alcohol consumer drank 2.5 types of alcohol over a year. It is not surprising to see that local beer and local wine had the highest number of buyers; these alcohol sub-categories have very extensive distribution networks (physical availability) and many well-known brands linked to common drinking occasions (mental availability) in China in addition to their lower price points.
Turning to wine, we see that 29% of alcohol drinkers reported consuming imported wine. This is a considerably bigger customer base than that represented by just the regular upper middle class wine consumer and this matters.
In consumer markets, we typically see that light buyers (buying 1-2 times in a year) make up somewhere between 60-75% of the annual consumer base and represent 40-50% of sales by value. Unfortunately, we cannot estimate the number of light buyers or their importance with this current data, however it is suffice to say we don’t expect imported wine drinkers to be particularly different. Light buyers are important, just how important we will quantify in upcoming research. The danger of ignoring this considerable cohort when it comes to designing marketing communications and distribution networks is that they could easily not buy a bottle of imported wine next year – there are, after all, lots of other alcohol sub-categories they could spend their money on that are competing for a share of throat.
There are a lot of local wine drinkers (40% of alcohol drinkers), 61% of whom claim not to have consumed imported wine in the last 12 months. It is not controversial to suggest that it would probably be easier to nudge a local wine drinker to buy a bottle of imported wine than someone who has not previously consumed any wine (local or imported). So, there are roughly another 25% of alcohol drinkers who are potential imported wine drinkers from the perspective of being a prior consumer of (local) wine. Of course some of these will not have the income to buy imported wine, but many of them probably just didn’t think of doing so at the right time, or perhaps couldn’t find it if they did.
Finally, we should consider the competition for share of throat generally and amongst buyers of imported wine specifically. Table 2 reports the penetration of alcohol categories among the alcohol consumers split by imported wine drinker versus non-imported wine drinkers over a year.
A typical non-imported wine drinker consumed 1.8 sub-categories of alcohol in a year versus 4.1 sub-categories by imported wine drinkers. Our evidence suggests that imported wine drinkers are more likely to consume other specialist imported categories, such as imported spirits, imported beer and Champagne. They are also more likely to be a consumer of local wine, local beer, local spirits and, in fact, any type of alcohol than non-imported wine drinkers.
It would seem that imported wine drinkers are heavier consumers of alcohol generally. This means that there is more competition for share of throat amongst this cohort. They will be choosing from a larger repertoire of alcohols on a given occasion and generally process more communications from the alcohol brands of more subcategories. This is a highly competitive marketplace and it is necessary for wine brands to consider the battle for share of throat in a broader context.
It is generally assumed by China wine marketers (and, to be fair, amongst marketers in all sorts of categories and countries) that heavy buyers are the key to sales and growth. This type of thinking leads brand managers (and regional bodies) to highly target marketing at heavier drinkers of imported wine.
It is possible that an imported wine drinker might have a more discerning palate, be more orientated to Western culture and have a larger disposable income. This, however, doesn’t mean their alcohol preferences are focussed on imported wine – consumption of a broad array of alcohols appears to be a characteristic of drinking imported wine.
Furthermore, there are many non-imported wine drinkers from whom it might be relatively easy to obtain a single purchase of imported wine a year. Their failure to do so thus far may simply be a case of poor physical availability (imported wine in the right format is not present) or poor mental availability (imported wine required more effort to think of for wine drinking occasions).
These findings have important implications for marketing strategies and reinforce the fact that imported wine brands are operating in a broader market and that competition for share of throat is not simply from country of origin but also local beer, local wine and local spirits which are much more readily available and promoted in China. There is a need to better understand this competitive market structure and buyer behaviour in order to develop sustainable brand growth strategies in China for imported wines. Light buyers are important, just how important we will quantify in upcoming research supported by Wine Australia.
Romaniuk. J. and Sharp. B. (2016) How brands grow Part 2. Melbourne, Oxford University Press.
Sharp. B. (2010) How brands grow. Melbourne, Oxford University Press. Wine Australia (2017) Key trends in the evolving Chinese wine market. Market Bulletin, Issue 67, www.wineaustralia.com/news/marketbulletin/ issue-67
The Rubik’s Cube is the most popular puzzle. Learn the easiest solution here.