CEO of Half-Billion-Dollar Wine Business Nails Reason for Wine Industry Problems
There has been no shortage of experts with theories to explain why wine isn't selling or being consumed. One business leader who has seen revenues fall by nearly 75% has a clear answer.
“We’re growing more and more distant from our consumers… We haven’t created products that genuinely meet their needs, or consumption scenarios they enjoy, or delivered emotional value that resonates with them.”
Which wine company Chief Executive had the courage to say these words? The head of Treasury Wine Estates, the Wine Group, Constellation, or a family-owned European producer?
The answer is none of these. The speaker was Sun Jian, General Manager of Changyu, China’s biggest wine producer which, in a decade ago was selling some 150m bottles of wine under 700 labels.
Today, however, sales have fallen to just 26% of their peak 2019 figure and, as Mr Sun told shareholders at the end of May, revenues in 2024 alone, dropped by 25% with net profits sliding by 43%. This was the context for his frank admission that the company had failed to deliver the products that delighted consumers and gave them ‘emotional value’. The ‘products’ in question were mostly Chinese, but there were also European and Australian imports, so this story is not specifically about the style or quality of the wines that Changyu was producing in China.
Refreshingly honest
Having been the recipient of all sorts of bullshit from the heads of European and what used to be called New World wine companies, I find Sun’s words hugely refreshing. But not surprising.
I interviewed him at length for Meininger’s International, in his office in Yantai, in 2015, on a day when he was struggling with toothache. His frank answers to my questions included profit margins, a subject about which those other industry executives tended to be far less open.
“Over the last 15 years,” Sun said, “Changyu created a miracle, with a very good net profit of as much as 35% – the highest in the world. We know that for some companies in Europe, it’s only 10%. The CEO of Diageo wanted to learn how we did it. But the market has changed. The good days are over. Those profit margins are no longer possible.”
When I raised the subject of vine acreage in China (following surprisingly high estimates in western media) he also addressed the challenges of finding accurate data in China.
“Experts have received statistics that suggest the number is bigger than they perhaps believe themselves. Each local government likes to exaggerate, and if we add up all their numbers, the total would be scary.” His company had 20,00ha, he said. Some estimates for the rest of China were as high as 80,000. In his view, the correct figure was “no more than 47,000 ha.”
As this dramatic chart reveals, our meeting fell between China's recent twin peaks of consumption, and before the beginning of the vertiginous fall that has continued ever since.
I look at these numbers, and at the news I receive from the brilliant Natalie Yang of Vino-Joy in Hong Kong (to whose coverage of the shareholders’ meeting I am indebted, and at the revelation that Australia shipped “83 million litres of wine, worth AU$902m ($589m)” to China in 2024, and remember another Meininger’s article. And I wonder.
In that 2023 piece, Dudley Brown used United Nations data to show that Australian imports, while beginning to drop in 2018, were still way out of sync with the fall in Chinese consumption. Could that possibly be happening again?
Are the Australian exporters really confident that the wines they are shipping to China “genuinely meet [the Chinese] needs, or consumption scenarios they enjoy, or deliver emotional value that resonates with them” any better than the ones leaving their warehouses for Shanghai before tariffs were imposed?
Or, given the 9% fall in Australian domestic consumption over the last 9 years, are those same producers truly convinced they’re getting it right in their own market?
My view is that Mr Sun’s admission should be taken to heart by wine professionals everywhere - along with his promise to “continue to drive a ‘palate revolution’” in China.
Apart from writing these posts and working on le Grand Noir and K’AVSHIRI the two wine brands I helped conceive and co-own, I also offer strategy and marketing consultancy and a range of public speaking. If you think I can be of help to your business, or would just like to get in touch, please contact me.
I am reading Apple in China at the moment. An eye opener on many levels.
The wine industry has no clue what a "USP" is- a Unique Selling Proposition. A USP answers the question, "Why should I do business with you instead of your competitors or instead of doing nothing at all?" The answer to that question has to be unique. Wine is the only beverage that changes and evolves in the glass, delivering an experience far beyond a mere alcoholic beverage, including pairing with food.
Unfortunately wine, especially bad wine, has gotten itself lumped in with such wretched beverages as hard selzters, ranch water, hard tea, bad beer, pre-made cocktails, etc., and it can't compete in that category. The industry has to do a much better job clearly explaining what wine is and what it's not.