China has become the largest import market of Australian wines, overtaken the traditional markets such as the United States and the United Kingdom. From 2014 onwards, the import value has increased rapidly and surged by 533% during 2014-2018. In 2019, the import value of Australian wines reached 1.2 billion AUD. These figures have revealed the evolving size of the Australian wine market in China.

In 2012, China was Australia’s third-largest international market. From June 2011 to June 2012, the value of China’s import of Australian wines increased by 20%, but the quantity dropped by 24%. The reason was that Chinese consumers focused more on high-end luxury wines, according to Tony Spotonm, professor at the University of South Australia. The return of Australian wines in China will show in the long run. Chinese consumers still maintain curiosity about Australian wines.

[Data source: Wine Australia, ‘Import Value of Australian Wine in China’]

Australian wines account for a large market share in the import wine market in China

Regarding the import wine market in China, from 2014 to 2017, the total volume and value of import wine had increased gradually. In 2017, China imported 0.746 billion liters of wines with a value of 2.789 billion USD. In 2018, the figure slightly decreased to 0.688 billion liters with a value of 2.85 billion USD.     

Specifically, Australian wines have accounted for a large proportion of the import wine market in China. In 2018, Australia, France and Chile were the top-3 import partners in the wine market in China, and Australia ranked at the second.

Australian wine sells for a medium price in China

In 2015, China became the fourth largest wine consumption market in the world. Nevertheless, the average price of the import wine was 3.3 EUR (25.56 RMB) per liter, which was higher than that in some traditional markets such as France and Russia. This indicates that Chinese consumers are more likely to purchase costlier wines.

In 2018, the Australian wine was positioned in the second class in the import wine market in China with an average price of 40.6 RMB per liter. Additionally, it had approximately 30-RMB gap compared with the average price of Zelanian wines, which indicates that Australian wines in China are not considered high end.

How Australian wine companies in China leverage E-commerce

According to Euromonitor, store-based retailing and online selling are the main distribution channels of the wine market in China. Moreover, China’s E-commerce sector has accounted for more than ¼ of the total sales volume owing to its growing trend. To keep pace with E-commerce trends, Australian wine companies in China have utilized the online sector to promote their products. Meanwhile, they can increase brand exposure via traditional distribution channels. By 2017, there have been 32 Australian wines sellers on Tmall, 26 of them are flagship stores.

[Data source: Euromonitor, ‘Distribution Channels in China’s Wine Market (2013-2018)’]

For example, Treasury Wine Estates has established 3 official online distribution channels. 2 of them are online flagship stores on Tmall and JD respectively. The last one is an authorized self-operated store on JD. Also, Treasury Wine Estates has operated brick and mortar stores in different cities and collaborated with hypermarkets and supermarkets in China such as Metro AG, Walmart, Sam’s Club, Yonghui Superstores and Ole.

[Photo source: Tmall, ‘Online Store of Treasury Wine Estates’]

[Photo source: JD, ‘Online Store of Treasury Wine Estates’]

Casella, another famous wine producer in Australia, has also set up its online store on Tmall. By collaborating with Telford China, a well-known import agent, Casella can promote its products effectively in the wine market in China.

[Photo source: vinehoo, ‘Casella’s Collaboration with Telford China’]

[Photo source: Tmall, ‘Online Store of Casella’]

The reason behind the popularity of Australian wines in China: driven by cost-effectiveness and acceptable tastes

China imposes zero tariffs on Australian wines

 It is easy to see that Australian wines are gaining recognition from wine consumers in China. Wine producers there are fully aware of this, as they say, ’If we are not in China, we are on the way to China.’

As a representative of the new world’s wines, Australian wines receive much welcome in the wine market in China. They are Hardy’s, Yellow Tail, Jacob’s Creek, Lindemans, Rosemount, Penfolds, Wolfblass, and Banrock Station.

Penfolds

[Photo source: Treasury Wine Estates, ‘Logo of Treasury Wine Estates’]

According to IBISWorld, Penfolds is a part of Treasury Wine Estates Limited (TWE), an Australian-owned wine manufacturer and distributor. In 2010, Foster’s Group split its wine and beer sectors and created TWE. After its demerger, TWE became one of the world’s largest wine producers. The brand has vineyards across Australia, New Zealand, the United States and Italy. The company’s brands include Penfolds, Lindeman’s, Wolf Blass, Rosemount Estate, Beringer Vineyards and Matura.

Penfolds is one of the oldest and most representative wines in Australia. The company has developed a variety of products under the Penfolds brand to tailor to different social occasions and consumers’ needs. Penfolds vineyards also cover a range of climates, soil and regions to grow various types of wines.

[Photo source: Penfolds, ‘Products of Penfolds’]

Yellow Tail

[Photo source: Casella, ‘Logo of Casella’]

According to IBIS World, Yellow Tail is affiliated with Casella Wines Pty Limited, a family-owned winery established in 1965 in the Riverina region of New South Wales. Over the past five years, Casella Wines has extensively utilized its acquisition strategy by purchasing several vineyards and wineries across Australia.

Yellow Tail is the result of the persistent business vision, making wines to bring families and friends on any occasion. Bearing this in mind, the founders of the brand have created an approachable wine that everyone could enjoy. Yellow Tail wines are cost-effective while maintaining the average quality.  

[Photo source: Yellow Tail, ‘Products of Yellow Tail’]

Jacob’s Creek

In 1989 and 1990, Pernod Ricard acquired Orlando Wines and Wyndham Estate and merged the two entities into Orlando Wyndham Group (OWG). In 2013, Premium Wine Brands changed its trading name to Pernod Ricard Australia.

Jacob’s Creek has a long history of making wines. In 1976, the brand was born. Since then, the brand has dedicated to innovating novel products. From the blend of Shiraz and Cabernet Sauvignon to French-style rose, they have embodied founders’ effort and passions.

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article Australian Wines in China: Australia’s largest wine export market is the first one to appear on Daxue Consulting - Market Research China.

E-commerce and westernized lifestyles: The wine market in China is changing at a quick pace

Profile of wine consumers in China

Wine drinking habits in China are changing. In the old days, wine has played the role of a social indicator; it was considered expensive prestigious. Hence, the perception of wine has aroused the curiosity of its consumers through its hedonistic, self-expressive motivations. Traditionally a masculine drink and consumed in the north of the country, wine has succeeded in establishing itself and seducing a new clientele: women and young adults. On the other hand, the increase of the middle class has favored this growth with the increase in purchasing power. The consumer is willing to pay for a quality mid-range bottle without spending a fortune.

China will drive world wine consumption

The wine and spirits market in China is flourishing. High-end spirits, such as Moutai, Chivas, and Martell, are common guests on Chinese tables. However, Baijiu, the local spirit of China still dominates the Chinese spirits market. Despite significant progress over the past decade, regular wine consumption in China remains relatively low compared to countries such as France, Italy, Spain and even the United States. According to some studies, the market for daily alcohol consumption will increase in the coming years and it will become a much more common consumer product than it is currently in China.

According to the latest figures, there is no doubt about its consumption. The Chinese drink 1.46 billion liters of wine every year or almost one liter per capita, according to a study by Vinexpo, an organizer of international trade fairs. China ranks 5th in the world, behind the Americans, French, Italians and Germans. The Middle Kingdom imported nearly 690 million liters of foreign wines in 2018 against 750 in 2017. Their market share would reach 50% in volume today, i.e. one bottle out of two. According to forecasts, China will become the world’s second largest consumer by 2021 and will be the world’s most dynamic market with an estimated 18.5% increase in consumption. By 2030, wine drinking habits in China are projected to 10 liters on average per person against 7 in 2017.

[Source: Euromonitor, evolution of the wine and spirits market]

What are the consumer preferences of Chinese consumers?

Among the most popular wines are: fruity, flavored white and sparkling. Red wine is at the top of the best-selling due to cultural traditions and the health benefits associated with it. But according to experts, the Chinese thirst for white wines could increase in the coming years as the western lifestyle becomes more widespread. Drinking alcohol in China has moved into the mainstream culture, beyond just an activity at family gatherings and dinners .

In addition, drinking during the day and, especially drinking during official working hours, is uncommon in China.). It is to be mentioned that the after-work drinks with colleagues are becoming popular and familiar amongst Chinese urbanites, especially among young professional people. Among the selection criteria, Chinese distributors give priority to the origin over the label and the color of the beverage, which favors Bordeaux and Champagne in particular. Price comes second, followed by taste and designation of origin . The organic segment is becoming more and more prominent as a result of the growing environmental concerns.

E-commerce: a non-negligible distribution channel

The Middle Kingdom expresses a keen interest in viticulture, which obliges companies to adapt. As brands continue to appeal to Chinese consumers, specialist stores have become increasingly popular as famous international brands make their way through these retail venues into the Chinese marketplace. Indeed, new consumption habits have emerged thanks to digital technology. Simultaneously, many specialized shops have recently opened outside the main cities; the development of purchases on the Internet takes on a new dimension.

[Source: Vinexpo’s official website, breakdown of wine sales by volume, imported vs Chinese wines]

Online sales and the creation of platforms available on smartphones have accelerated this phenomenon. According to studies, the online wine market on platforms dominated by Tall (Alibaba) represent the second most used distribution channel behind hypermarkets. In China, 40% of the alcohol is sold online (d.ii). 50% of imported wines are resold in restaurants against 25% in specialist stores and 25% in retailers. Converserly, Chinese wines are sold mainly to retailers (50%), 45% to restaurants and 5% to specialized shops

The wine market in China shows promise

Chinese wine production

After having invested in French vineyards for a long time, European companies have a chance to invest in Chinese wine-growing. Due to the favorable farming climate in certain regions in northeastern China and the size of the agricultural areas, wine production in China is attractive because of its potential for growth. Investors such as LVHM (Moet and Chandon) and Domaines Barons Rothschild Lafite have invested heavily in China. Both firms are developing their own Chinese vineyards and tweaking flavours to best serve the Chinese market.

[Source: Bloomberg ‘Domaine de Barons de Rothschild in Shandong, China]

International events exported in China

China has become a strategic location for industry professional in their strategy to penetrate the Chinese market. After a great success at the Vinexpo exhibition in Shanghai in October 2019 dedicated to wine and spirits market, the economic capital is preparing to host Vinexpo again in October 2020, which attracted more than 5,000 visitors last year. Vinexpo and the e-commerce giant Alibaba joined forces to bring together market and online sales players to consolidate the market.  

Will the wine market in China put trading partners in the shade?

Nonetheless, China’s entry into viticultural production worries the largest producing-countries which depend on its market. The Middle Kingdom has the second largest vineyard in the world, capable of meeting both domestic and foreign demand. With the acquisition of the foreign know-how, China has succeeded in producing very-good-quality wines that the consumer could favor China’s cheaper quality wines to the detriment of European producers.

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article China’s conquest of wine: Evolving wine drinking habits in China is the first one to appear on Daxue Consulting - Market Research China.

High-end and Imported Wines in China Appearing More Frequently

Being regarded as the symbol of polite society or business elites, imported luxury wine such as Chivas Royal Salute(皇家礼炮), John Pope Hennessy(轩尼诗), Remy Martin(人头马) are gradually acquiring public acknowledgement, and we can frequently see them in business receptions or balls. Although the inflation in alcoholic drink in China was surprising 4.2% and the costs for imported alcoholic drinks in China rose greatly, it still sold well. Also these wine companies are trying to produce more varieties of products, which can well-satisfy the taste of Chinese people. French, in particular is doing well in alcohol market in China.

Enter the alcohol market in China through Strategic marketing

In the complex wine industry in China, wine producers are finding ways to win Chinese customers. Many companies use innovative strategies to focus on specific target markets.  Companies are using innovative marketing strategies to focus on specific target markets. For example, the Bonny Doon Company, which uses an unusual selection of wine varieties along with unconventional label, designs to attract new market segments including China. Innovation varies from packaging, branding and advertising.

Surging Sales of alcoholic drinks in China on the Internet

Online B2C purchasing has become more and more popular in China in recent years, and this trend remains the same specifically for the wine in China. There are more online shops and online professional websites doing business related to mid-end wines or high-end brands. Due to the relatively short development history of online wine retailing, the market of online wine purchasing still has great potential.

There are more ways to source wines in China. A British wine research corporation, Wine Intelligence, conducted a market research in March 2016 based on more than 1000 Chinese wine consumers whom were from upper middle class. According to the ‘China Wine Market Landscape Report’ Wine Intelligence published based on the market research, more than 48 million consumers from the middle class consumed wine at least twice a year. Back in 2014, it was only 38 million. Meanwhile, the research also shown 49% consumers have purchased wine online in the past 6 months upon the research conducted. JD.com and T-mall were the most popular platform to source wines compared to other e-commerce platforms, according to the book ‘the competitive strategy of China wine industry’

Domestic Companies Cooperate to Make Themselves More Important in China’s Alcohol Market

We can say without any exaggeration that fierce competition exists in every industry of China. Since the market is widely spread, competition in the alcohol drink industry is intensive and is still heating up. To increase their own market powers, some companies threw themselves in merging or acquisitions. On typical example is the merge of Beijing Dragon Seal Wine and Beijing Red Star into Capital Wine Group. By enlarging the scale of themselves in this way, they enjoy more information, more high-technology, and more capitals for production. This trend again strengthens the competition and speeds up survival of the fittest and quitting of the ones that are not good enough.

High-end domestic alcohol brand such as Mao Tai (茅台) was still leading the domestic alcohol market. The stock has been rising and reached historical high in June 2019. It reached 1163 yuan by 13 December 2019. As the lead in Chinese domestic alcohol market, the growth also promotes sales and growth of other alcohol brands in China. As of 16 December 2019, Mao Tai sales revenue reached 100.3 billion yuan.

Meanwhile in June 2019, Koya Brandy Winery has officially opened in Yantai City. The company Zhang Yu (张裕) has made the first Brandy in China back in 1896 and in the market for sale since 1914 as KOYA Brandy. Koya Brandy is the pioneer in Chinese Brandy alcohol market and expect to enter international alcohol market in the future.

Digital transformation of China’s alcohol industry

In July 2019, Huawei, ZTE and other mobile internet high-tech companies led teams to visit Luzhou Laojiao, Wuliangye, and Maotai, respectively, in digital transformation, smart wineries, cloud computing, etc. On the other hand, it has launched comprehensive cooperation with liquor companies. The development of 5G technology will further change the development of the future liquor industry. In this regard, the industry believes that the use of the new network platform and 5G technology in the communications industry will reduce the difficulty and cost of equipment access to the brewery, transform data resources into data assets, bring out the core advantages of the industry, and continue to optimize and upgrade smart brewing. Technology may be one of the effective ways to enhance the competitiveness of Chinese liquor.

A Grow in Sales of Alcoholic drink in China in 2020

Market for imported wine has been expanding and reached 65.3% by 2018, thanks to the zero tax policy for New Zealand wine in 2012 and Chile wine in 2015.

In 2018, 4.9% of wine produced in China and 10% consumed in China. According to International Wine Association, the average consumption of wine in China is only 1.6L per person while the world average is 3.3L per person, which is twice as much. In 2019, China mainland has consumed 1.79 billion liter and was ranked the fifth in the world. Therefore, there is still a significant potential for the wine market to grow in China.

Author: Fengyu Du

Let China Paradigm have a positive impact on your business!

Listen to China Paradigm on iTunes

This article The alcohol market in China is making a comeback is the first one to appear on Daxue Consulting - Market Research China.

Moving to 2020, there are several changes such as government policies hindered the growth of the red wine market in China.

Red wine market in China from 2016 onwards

The domestic production has been declined since 2016 as well as the imported red wine market in China. While the global consumption of red wine grew at a rate of only 0.4% the output of domestic red wine has a negative growth since 2013 and has been continued to 2019. The national wine output in December 2019 was 79,000 kl, up 1.3% compared with the same period last year, and 451,000 kl from January to December 2019, down 10.2% in total.

Data source:  China Jiu Ye, China cbn & drinks business, red wine production in China is plummeting

The general decline in production of red wine in China are largely due to the new tax policy and shifts in consumers group. More and more customer tends to buy red wine from imported red wine retailers. Because of the “Zero tariff” policy, red wine from places such as New Zealand, Chile and Australia can enjoy the tariff relief.  This policy boosts the Australia’s export of red wine to China. From 2017 to September 2018, Australian wine exports to the Chinese mainland exceeded 1 billion Australian dollars for the first time, up 66% year-on-year, or about 4.9 billion yuan. Mainland China became its biggest wine export market, with sales surging by 221% in five years. Second reason is the Chinese government’s implementation of anti-corruption policy. This not only reduced consumption of Baijiu but also red wine. For instance, public servants are no longer allowed to drink during their lunch breaks on work days.

Red wine imports have fluctuated

Although the China import red wine market benefits from the low tariff policy, the imported volume of red wine has been fluctuated since 2016. This is because the red wine market in China has entered the restructuring period.

Data source: Ifeng, China’s red wine imports

As the Chinese red wine market is gradually maturing, more and more imported wines are flooding into the Chinese market. There are more than 5,000 wine importers and distributors in China, with Shanghai, Beijing, Shenzhen and Guangzhou having the largest number of distributors and more competition. In addition, with the gradual deepening of Australian wine export business to the red wine market in China Chinese market, imported wine is also facing the difficulties of distributing its retail channel from online to offline. In the future, while the development space of the industry is expanding, the market share will be difficult to increase.

Looking at the future, many articles suggests that although the growth rate of red wine consumption is low and steady during recent years, the imported wine is continued to increase its market share in China while the domestic red wine will decrease the share of the market. The top 5 importing countries will remain unchanged: France, Australia, Chile, Spain and Italy however, the rate of growth might look very different. Chile will likely to become the country with fasting growing imported containers. Despite the red wine, the Chinese consumer is also welcome to other types of wine. Champagne and sparkling wine will gradually increase its market share. Additionally, China’s liquor consumption will also increase because of the development of the drinking culture in China.

How to market French wine in China

Analysis of the spirits market in China

This article The red wine market in China: Production plummets, imports fill demand is the first one to appear on Daxue Consulting - Market Research China.

• 7:18 Cooking means innovation – building and improving the recipe
• 14:15 Strategic and creative thinking – where is learning crystalized?
• 20:16 The Retail Safari – an alternative to jumpstart innovation
• 24:48 The key success factor for innovation
• 33:33 Is innovation training more challenging for companies operating in China?
• 39:05 Learning about business in China – the first six months
• 45:01 China vs The West – the difference in approach to innovation
• 47:36 What books have inspired Sandrine in her entrepreneurial journey? How does she stay up to date with business in China?

 Bringing innovation through cooking workshops in China

One relevant episode

We believe, that China, with 20% of world population and as the second world economy, is impacting every single business, small to big. That is why it is a new paradigm. How does China impact your business is the ultimate question we will answer through those podcasts.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article China Paradigm 87: Learning business innovation in China through cooking is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Matthieu David: Hello everyone, I’m Matthieu David, the founder of Daxue consulting, a strategic market research company in China and its China marketing podcast, China Paradigm. Today I’m with Charles Carrard. I had heard of you for a long time since you were in Beijing 8 years ago and I arrived in China 10 years ago. At that time, you were in a digital agency and close to O2O strategy in China. You have been in China since 2005. You have been involved in the French restaurant business in China initially. The biggest experience you had was with Paradox Asia.

Now, you’re the general manager at Boisset la Famille des Grands Vins, a company selling wines from almost all over the world, except one, Bordeaux wine, the most famous French wine. But you have Burgundy, wines from California. It’s very rare to have a French company in the wine industry to sell wine also from California and with you in China. First question is about the size of your business now at Boisset.

Charles Carrard: For Boisset, I just have one figure to share, the turnover from the head office in France and America, which is about 350 million euro. I’m not authorized to communicate our figures in China. The wine market in China is a very important strategic market for us, which I just joined last November. We are not big enough to compare to what we are in other markets, because in France, we are the number three wine producers. We cover a lot of areas, Burgundy, Beaujolais, Rhone Valley, Languedoc and California, which is another company we created 30 years ago. The idea of this company is that there are a lot of innovations in China’s wine industry. It’s winery and a totally independent endeavor of wine making, process, and harvest. It represents more than 25 wineries belonging to the same family. It’s not small, but it’s not big enough.

Matthieu David: 250 million euro? That’s huge. Is it small in the wine industry?

Charles Carrard: What we do now in China is small, but what we do in France is not small.

Matthieu David: Would you prefer to talk about your experience now?

Charles Carrard: It’s kind of linked. I arrived in Beijing, China in 2005 for Lanson International Diffusion to take charge of Asia. In 2008, I created a digital company. I first started my career in the wine industry. In Beijing, a long time ago when champagne was not popular at all in China, but it was popular in Japan and in the rest of Asia. So, I was doing what I am doing now, but at a very small scale. At Paradox Asia, I didn’t start as its vice president. I started in taking charge of the on-trade in Beijing, which means hotels and restaurants in China’s imported food and beverage industry. After two years, it asked me to come to Shanghai and take charge of all the east of China. Then I became in charge of all the sales department in China, which is quite big. We had more than 1,000 people. Now, I’m back to my route of products. Because for 10 years, I have been in charge of mainly super and hyper markets, with which we don’t talk much about products, but more about rebates, discounts, margins, and budgets.

Matthieu David: Talking about your entrepreneurship in China in 2005, you had a French restaurant business in China and were involved in a digital agency called altima° China. In terms of timing, could you tell us more about the beginning?

Charles Carrard: In China, everything starts with friendship. When I was working for Lanson, my friends proposed me to join the company because of my long experience before in O2O strategy in China and creating a website back in France, 2002. I was working a lot in my garage. I created a lot of websites. That’s how I could enjoy a good life in China. In 2008, I created altima°. The business model was more for South Asian and Chinese products going back to France first. Then, France moved into the SEO and SEM, which is all about marketing your online website for E-commerce, for instance. In 2010, at the same time I opened my first French restaurant business in China in Gubei, Shanghai. It was a small French restaurant. We had only two people, so I was managing three things at the same time, which was not an easy task. That’s why I hired managers very fast to run this French restaurant business in China, because I couldn’t be there every day anymore. Basically, I had three jobs at the same time, the wine industry, which I was in charge of the east of China, the French restaurant business in China that opened at night only, because I couldn’t work there during the day, and a digital agency where at that time I was more in the operational side, instead of strategy parts. It was two years after we created it and I couldn’t manage three of them, so I left my partners.

Matthieu David: How did you manage a French restaurant business in China at night? The eating habit of Chinese is arriving at 6 pm, French arriving at 8 pm, and Korean and Japanese arriving at 10 for whiskey, champagne and other things. How did you manage all this?

Charles Carrard: I left the office quite early, because I arrived in the morning earlier. My boss at that time was nice to let me leave earlier. I took my motorbike, went fast to the restaurant, and then opened at six. I had a great French chef who was there the whole day, so he has already prepared the room for me with all the setting of the tables. It was not an organized restaurant, because it was my first French restaurant business in China. In terms of drinks or ice cube, I had to go to the second floor, because I was the only one taking orders, cleaning the glasses, and bringing the plates. My chef was the only one in the kitchen clean and cooking. We closed around midnight at 2 am. Then I went back to bed and back to work in the morning. After two months, I was totally dead. We had some profits, so I could hire a manager, a sous chef, and an I.E. Step by step, we could increase.

Matthieu David: What was your motivation behind this to be involved in so many things? I think entrepreneurship in China is very common. In France, your employer won’t understand that you have your own business at night. I feel that happens only in China.

Charles Carrard: I was single and had no child at that time, so it helped a lot to let me have a lot of time. I just arrived from Beijing to Shanghai. At that time, I was a bit disappointed with China’s imported food and beverage industry, which was a bit pricey and with a poorer quality than I had expected. I had an opportunity with a friend to open this French restaurant business in China. My boss was very happy as well, because I only used the wine from our wine company. At many occasions, I had the opportunity to taste a new kind of business model without taking any risks. After four years, I sold the restaurant to my boss, because he saw that it was working. It was a new way to make more sales and marketing about the wine in general.

Matthieu David: I feel running a French restaurant business in China is hard, because it is expensive. Managing and finding people is not easy. The turnover is high. You have to buy the right food at the right time for dinner, lunch and so on. What are the main challenges of running a French restaurant business in China and how did you succeed in opening five restaurants?

Charles Carrard: Actually, when you have only one French restaurant business in China, it’s not that difficult. Because you don’t pay yourself, you don’t have that high payroll every month. My chef was my partner as well. It starts to get very difficult when you hire more people. That was the main point when your French restaurant business in China starts to become too big for only two people to manage it, but not big enough to have a lot of people. This transition was harder. When we opened five French restaurant businesses in China, we realized that the business model needed to be very precise for everybody in each restaurant not have time to think, but just do what you plan precisely like payroll and staff. It is not easy to make money. When you are working inside, you can make a bit of money, because you have a very low payroll. But when you open a lot French restaurant businesses in China, it starts to be very difficult. You need to have very professional people who you can trust, especially when you are not in the restaurant and leave the cashier with your staff.

Matthieu David: Why do you feel a French restaurant businesses in China may fail? In Shanghai, the turnover and location of restaurants are changing often, even for people who have only one French restaurant businesses in China. It’s not only an issue of having a second or third restaurant. Even adding one restaurant is not easy. How do you analyze the challenges in the cost structure?

Charles Carrard: The main cost comes from the payroll and the human resource, more than the real estate. The real estate is important, but you can locate a very cheap place anywhere and bring people in. You have a lot of examples of restaurant with a lot of success. But if you think about it, the location is not what is working. The most important is who is managing your French restaurant business in China and what kind of experience to give the customers. Of course, the real estate is very difficult and a lot of people spend too much money on decorations. They want to show off and have a very nice restaurant so that when people arrive, their first impression is wow. But at the end, the key of a French restaurant business in China is still the food, especially when you are not a big name like Jean-Georges. The big mistake is to try to go at their level. People didn’t come to my restaurant for being fashionable or having a nice view. I do not have a nice view. I was not fashionable, but they came for the quality of food, like family and grandma style food. I didn’t spend any money on decorations for my first French restaurant business in China. It was just all handmade. When I opened the second one, I spent a bit more money and that was my mistake. Because if you spend too much money, you need more time to make it profitable. I will open a new one may be one day in the future, but I will not spend money on decorations. You can make something nice, warm, but not costly just by hand and by heart.    

Matthieu David: I feel that regulations are a bit stressful of opening a French restaurant business in China is. How did you make sure that you were aligned with the regulations and knew all of them? Is it difficult to follow all the regulations or are they pretty transparent and easy?

Charles Carrard: It depends on the cities, because we have one in Beijing, one in Suzhou, and three in Shanghai. Shanghai is the most severe for all the rules of hygiene, fire protection and security. But it’s quite easy to follow them. You just need to ask the authorities to come and tell you everything what you need to do. You need to go with the architect, not official but someone who knows all the regulations, because you need to draw a map of your restaurant and location. This map needs to be provided to the authorities for approval, before you start the construction. Of course, you always spend a lot of money at the beginning, because you don’t know which office to go and which people you need to employ. But after opening the first French restaurant business in China, you have known a lot of things and established connections in China’s imported food and beverage industry. It’s quite clear and not difficult. There are a lot of constraints and rules, but once you know them, you just do it.

Matthieu David: When I interview entrepreneurs in China and share my experiences, I see a lot of regulations. But actually, they are pretty transparent. You ask questions and get the answers. If you follow the rules, they are actually pretty easy. It’s not the main difficulty to embark an entrepreneurship in China. The main difficulty is to sell and make it viable, more than regulation.

 Charles Carrard: It is quite transparent, but it doesn’t mean it is easy. Because you have a lot of offices to go to, a lot of processes to go through. Of course, it’s a long pace, but you just do it one by one, step by step and try not to waste time on decorations. The most important thing is to get already all the connection around your French restaurant business in China before you sign the deal so that you can start having people working on the map. When you sign and have one month rent for free, you can already start your decoration. Because if you wait to sign and give all documents, by the time you get all approval and authorization, you already lose almost one month. Then you spend one month in decorating and pay one month for nothing.

Matthieu David: How much did it cost you to open the first French restaurant business in China fourteen years ago?

Charles Carrard: We spent less than 100,000 RMB on the first one, mainly on deposit and the painting, because we got the furniture, tables, and chairs from the previous owner for free. They were in a good condition. It was a good restaurant, a bit dirty, but we just painted it and made everything fresh was enough. The second one cost us not much as well, because it was in a similar condition. We spent 400,000 RMB for everything including rent, deposit, decoration, and also the kitchen appliances. The third one was pricier, because we destroyed everything to make the kitchen bigger.

Matthieu David: What about customers? How do you drive traffic to your French restaurant business in China? I heard that a French entrepreneur in China opened a restaurant. He was positive in cash flow and paid back his investment in just three months. Because it was his first restaurant and invited all his friends coming to the restaurant, it was not too difficult. In terms of sales and attracting people to your own French restaurant businesses in China, how do you do? Could you tell us more how to play word of mouth and Internet to attract people to your restaurant?

Charles Carrard: My first French restaurant business in China was more about mouth to ear. I ranked number one in Google Maps very fast, because it was new for the people at that time. It’s called a local business now, but at that time it was certainly new. I made a huge work on SEO for my first French restaurant business in China. There wasn’t Instagram at that time, but I used Facebook, TripAdvisor and Google Maps. They brought a lot of foreign customers. At that time, I was not aware and very good with Dianping, which is the number one application in China’s imported food and beverage industry. Step by step, we kept a good ranking in these foreign websites and attracted a lot of foreign visitors, either business people or tourists. We wanted more local Chinese customers, so we spent some money on Dianping to make special deals. Dianping has a lot of different places where you can spend money to attract people. We can either invite one of their KOLs, Key Opinion Leaders, who has a lot of followers on Dianping. He or she comes to try the food and writes good reviews. You can also create special deals. We were very popular on Valentine’s Day and Christmas in Suzhou and Shanghai. The restaurants were full. It was a very pricey average ticket, but had very good quality, so it was a big deal for customers to come. It is a good way to attract people. As you know, in China, you need to have a good ranking. So, you need help from your friends to come over first and give you a good ranking. That’s how it started.

Matthieu David: What costs are we talking about when you have to pay for KOLs on Dianping?

Charles Carrard: It is not very pricey. You don’t pay the money. You just need to spend money on food and it’s a global package with Dianping. It depends on what you want to spend. It ranges from 5,000 RMB to 26,000 RMB a month. You can access two KOLs regularly and have banners to be on the top of the page. Of course, it depends on the city and the area, because Dianping has a very powerful way to calculate according to the area. If you are in an area full of French restaurant businesses in China, competition is a bit tougher. If you’re the only one popping up when people search for French food and restaurants, it will be much cheaper. That’s why I always chose locations where you couldn’t find a lot of other French restaurants around. You have to track less French people or expats, but you’ll outstand more on any kind of digital platforms, because you’re the only one around.

Matthieu David: In the French restaurant businesses in China, Italian food is very associated to pizza and pasta. You have a strong identity with Japanese food and sushi. But the difficulty of French food is that there is no strong identity through a dish. How did you market your restaurants online where you need to build a brand identity in China as a French restaurant? How did you make it noticeable?

Charles Carrard: Two things. First, hire a good photographer. You need to have a nice plate. I had a fight with one of my managers, because he didn’t want to spend time on making nice plates. I told him to feed customers the enjoyment of experience before the plate arrives on their tables. Secondly, I did some researches on Dianping about the best or favorite French dishes from all the consumers. Actually, for us, because we are French, maybe we think French restaurants don’t have any identity, but in China, when you go to a French restaurant, customers want snails, goose liver, and beef steak. That’s the key items. Oyster is a plus, especially in summer, but these are the key products you need to have on your menu to show people who will judge you as a French restaurant businesses in China.

Matthieu David: Now let’s switch to the wine industry. Paradox Asia focuses on selling to supermarkets, hypermarkets like Carrefour. Precisely, those FMCG retailers in China are not doing very well now. They are challenged by Alibaba and Hema. You have seen the challenges facing those very massive FMCG retailers in China with a big space like Carrefour after the raise of e-commerce platforms. What did you see happening in the industry?

Charles Carrard: It was a very tough time, because for more than 10 years, all the FMCG retailers in China, including super and hyper markets, were growing in a really fast pace of double digits. Everybody wanted more wine, so you had to shelf with no strategy. Carrefour, for example, wanted more wine than Auchan, so it was a run for the more the better. About two years ago in 2017, exactly when Ele.me Meituan, Alibaba and everybody arrived in the digital industry, these big FMCG retailers in China didn’t see it coming. They didn’t have powerful digital O2O strategy in China to keep their customers. They didn’t realize that Chinese consumers had another real-off experience with purchasing everyday products from FMCG retailers in China. For two years, it has been very tough, but not only for wine. For wine, we had a different O2O strategy in China, because we had to sell in what FMCG retailers in China used to purchase from me. The sales and sell-out were not declining, but the sell-in was, because for the past 10 years, every FMCG retailer in China in China had too many inventories. When you don’t make money, as a FMCG retailer in China, you would stop making orders. That’s one of the reasons why a lot of the people stopped working with FMCG retailers in China, because they didn’t have wine on shelves anymore for their staff to sell. But Paradox Asia was focusing only on the FMCG retailers in China. We were and still are the number one in China for retail. They still had a lot of wine on shelves and were able to have staff selling wine. So, it has been a very tough time for one and a half year, losing a lot of money, because you don’t get orders, but still need to pay for staff, promotion, and the commissions. So, you needed a lot of cash flow. That’s why, for companies like Paradox, it was very hard, but now every FMCG retailer in China has such bottom down. It took Carrefour, Auchan, Wal-Mart, all of these worldwide companies and clever people about one and a half year to adapt to this new market, what we call O2O, Offline to Online or Online to Offline. Now, they all have partnered with Alibaba or Tencent. Carrefour and Wal-Mart is with Tencent, while JD and Auchan is with Alibaba.

Traditional FMCG retailers in China need Internet players, but at the same time, Hema is opening more and more physical stores, because doing 100% online is not working either and they need to learn from traditional FMCG retailers in China. We are in the model of more O2O strategies in China and there’s future. It is the same in France, so in the future world of retail, there will be smaller stores more adapted to their locations. With the big data, everybody knows exactly what consumers around the area are willing to buy. For Carrefour and Auchan, it was very hard and still not easy. But if you look at the Kantar figures in China, FMCG retailers in China are still growing. Besides, everybody is saying that retail is dead. Retail is not dead. The new retail is here. Carrefour, Auchan and Walmart all have created new concepts of purchasing of new experience with take-away or delivery within one hour. Now, everything is changing. Take wine as an example, the key is to be still able to be on the online, or to use O2O strategy in China like Sam’s Club.

Matthieu David: Would you mind sharing a bit more about Sam’s Club?

Charles Carrard: Sam’s Club is a club, so people need to pay to be able to shop. First, it’s the mix of metro, which in that you don’t have warehouse or the inventory inside the store. It offers very premium products, short assortment and very few discounts, because it already has very low price all the year along. This is a big difference with FMCG retailers in China, we always do that, “buy one get one free.” That’s why Sam’s Club, which belongs to Walmart, is booming in China. They now have 24 stores and plan to open 10 stores every year. I can give you one figure that one store in Shenzhen, which is the biggest one in China for wine and spirits, has a turnover of 100 million US dollar per year.

The image is very high, especially now in all the classified rolls of wine, Bordeaux for example. Sam’s Club is the one giving the price of the market, because it has the cheapest one, in terms of legal importation. Of course, you can always find cheaper ones in black market. The facial retail price it has is the cheapest for wine and the best selection probably in terms of value for money.

Matthieu David: Do you feel that because people bought the membership card, they feel they have to go to the club again? Do you think it is an economic choice for them?

Charles Carrard: The fact is that when they buy the card, it is already a way to show that they have money. People who shop in Sam’s Club are just very proud to tell their friends, “I go to Sam’s Club, because I have money.” Because when I say it’s a good value for money, the products are not cheap. It only has premium products. For the premium qualities, it has a value for money. But you can’t find a 20-RMB wine over there, but a wine that is maybe 200 RMB, which you might find it everywhere else 250 or 300 RMB. But it has only premium items with good quality. It focuses on the quality at a reasonable price.

Matthieu David: Similar to duty-free shops, people go to duty-free shops not because the products are cheap, but their premium products are cheaper without taxes.

What O2O strategy in China works the best for you? You said that FMCG retailers in China need to be localized and adapted. Are you talking about convenience stores or supermarkets? As far as I understand, bigger places like hypermarkets will take people 2 or 3 hours to drive to this place, which is not working.

Charles Carrard: The main issue in China is that supermarkets here have the same size of hypermarkets in France, because they are quite big. When you talk about hypermarkets, some in China, especially Auchan, are very big and have no rules. There is a trend for FMCG retailers in China, the smaller and more specialized the better. That’s why even Auchan, a big hypermarket itself, has a lot of small shops that give customers a different experience. People can go directly to the shops and buy what they want like pet food, flowers and travel without being inside a big place. The trend is a smaller format, but it is not only convenience stores like the traditional ones Family Mart or Lawson. But Carrefour was the first one in China to launch Easy Carrefour, which is bigger than a convenience store, but much smaller than a super market, selling fresh veggies and fruits. It was the first one. For some reasons, it didn’t open a lot. In the same way, Yonghui, a very big company from Fuzhou, opened hundreds of these stores. That’s booming, because people also want to find fresh products from convenience stores. It isn’t mainly profitable, because a lot of convenience stores have also to locate in very expensive areas.

I wouldn’t agree that hypermarkets are dead in China. It’s not when you have people in your stores, you start to make money. Of course, if you have nobody, it is not a good sign, but you can have some O2O strategies in China as Auchan. It owns the wall and the land and it opens always in places quite remote from the city center, because it gets help from the local government. In terms of investments, it has 30 years in front of them with a lot of financial help. That’s a lot easier to make a lot of profits and margins and build more things. I think it depends on the location. Once more, you need to adapt to where you are. A supermarket maybe working here but not there. A hypermarket will work here and not there. It’s not one rule for all. You need to adapt between convenience store, supermarket, hyper market or kind of the middle one, depending on which area you are in China, which brand you are, and what products you propose.

Matthieu David: You mentioned one article in an interview that nobody is making money on selling wine online. Is it still the case and why? Why the economic don’t work with O2O strategy in China? Is it because of the cost of delivery, the cost of acquiring clients, or the packages?

Charles Carrard: One of the best examples is Yesmy wine. Six years ago, it arrived with a lot of money and it was the biggest player for wine with O2O strategy in China. When they started with the money, they could acquire a lot of customers. But customers came to them because it used it emplacements to offer very cheap prices. But every two years, there is a new commerce, with a large money. All customers of Yesmy Wine went to other FMCG retailers in China two years later. In China, people want new things all the time. It is very hard to keep customers to buy your products, if you don’t keep motivation or the fun or build the relationship. Every two years, when there is someone with good wine with cheaper price, customers leave as well.

The second challenge is human resources costs, structure costs, and every cost, because when you grow up, you need more people for marketing, finance, and logistics. The mistake of a lot of online FMCG retailers in China is that in second, third, fourth tier cities, people don’t know much about China’s imported food and beverage industry. They still need to go see the bottles, touch the label, trust someone in front of them, ask questions, and be sure that the wine is genuine. If they are not happy, they can come back to the store and complain about the wine.

The O2O strategy in China is working well for international brands at a very low price, such as Richards or DeBeer, where nobody is making any money anymore, because you can find it at 38 RMB online. But as long as you are not an international brand and not in Tier 1 cities, it is very hard to make money. Maybe one of the best business for them was Waigeo, it had a different business model, only B2B. You need to register to see the price and you cannot buy wine bottles, so it’s a different business. But the thing about the end, it’s working for big cities. As long as you go a bit further, it’s very hard.

The third part, two years ago, people like JD or Tmall started to import directly from France and Italy, because they want to cut the cost of the importer. But it’s not the same job as being in charge of logistics and selling too. Now they don’t want to import directly from the country of origins anymore, because when they have a big database of customers, they can deliver the wine. But for some reasons, you don’t have enough inventory, because importing from France took too long. What will you tell your customers? When you have a local importer, you have a smaller margin or a bit higher final price, but you can ask someone to pay for the loss. At the end, even Sam’s Club or a lot of big FMCG retailers in China, which used to import directly, work with local importers who had enough customers to order big quantities, because they can split the loss with different players.

Matthieu David: Why don’t big FMCG retailers in China like Carrefour import directly?

Charles Carrard: They do, but not 100%, because you have nobody coming into the store. Now the O2O strategy in China for hyper and supermarkets is to have a lot of promoters paid by the suppliers. It’s a free human resource for these FMCG retailers in China. Back when you don’t have importers, you have only your old wine and need people to put the wine on the shelves and do a lot of work in the stores. Who is going to pay for these people? Carrefour? No way. They are listed companies and need to have profits. With the cost of human resource now in China, they prefer the consumers to spend more money. Because when you have promoters, the price of the product is higher. At the end, the consumers are paying the service of having people cleaning shelves, sorting inventory in the area, and advising you. At the end, the consumers are happy to have this advice.

That’s why the O2O strategy in China of retail is quantities. In UK, France or the whole Europe, you only have one guy for the whole area, so you train the best to take care of the sales area. In China, when you go to buy wine, there are six people trying to sell that wine. But at the end, you have a clean sales area. You always have the wine on the shelves. You can ask for advice. You can sometimes even bargain to have a better deal. You can ask them to open a wine to let you try, so it’s an experience that consumers are asking for.

Matthieu David: Which part in the value chain of selling wine in China can the make most money? Is it as a retailer, an importer or as a distributor? There are a lot of layers in wine industry. Where is the margin? Where is the split of margin? Do you have some economics and numbers?

Charles Carrard: Not a lot of people make money on wine now in China, even for traditional FMCG retailers in China or importers. What’s for sure is that you have a lot of companies. The one making the most profits is the final distributor. For example, you spend 1 Euro getting Spanish wine, Taylor wine arriving in China with an importer at a lending price about 12 RMB. At the end, it will be 100 Euro on a shelf with a nice packaging. Probably the packaging will cost 4 Euro, so the wine goes up to 5 Euro. You had a big promotion of buying one get free or half price. At the end, consumers will really pay 30 euro. That’s your price. 50% goes to the FMCG retailers in China and 50% goes to the final distributor. The margin will be for the final distributor, because a FMCG retailer in China actually have many other fixed costs at stores.

With O2O strategies in China, it is easier because you have less middlemen, but then the margin is much smaller. All companies like Miss Vicky Wine, Ruby Red offer very cheap prices, compared to a lot of people in China, because they believe they achieve a comfortable profit by making volumes. These companies are actually very small companies with maybe 4 to 10 people in one small office. There’s a warehouse next to the office. It’s enough to build O2O strategies in China. You don’t need much. But you cannot grow very fast as well. That’s why these kinds of companies like Ruby Red is different. Ruby Red also has on trades, trainings, shops, and a lot of different scopes as well. But some other companies specialize only in wine. They are harder to grow, because when you have your base of consumers, it has already taken all your resources for logistic, finance, building the website, WeChat and all that stuff. If you go higher, you need to hire more people. Then when it is big enough, you don’t make margins anymore, because these people make maybe 10%, 15%, 20% margin maximum, which is not a lot.

Matthieu David: Which platform would you suggest to someone who would like to be in direct contact with customers? Is it WeChat or opening a Tmall?

Charles Carrard: WeChat first, because WeChat is cheap, easy, and fast. There are a lot of people who can help you set up some data-tracking for a very low price. Tmall is very powerful of course, but because there is a lot competition. You need to go through a TP, which takes commission, and fight with a lot of people. First, go step by step with WeChat. Use your network, people who you trust to understand the purchasing habit of your consumers, what kind of products, price, and promotion they like. When you have a better understanding, go on Tmall. TMall requires more money, staff and time.

Matthieu David: What’s your experience of driving traffic on WeChat to get sales? I have heard it is about a lot of word-of-mouth, less SEO or SEM. You need to spend a sizeable amount of money on this to be able to put a message in the moment. What’s your feedbacks on getting traffic?

Charles Carrard: You have two ways. First, you need to be a part of a lot of groups. You need to find a right title, which is relevant for a group you are in, to attract people’s eye.

Secondly, you have a time of the day of posting, because there are some data about WeChat reading at some moments. Monday morning is better than Wednesday afternoon. We need to find the right timing for posting.

Third, you have a lot of small tools on WeChat, where you can spend maybe 100 Euro to allow maybe 2,000 people to have a lucky draw and make a bit of money. They need to scroll down the article. It doesn’t mean they will read the entire article, which you would never know, but you know that they have scrolled down to the bottom and clicked. It can make a bit of money, 5 or 10 RMB. It’s working specifically for surveys. I don’t use it for articles, because it’s not the point. When you make a survey and have a lot of filtering questions, you spend maybe 100 Euro. I had 5,000 answers last night in two days, so with all my filters, I could still use 1,500 answers at the end, which I thought was good for my studies. I threw away 3,500 answers, which I thought were not really from people I was looking for. I kept only 1,500 people in two days, which is a really good figure to make a study on some habits and marketing stuff.

Matthieu David: Within your existing clients?

Charles Carrard: No, it was from people who forward to a lot of people. When they have won a bit of money, they send it to their friends.

Matthieu David: You mentioned that O2O strategy in China can work for famous wines and brands. That comes to another topic, building a brand identity in China, which we have worked for several years. How do you build a brand identity in China? Do you have some tips to go faster or just to be patient? What’s your feedback?

Charles Carrard: That’s exactly my dilemma now, because I have 25 wineries, which are very strategic wineries for us. I need to build a brand identity in China for these wineries. At the same time, I have 30 other wineries, which are not strategic and more here to make volume wine. I have two feet, one in the branding and one in the volume. My boss has pressured me to have both images, and the volume is very difficult. I think one of the most important things to build a brand identity in China is not to be a dreamer of being exclusive. When I took this position six months ago, I had to look at the scope of what had been done before I arrived. I noticed a lot of my brands, even with one importer for exclusivity, for all product of the brand, for all of China. It took me 3-4 months not to touch everything. Now I cannot break everything for some brands. It takes more time, but some brands I already have distribution, becauseyou will become a brand when people can find you everywhere in China, no matter what products you have. It is what happened to Spanish wine masters as well. It was a very high rise of price in Spanish wines, so the Spanish wines went down, and now they are starting again. That’s why now the innovation in China’s wine industry is branded wines. People now want to have brands, because they are fed up off one-year expensive. They prefer to have something higher but constant, and they make more margins in the year. To build a build a brand identity in China, it takes a lot of time or money. So, I think there is no magic rule. Of course, we can be very lucky. I know a guy in Beaujolais and he was very lucky in Leon two years ago. The Sweden king went to a restaurant and he had his wine there. He took a picture of himself with his wine with CPD and now he’s the importer in China. He’s the biggest customer of Beaujolais worldwide, because they import more than 50,000 cases of his wine for a lot of consulate just, because that’s the wine the Sweden King was drinking. But beside luck or money, I think time, work & patience is the only successful path to build a brand identity in China.

Matthieu David: I have a question about innovation in China’s wine industry, not only digital with QR codes and so on, but also in the format. In Australia, 50% of wine are bagged in boxes. In France, maybe 20 – 70%. We have seen new formats of smaller bottles that people can consume two glasses of wine, instead of a full bottle, which you cannot finish within the night and cannot keep it for too long. What formats do you see as innovation in China’s wine industry?

Charles Carrard: I see up and down, because 10 years ago, we already imported a lot of small bottles and it didn’t work. Now, I can feel that the innovation in China’s wine industry for half and quarter is starting. It’s not huge, because wine is still associated with dinner or events with a lot of people around, but especially in first tier cities, people want to drink wine at home, maybe just for a couple, him and her together. It’s not a question of money, because the price of the half or quarter bottle is higher, compared with a full bottle. They don’t want to waste. They just want to have one or a half bottle for two, and be sure to finish it, instead of opening one bottle and not drinking it. That’s one innovation in China’s wine industry. It will be more and more, but still very small. Bagged in box for restaurants is still mainstream, because it keeps the wine in a good condition. It’s not breakable. It’s easy for the house to pour the wine. The innovation in China’s wine industry I see is more on the quality of the wine. People now, especially those in first tier cities, want to drink better wine. Six years ago, we launched a wine made with yeast from sake in Japan and China as well. It was a niche. We had only 2,000 customers in China who want to buy this, but it was very interesting because they wanted some innovation in China’s wine industry. Now we have a big trend in China, which is the Jura wine. Because Jura is not famous, 80% of the wine produced in Jura are consumed in Jura.

Only 20% is exported, along with 80% going to UK. We have 350 hectares of vines in Jura, which is the biggest one. This is our priority this year. It’s the first time that there’s so much work done on exporting Jura in China. Very surprisingly, a lot of players in China’s imported food and beverage industry are interested, because they cannot find Jura. Because the world wants to come to China for wine, they can find anything they want, but not Jura. Not a lot of companies in Jura are able to export. It opens me a lot of doors. Even in second or third tier cities like Chengdu, people will ask for Jura wine. I am not talking only about wine, but also Chardonnay, Pinot Wine and Sauvignon. People are very open-minded, not only in terms of the format. The big deal is more on how you process the wine. Are you organic? How do you do the wine? Whether it arrives in big or small bottles is not a big issue for me in the future. The innovation in China’s wine industry I see more in the future is who is behind the wine in terms of history and vine yards.

Matthieu David: Talking about history, could you share about the history of Boisset, which could have become like 250-million-euro business with wines in California, in Jura, in Hontalling and being so strong on Burgundy?

Charles Carrard: The guy, Jean Claude Boisset, was 18 years old in 1961 when he started to knock on everybody’s door, selling wine himself. 60 years later, he is number three in France, because Mr. Boisset has customers in mind first. Secondly, calculating finance. Year after years, he acquired a lot of wineries, which were not able to make a sustainable business plan. We are not a cheap company. We are quality company. My main issue in China is that people are looking for private labels with cheap price. I say I produce only quality wines and quality has a price. So, he said that the innovation in China’s wine industry, especially for the brand and the wine, is on quality, not on volume and not on being cheap. Because when you are cheap, you cannot invest in machinery, filtration, air con, and all the work you need to do on the vine yard. Only the quality allows you to have a good customer experience, then people are ready to pay more. With more money, you can make it better and better. 30 years ago, he decided to go to America with three people only. Step by step, he acquired some wineries in California. We have eight wineries in California and more than 23 in France. All are very independent. There is no big rule like some of my competitors. The only rule we have is to do something good and put your passion and heart in what you do.

Matthieu David:  What do you think of the Chinese wines from Venetia and Mongolia? Is it also an innovation in China’s wine industry or just an anecdote that doesn’t need to talk about? Because they want to talk about Chinese wine, which is conquering the world and getting better and better.

Charles Carrard: It’s going to be very big, because people will do the wineries. They have enough patience to learn the growth. They have done amazing work on quality and sustainability. The one is really good and I think that big companies like Great Wall Wine or Dynasty will have to follow what has been done by small wineries, in terms of quality, because Chinese wine for sure is going to be big. It’s not an anecdote.

Matthieu David: Thanks Charles, thank you very much for your time. I hope you enjoyed it.

Charles Carrard: Thanks a lot, of course I did.

Matthieu David: Thanks for listening everyone.

Charles Carrard: See you. Bye.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

Do not hesitate to reach out our project managers at dx@daxue-consulting.com to get all answers to your questions

This article Podcast transcript #54: Everything you need to know about running a French restaurant business in China is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Matthieu David: ​ Hello everyone. I am Matthieu David the founder of Daxue consulting and its China marketing podcast, China Paradigm. Today I am with Claudia Masueger, the founder and CEO of CHEERS Wines. You started this business in 2011 and opened the first shop on April 9th, 2011. Before that, you had another company selling wine in China as well, MQ Wines. It lasted more than 2 years and the warehouse was burnt down. You had to start again from zero again with another model, which is the Cheers Wines model.

Cheers Wines has now 60 wine stores, mainly in Beijing. You expanded to other cities, online up to 14 cities like the second-tier city, Zhengzhou and another big second-tier city, Chengdu. You are now very well-known in Beijing. We see your stores and logo everywhere. You are also very active on social media. I checked what you are doing on WeChat. You have a Weidian and a JD store. I guess you have extensive experience of O2O in China. Thank you very much, Claudia, for being with us. My first question as always is, what’s the size of your businesscurrently?

Claudia Masueger: Currently, Cheers Wines has 60 stores as you mentioned all around China, but with the main focus of 40 stores in Beijing. We have around 80 employees, 25 in the office and the rest on the roads and in the stores. Every week we are selling wine in China with one container of around 14,000 bottles.

Matthieu David: ​ One container is about 14,000 bottles?

Claudia Masueger: Yes.

Matthieu David: ​ The numbers I got for 2014 that in one year, you were selling 70,000 bottles. That’s what I got from 16 online outlets. That’s very strong growth. The number of bottles is not only from the shops, but also from B2B and platforms of online retail in China, right?

Claudia Masueger: In our days, offline is not working alone anymore. It’s very important to have a very good balance between offline and online retail in China and the touchpoints for O2O in China are working smoothly. You have the offline stores more for experience and lifestyle exchange, and then you basically offer your customers the convenience that they can order online immediately from stores or home. What is increasing extremely fast is the platforms for O2O in China with third parties like Baidu, Meituan, etc. The customers are sitting at restaurants nearby a store and they can order wines online and in 20 minutes we would deliver it directly where the customers are. This 20-minutes is the new guideline in Beijing and this is the huge demand from our consumers and it’s growing very rapidly. It’s very important in sales these days that you have offline and online retail in China available. We are around active in 8 different channels of online retail in China that could be e-commerce, O2O in China, and also social commerce, which is more and more popular as well.

Matthieu David: ​ Which platforms?

Claudia Masueger: Social commerce like Douyin, where you have sales at the end or other social media channels at the end offering your products.

Matthieu David: ​Before we actually go deeper in O2O in China, because I think you are in a position where you can experience a lot in O2O in China with your own shops and appearance on social media, which is kind of unique. A lot of brands they sell through third parties or only on TMall, but to have your own shop and manage social media is very unique. You said 60 stores before a lot of innovations in Beijing. Could you tell us more about what happened in Beijing about opening and closing your store? How do you manage that?

Claudia Masueger: It was between the end of 2016 and 2017 when Beijing renovated its city. Over 40,000 little stores on the streets were closed and around over 4 and half-million people had to leave Beijing from the city. A lot of our cash customers have been closed unfortunately by the government and all the stores were completely legal but the government broke into the doors. They closed our doors and mentioned that we can still legally run the store, which was not very efficient when you don’t have a door.

Nevertheless, at some stores, we did that for six months and people would actually climb up the window from outside, knock on the window and we would continue selling wine in China. We were actually very lucky because the government also put a gate in front of the window and the bottles were exactly the size that could go through the gate in front of the window. Those are normal things. China is moving seven times faster than the rest of the world and you always have to adapt and observe the Chinese market. Another challenge of selling wine in China was because most of the street stores have been closed, we had to enter the shopping malls. Shopping mall business is completely different than the street business, so it needed an adoption in terms of marketing, interior design, the product assortment, and the consumers communication and behaviours.

Everything has changed. We managed this step and we are now in many shopping malls as bigger stores with 60 sq. m where people can sit, enjoy and meet friends as well, specially learn a lot about wine through a wine tasting, visiting through suppliers and interaction. We also have smaller stores like island stores, which are very powerful and beautiful with a huge traffic of consumers. We are now in malls especially in the first-tier cities and a bit upgraded.

Matthieu David: ​ When I went to your store in Sanlitun, it was much smaller than 30 sq. m. Am I correct?

Claudia Masueger: We have stores from 13 sq. m up to 90 sq. m. In this range, there are many different models. You will recognize Cheers everywhere, but it really depends on the location and surroundings. For example, the no.3 store in Wudaokou is only 13 sq. m and very powerful. Some of them are very small and some of them are very big. The Sanlitun store is around 25 sq. m. The one which you’re talking about is the outside sittings. That was beautiful because the customers could also order the food from the neighbors and we had a beautiful terrace.

Matthieu David: ​ And this one is closed?

Claudia Masueger: This one is closed. Yes.

Matthieu David: ​ Beijing is still trying to make things basically more organized in the city to be more within malls and less on the streets. You moved from mainly on the streets to shopping malls. How did you manage it financially? How does it change the economics of selling wine in China, financially speaking? Can you still sell wine in China at 28.8 RMB or you had to change some of your way of doing business?

Claudia Masueger: The 28 RMB wine offered in shopping malls are now in three package offers. People like to spend more money, and the customer spending has increased, but in the rest of the assortments people who are going to shopping malls would like to have rather medium and even high level offers rather than the entry-level. We had to adapt there a lot, but we still have stores to sell wine in China in third or fourth-tier cities where the choice goes in the entry-level for own consumption and then really high up for gifting. It really depends on where you are and in which environment you are in. You will select a certain assortment for your store. We do have a certain standard assortment that all the stores need to have, but then we have add-on products, which we then select depending on the location.

Matthieu David:  28.8 RMB now is about 4 US dollars and 3.5 Euros. It’s extremely cheap for China.

Claudia Masueger: I wouldn’t say cheap. I don’t like the word cheap. It’s very affordable. My family is in the wine business for four generations, so we have a lot of purchase power. We know our world around it and when we sell wine in China, we would combine it with an order from a big retailer in Europe so that we can decrease the buying price. That’s why when you try all our wines, you always get the best price value of wines in this segment. We have a white and complicated process of how to select new wines and we are very strict on this, which means from 100 wines offered to us we would only take one. We can always guarantee the best price value. And also, we have to have a certain assortment so that we can satisfy customers in third and fourth-tier cities or first-tier cities. When you look at Beijing and Shanghai, they are two different worlds. People would eat differently and drink differently so this is also an important part of it.

Matthieu David: ​Is it because you have your own shop and you are both an importer and reseller that you are able to actually lower the prices in order to avoid so many intermediaries while selling wine in China? Does it affect your margins or is it simply because you are applying lower margin?

Claudia Masueger: It’s a combination of everything. First of all, we have very good purchase power in terms of combining our orders with other huge retail chains all over the world. We have also no middlemen in between, so we are importing everything. We are selling wine in China directly to end consumers, which makes us very strong on that point.

Matthieu David: ​ Because in China you need different licenses of importing and selling, you have all those licenses to be able to get everything 

Claudia Masueger: Yes absolutely.

Matthieu David: ​ You are from a wine family for four generations. Could you tell us more about how you analyze the wine market in China in 2008 when you started MQ wines at that time? In a story, you mentioned that at the time you saw some Chinese putting Coca-Cola into Bordeaux wine because it was so strong. What made you think this is the place where I can start to sell wine in China?

Claudia Masueger: I arrived in China on the 8th of January in 2008 with two suitcases full of wine samples and a very big will to find out the way of the wine market in China. In the beginning, I saw that my competitors would go to five-star hotels and do fancy wine tastings. But I wanted to know if the people on the street actually like wine, what kind of wine they like and what kind of prices they could pay. I was just randomly traveling all over the country, stood there on the street, packed out my bottles and started to figure out what kind of wines people on the street like.

In 2008, most people would know about French wine. Most people would say French wine Bordeaux must be the best wine. But I realized on a lot of meetings was that no one actually liked it because the Chinese wine culture at that time was still new. They prefer sweeter wines, so they put Coca-Cola, green tea and ice or whatever you can imagine in the wine because they would consume the wine, which means bottom-up. They can’t consume a heavy wine, so you have to mix it with sweet liquid. When I was on the street and trying to figure out what they really like, for example, there was a girl, maybe 25 years old, and said I don’t want wine. I gave her a Moscato and said try this one. She drunk it and she was so excited and asked what wine this is wine. I realized then that there was so much that they don’t know and that’s why I figured it out that they like sweeter wines to start and cannot afford so much. At that time they might afford 50 to spend for a bottle of wine.

That’s how I founded Cheers to sell wine in China and came back with this knowledge of wine, which really fits this new Chinese wine culture. But going back to 2008, my first deal was the Olympics, so I could provide wine and beverages to the Swiss house during the Olympic. I was very fortunate and started a bit of online retail in China because I also wanted to have a piece of the cake. Of course, China was booming and the wine market in China was booming, but 80% of all the wines would go to the government. We had customers and distributors all over China and they would sell wine in China to the government. Whatever wines we would give them, they would put a 100 or 200 RMB margin on it. The second problem was that they wouldn’t know how to storage wine. You can have a fantastic wine, but if you put it in the wrong warehouse, it’s gone. It’s just not good anymore. All those kinds of facts were very unsatisfying because the wine that we sold at the end was not really nicely consumed and overpriced.

In November 2010 when our complete warehouse was burnt down and luckily, I was Swiss and well insured. But we were out of business for four and a half months and then I had finally some time to think again and come back with the idea of really making fun and affordable Chinese wine culture for the younger generation. That’s a couple of months after the fire. We then opened our first store on the 9th of April 2011 and that was immediately a success. The youngsters would discover us in Beijing. They loved our wine choices and the prices from the beginning. We also founded a Cheers University where our own staffs and our customers could be really well educated. That was highly appreciated because we are not just sniffing around the grass and talking about weird words that no one understands. We would really start simply to explain how to choose the right wine, how to distinguish fake wines because at that time fake wine was still a big subject in China.

All of this, how to drink wine, how to enjoy it, what kind of lifestyle is it with the wine. I always say wine is the best product in the world to sell because wine is connected to so many countries, languages, traditions, and cultures. So, marketing and knowledge transfer are endless. We also went a lot outside on events at that time in 2011, wherever the youngsters would party and would be, we would be there with a booth making free wine tasting and then bring them back afterward to the store. We were super popular and within the first two years, we opened eight stores and people would definitely know us and it was an absolutely fantastic start.

Matthieu David: ​ How much time did it take you to be cash flow positive on one store? I believe that you were already having positive cash flow before starting another one or closing.

Claudia Masueger: The first store was cash flow positive in 3 weeks. It was special. We had no idea what we were doing and we never had any experience of sell wine in China. We were just wine people. We just selected a store in the middle of a purely Chinese neighborhood. It wasn’t fancy at all. The rent was 3,500 RMB and we wanted to experiment this if it works. When we did our first interior design, I wanted to have it as non-traditional as possible.

The Chinese wine culture sometimes can be a bit snobby and a lot of youngsters would tell me they were scared to go to a wine store. They thought they need to be really sophisticated and know about wine. I wanted to have it colorful, fun and non-intimidating so that people could really come in. We would really welcome in an uncomplicated atmosphere in very simple interior design, especially at the beginning and people would just discover the Chinese wine culture. We had a free tasting from the beginning in all our stores, which was very important because people needed to know what kind of wines are available. When they started to discover fruity wines, rounder wines, easy drinkable wines, they would really have fun to discover this wonderful Chinese wine culture. When I look back now and see people who drink with us in 7-8 years, they really step by step improve their skills and become very sophisticated. They even discover how food and wine in combination change everything, then a whole new Chinese wine culture opens and that is something very, very beautiful.

Matthieu David: ​ How you manage growth? Usually, the first store is more quickly cash flow positive and breaking even because you have your network you know and can bring to maximize with it. That’s the same with restaurant businesses but the second one, the third one, it takes much more time. Could you share a bit about the next store? How did you manage the growth to basically finance it? How much time did it take to be cash positive? It was three weeks for the first one, I guess it was longer for the others?

Claudia Masueger: The first two years were absolutely amazing. There was no real competition on the street. We were selling wine in China like crazy and it was just absolutely wonderful. Then in 2013, Xi Jinping came in power and then everything changed. The first thing was the consequences of the anti-corruption campaign was felt everywhere, so B2B business would stop. Basically, government channels would not buy wine anymore. Everyone looked around and at this time two channels started to increase, which was online retail in China and wine stores. There was a very tough time when I lost almost 50% of my staff during this time because competitors would pick them and make them open their own stores to sell wine in China. In one area of Beijing, we only had one wine store, and during this time within three months, there were five wine stores within 150 meters and everyone was educated about Cheers. But that is okay. These were mostly copycats.

Being a Swiss copycat was a bit strange for me, but now I know it’s a compliment and it’s good. Therefore, at that time we realized there was a huge demand for people who wanted their own stores to sell wine in China. We started to open a franchise in China, which means then we gave our staff and customers a chance to open their own store to sell wine in China. That’s how we started to scale. I have to say all the former employees who opened copycats or went with other competitors went bankrupt within 9 and 12 months because people realized running a wine store is not just having a room with a lot of shelves inside. There is huge machinery in the backside who makes sure that everything is stable and brings the education and good wines in. Therefore, people would realize it’s not easy, so they open a franchise in China with Cheers. That’s how we started to quickly grow with the franchise system.

Matthieu David: ​ How many do you have in the franchise? 

Claudia Masueger: All the stores that we have lost in Beijing due to the renovation were all our own stores. Right now, we only have 6 own stores and the rest is all franchises. The demand and the willingness to open a franchise in China is huge. Chinese are very smart business people and they have this habit of entrepreneurship in China inside and they’re doing a good job. The demand is very big for opening a franchise in China.

Matthieu David: ​ Could you explain more about what kind of contract you sign and what kind of support you provide? I understand the franchisee can leverage your brand. They can leverage your portfolio of wine. They can buy from your inventory. Do they have to pay you a monthly fee or a yearly fee? Could you explain how it works?

Claudia Masueger: We adapted our concept very much to China and it’s a legal system to copy and paste. They have to follow the whole Cheers philosophy. Of course, the products must 100% come from us because 99% of all products are exclusive for Cheers. We want that transparency because we don’t do private label. We want our customers are looking at the retail prices of this wine existing in another country. The franchise partners need to have our assortment, marketing, and interior design. It’s a completely legal way to really copy-paste our concept. We don’t charge a monthly fee, but we charge an upfront one-time fee for three years, which is very reasonable, only 50,000. People would also have to pay a deposit so that they would follow our rules. If they would, for example, be caught selling wine in China other than Cheers Wines, then we have the right to reduce the deposit. The reason we do that is we want to be very strict.

I am putting my faith behind every single bottle, so I need to make sure that we can have a stable quality in our stores and with our products as well. They are part of our team. We’re providing sales KPIs like we would do it in our own stores. We also have an entrance training, which is very intensive, and weekly follow-up training on WeChat. We have a huge community within franchise partners and employees where they exchange ideas and experience, especially about new arrivals.

One part that is very successful is the mini wine school on every Wednesday at 7 PM. One wine will be opened at the same time at all stores national wide for our customers to explain a little bit more about wine. The reason we do that is that on Monday morning, we would train all our store staff about this particular wine and they would then pass this knowledge on Wednesday. Because you have to understand the Chinese wine culture is huge and endless to learn. You can continuously educate your team at stores with a running concept. This mini wine school is proven to be a very good success for our store managers and also for customers in the end.

Matthieu David: ​ Basically the staff is trained on Monday and have a bit of pressure to say on Friday I need to be ready. They have to rehearse to make sure they know about it. It’s a good way actually have to educate 52 points in a year.

Claudia Masueger: Many of our store members or staff all have the WSET certification. WSET is wine spirit educational trust, an international certification we offer at Cheers as well. We appreciate when our store staff passes those level one and level two and mostly level 3 as well. That is also important that we have well-educated people in the store so that they can guide the wine drinkers through the complex Chinese wine culture.

Matthieu David: ​ Some of your copycat people would try to copy wine Cheers in 2013 and 2014 when regulations became tougher for B2B businesses. A lot of them failed after 9 and 12 months. How do you analyze that failure? It’s about creating a brand and they were not able to do so. Financially speaking, what was a burden for them, the inventory, the rent, or the salary of the staff? How do you analyze it?

Claudia Masueger: It’s a lot of reasons. One is the choice of wines. People would not really know much about wine and they would randomly buy wines from importers in China. A wine something is so sensitive and if you choose a wrong wine with wrong prices, the customers will lose the trust immediately. At the end of the day, it’s building an honest brand with extraordinary good products and very knowledgeable customer service and also thinking pro-customer.

Our mission in Cheers is much more important than selling wine in China. Our mission in Cheers is to make you smile. We give the customer good feelings so that the customer feel trusted and feel that we have the best selection. When a customer comes to Cheers, we are not guiding them to the expensive French wine. We would ask a lot of question to really make sure that we offer the right wine for this person or the event they are needing the wine for, and that’s what our customers appreciate. You will always receive a smile and a very good recommendation, which brings the customers afterward back to us.

Matthieu David: ​ You would conclude that it is much more than product issues that make them fail in terms of selection. Of course, it’s correlated, but basically, you would assess that it’s the product.

You talked about people in the shop, your own team or the team of the franchisee. I remember when I was in your shop indeed, the people in the shop are much more friendly and it’s easier to talk to them than most of the shops I’ve been to like most of the restaurants or shops. They would just present some wines they have been told to sell within this week or month. How did you build a corporate culture in China? How did you train them? Is it more difficult than in other countries? Do you feel especially difficult in China as some people say or it’s a niche?

Claudia Masueger: I love working in China and with the young generation because, in China, people really want to learn and grow. We have a very strong internal corporate culture in China. We hire people who are willing to develop themselves. We also train them about self-confidence. We train them about customer service skills, sales knowledge. They need to read and discuss a lot of articles, Dale Carnegie, for example, and books like The Go-Giver, which they discuss internally as well. It’s a brighter education and it’s not just about wine, but the general attitude to life. We only want people who understand this and want to develop themselves. I think that makes the biggest difference.

It’s beautiful because the Chinese are really active and really willing to learn. It’s really amazing how they can grow in a very short time. I can’t tell you how it is in other countries. I did live in India before and India is also beautiful, but it’s completely a different country. It’s really hard to compare with any other country. China is full of smart people, so you have a lot of possibilities to make a business right.

Matthieu David: ​ When you say you make them read and think about Dale Carnegie and some people like this, is it also salespeople in the store or mainly the management?

Claudia Masueger: The salespeople absolutely. For example, our corporate culture in China is a bit different when we hire a C level person or a higher-level person. This person also gets interviewed by assistants and lower level of people. We try to include all the people together, especially the sales staff in the store. They need confidence and to be trained how to deal with people, make people happy not in a fake way, but an honest way. We are also looking towards ourselves first. We always say if you want to lead others or if you want to sell others you first have to know yourself better. It’s all about mindfulness and having the right attitude. Then you can start building up the professional knowledge around.

Matthieu David: ​I am surprised that most of the people in the shop are not from Beijing or Shanghai. They come from far away. They are not used to this kind of corporate culture in China. How do they react?

Claudia Masueger: Especially people from the countryside are so hungry for knowledge and so willing to improve themselves. That’s just amazing. We have many people from outside Beijing who work with us. They are just the best and amazing.

Matthieu David: ​Have you got outside investment? Did I saw somewhere Movenpick invested?

Claudia Masueger: It was 2016 when Movenpick actually came to us. They wanted to sell wine in China. Movenpick is a Swiss company now belongs to a German owner and they believed in us and invested in us. They are still with us so we are growing together.

Matthieu David: ​ Movenpick is not the ice cream?

Claudia Masueger: They are famous for ice cream and coffee. They actually had a lot of hotels and so on. But most of their business is either licenses, so Nestle owns the ice cream for example and they just sold the hotels. They are more in the financial investment world right now, but Movenpick itself also has very successful wine stores in Switzerland and some in Germany as well. That was always good because we can also learn from their operational experience. That is the most important thing as you mentioned EO. Within the world of entrepreneurship in China, it’s really important to have experience sharing constantly. That’s why we have a very strong community of entrepreneurs in China, Beijing, and Shanghai as well. When you come and exchange the experience, it makes you at the end much stronger.

Matthieu David:  EO is an entrepreneur organization, a US-based organization initially, but now all over the world. You are the president of the Beijing chapter and it’s a very interesting organization. I’ve been part of it as well where you learn a lot about getting help in your business. What do you think they expect Movenpick? Does Movenpick expect to resell the shares in later stages? What do they see in you? Why do they invest?

Claudia Masueger: After all, selling wine in China is a huge market. The ultimate goal for Cheers from the beginning was to open 888 stores, but that was back in 2011. Now it’s not so much about stores alone, now it’s O2O in China. You have to have offline and online retail in China integrated together. We all have one goal. It’s growth. 

Matthieu David: ​ We talked about the eight platforms that you are on, Weidian, JD store, which linked to your WeChat, because JD and WeChat are working together. We are talking about Douyin, Weibo, and Youku as well. Could you describe what do you do on each of them? Do you have a specific strategy for each of them?

Claudia Masueger: Ele.me is very big as well. It really depends on the area you are in. We have 40 stores in Beijing, so I can mainly talk about Beijing. You have the classical channels of online retail in China like Taobao and JD that are linked to certain social media as well. You always combine wine content with sell wine in China as well, but what makes it very interesting are those channels of online retail in China where we can deliver very fast from the stores. The delivery time of Taobao and JD is 24 hours, but when you order it on Ele.me, Baidu, Meituan and so on, you have 20 minutes delivery time. That makes it attractive and that is the new standard in China.

As a consumer, you can order food and products from any kind of offline stores. They would only find you when you have the offline location somewhere so that you can deliver. If you are too far away, customers can’t find you. That is the very big advantage of having a lot of little outlets all over the place so that we are always on top and the fastest to deliver in Beijing when somebody searches for wine.

Matthieu David: ​ I interviewed a few months ago someone in coffee shops here in Shanghai and they are using Meituan and Ele.me as well. They told me that the pricing to deliver is changing based on the weather if it’s raining. Could you tell us more about how do you integrate all those systems into one system? Because I feel to plug Ele.me, Meituan, all those systems into your own inventory and for different shops, franchisee as well, how do you do that and have you built an internal CRM? How did you do it?

Claudia Masueger: That is always a big challenge because new channels of online retail in China are also appearing all the time. Right now, it’s a lot of manual work from the back end. We are just about to upgrade our CRM system, so that it’s much easier to connect the different channels into one system because you have a lot of different systems and they all need to come back to your main system. We haven’t found the ultimate greater solution yet. Luckily, we are in China, so we can hire a lot of people as well. We are just in the middle of upgrading our system.

Matthieu David: ​ In terms of driving clients from online to offline, Ele.me and Meituan find clients for you. It’s a platform so people would buy. But some platforms are only providing the logistics, the delivery and you have your own clients. Could you tell us more about how you drive your own clients to your platform? Could you share some experience?

Claudia Masueger: O2O in China for me is driving traffic offline to online and driving online traffic to offline. It’s in both directions. Let’s say you are in a store you are invited for wine tasting. You have a one-time life experience and you really enjoy it. On every price, you have QR codes, which you can immediately deliver. Wines are heavy. No one likes to carry around. Beijing doesn’t have a lot of parking spaces, so it’s a bit different than the western world. You have to make it as convenient as possible. There are many touchpoints within the store where people can say, I can deliver it at home. Some of the people order it directly from the store and they have it delivered it faster than they would arrive at home. That is in China or in Beijing with a standard that you have to follow and it’s great actually. I am a consumer and I love it very much.

Matthieu David: ​ I interviewed also someone who worked in the wine industry before. I believe you know his website named Z9H, Adrien Fabry and he was talking about the Chinese wine culture. Actually, he closed the business after five years. He was telling me that the reason he was at flash sales websites, selling wine in China at a discount. He was telling me the reason that we were not able to build the flash sales website business in China compared to Europe where it’s existing and doing well is that Chinese don’t consume wine on a daily basis. It’s not a daily drink. It’s not a drink you will have for every meal like in the West or Europe where they would open a bottle nearly two days, every three days or every day. What’s your analysis on the Chinese wine culture at home, not only for a birthday, not only for celebration, not only for weddings?

Claudia Masueger: According to the statistics, it’s actually 50-50 now, 50% off-trade 50% on the trade. In fact, the Chinese don’t drink wine regularly yet. Our VIP customers return back 5 times a year. It’s absolutely true, but you have the mass of the people in China which makes it beautiful.

Matthieu David: ​ What kind of business model do you see for the future in selling wine in China? Do you think flash sales are going to take off? Also, events like Juhuasuan, nine-nine sales started by TMall. What do you see in your product stores? What do you see for the future?

Claudia Masueger: The future is when you find a good balance between offline and online retail in China. You have to have a footprint on both channels but also cross border online retail in China becomes more and more popular, especially limited and special wines from very hidden producers where people wouldn’t really know about it. You offer, you show the vineyards, you have the winemaker and there is maybe a limitation of 1000 or only 10,000 bottles. People in China can order it from the living room directly and it will be delivered 3-5 days from the vineyard to the customers. This is something I feel the trend has picked up in the wine market in China. It was very popular in cosmetics and baby ware.

The success in China is always to find a good balance between different things. You cannot just have the e-commerce side or just have stores to sell wine in China. You really have to offer different channels of online retail in China and think customers first, because customers are your biggest assets and you need to listen to the wine market in China, understand what the wine market in China wants. The wine market in China is changing, especially the Chinese consumers are changing so fast. It’s incredible. You need to know what’s happening and you need to know which channel of online retail in China to jump in. There are new channels coming up constantly. Some will work and some doesn’t work, so you have to find a good balance between all your activities around it.

Matthieu David: ​ Cross border is a topic, which is very often mentioned by overseas businesses because now they don’t have to register their businesses in China to sell from overseas. Taxes are being reduced recently in early 2019, but still, a lot of people who are outside of China would say what’s the difference for customers. You said you need to be customer-centric. What’s the difference for the customer to buy from overseas like a cross border or to from a shop basically? The product is the same, but you have to wait when you buy from the cross border. What’s the advantage?

Claudia Masueger: It depends on which channel of online retail in China you normally buy. But it’s really important when the quality issues are very important. For example, at Cheers, we are doing competitive check every month. We are buying products from other sources and you cannot believe how many bad products are still out there in the market. As a consumer, when I have a cross border deal, I know the quality is real because I get it directly from suppliers. You would also find some specialty, which is not just something you bring it in in the warehouse and everyone can buy it. You would have access to very special wineries or special wines to try out. There are many advantages out of it.

Trust is huge for an overseas supplier just to open a cross border channel of online retail in China. It might not work so easily, because you have to have access to the customers as well and you have to know what the customers want. You have to build the content, which the customers want and the wine tastings in China. Maybe for other products like baby powder and milk powder, it is a different story. For wine, people also need to trust the channel of online retail in China and they need to have this experience of O2O in China. It’s not just selling wine in China online. You must have the offline experience. You must have the way to try the wine or to build trust with your customers through the offline experience. That is absolutely essential.

Matthieu David: ​  You are working on going on overseas. Could you share more about the countries you are thinking of? When we are based in China, what countries do you think of and what’s your analysis of other countries?

Claudia Masueger: We’re going step by step. I just got a lot of demands from other countries such as Philippines, Vietnam. I am talking about Southeast Asia because Cheers has really shaken up the wine industry in terms of how to sell wine in China in an uncomplicated and fun way, and of course in China also very affordable. The next countries would be Vietnam and Philippines. I am not sure yet. We are just in the research stage. We have a lot of interest you know; the weather is different. The consumers are different though it’s a lot to prepare before we would make the next step.

Matthieu David: ​ Thank you very much for your time Claudia, directly from Switzerland.

Claudia Masueger: Thank you very much.

Matthieu David: ​ Thanks congratulation for everything you have achieved. Very impressive and hope everyone enjoyed the talk. Thank you very much

Claudia Masueger: Great. Wishing you a wonderful day. Bye, thank you.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

Do not hesitate to reach out our project managers at dx@daxue-consulting.com to get all answers to your questions

This article Podcast transcript #41: Selling wine in China in an unconventional way is the first one to appear on Daxue Consulting - Market Research China.

Highlights of this episode include:

• How CHEERS keeps the prices in wine so affordable in China
• Staying cash flow positive while opening up many more stores
• What contracts are involved in franchises
• Why some wine players in China fail
• How to integrate all of China’s delivery systems into one process
• Misconceptions about the consumption of wine in China, and how to understand the market

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

Make the new economic China Paradigm positive leverage for your business

Do not hesitate to reach out our project managers at dx@daxue-consulting.com to get all answers to your questions

This article [Podcast] China Paradigm 41: How to start a trendy wine chain in China is the first one to appear on Daxue Consulting - Market Research China.

Trade relations between Australia and China

[Source: Daxue Consulting]

The 5th round of tax reduction starts from the first day in 2019 leading to over 96% of total Australian products, approximately 5000 kinds of goods exported to China are free of tariff. Amid this round of tax reduction, wine, salmon, lobster, oyster, and honey will get free trade to China. In the meantime, all products from China traded to Australia are expected to be zero tax. In 2017, Australian beef accounted for 16.66% of China’s total beef imports. Seafood from Australia soared over four times than the previous year in terms of exports to China.

China is at the top list of tourism expenditure during the period from Feb.2107 to Feb.2018, valued $11.3 billion, up 26.5% year-on-year growth, occupying 52% of Australian earnings from international tourists. Averagely, each Chinese tourist spends ten days in Australia with 8,472 AUD expenditure.

In 2017, there are 800,000 students from abroad going to Australia to study. Chinese students account for 38% of the total population, climbing 18.1% over the previous year.

Trade relations between East Asia and China

South Korea’s business avenues to China: China is South Korea’s #1 Importer

[Source: Daxue Consulting]

Integrated circuits are the top bilateral trade product between China and South Korea, regarding both import and export volume. China is South Korea’s first largest cosmetics and beauty export destination. Beauty and cosmetics trade volume from South Korea to China surged a 23.1% growth in 2017, up to 13 billion RMB. Amore Pacific and LG Household & HealthCare among other beauty companies account for the top two trade share to China, 30.26% and 29.35% respectively. Also, free trade agreement plays a vital role in bilateral trade. Zero-tariff products have covered 50% of bilateral trade volume.

Cities in China such as Tianjin, Dalian, Yantai, Weihai have regular routes both for passengers and cargo to Incheon, Busan in South Korea. In 2018, over 5 million Chinese people traveled to South Korea, up 14.5% to 630,000 people from 2017. China takes a third of total foreign visitors, at the top list of South Korea’s visitors.

Trade relations between Europe and China

Germany’s business avenues to China: Germany is an exporter of many goods to China

[Source: Daxue Consulting]

Commenting on the preferences of the Chinese in beer, we turn to Yan Yuze, who is the owner of a local beer in the northeastern Chinese city of Shenyang – one of the largest Chinese markets for beer. He told to CGTN that many of his customers have been ordering German beer during this year’s soccer season.

What is important for car business is that China will steeply cut import tariffs for automobiles and car parts, opening up greater access to the world’s largest auto market amid an easing of trade tensions with the United States. China’s tariff move will be a major boost to overseas carmakers, especially helping premium brands such as Germany’s BMW, electric car maker Tesla and Daimler AG’s Mercedes-Benz close a price gap on local rivals.

Chinese become more and more global choosing tourism as one of the favorite activities. Chinese tourists are very interested in the different attractions that Germany can offer. In German cities, the Chinese are an important source of revenue for retailers. According to a survey conducted on the commercial behavior of Chinese tourists, in Munich, they spend an average of 513 euros (558 dollars) per day.

Spain’s business avenues to China: Chinese feelings for Spain

[Source: Daxue Consulting]

Another pride of the Spaniards and the fact that Spain strengthened its position in 2017 as the main supplier of pork to China, ahead of Germany, Canada, and the US.

Mediterranean products are becoming more and more popular in China as the Belt and Road initiative continues to go underway.  At the beginning of 2017, Spain accounted for 81% of the total olive oil imports to China, leading far ahead of Italy (13%), Greece (2%).

Spain is the second most popular tourist destination in the world, only after France. It attracted about 82 million visitors in 2017, 700,000 of them from China, a number which the United Nations World Tourism Organization (UNWTO) estimates will rise to about 1 million by 2020.

Trade relations between North America and China

Mexico’s business avenues to China: Peace or war

[Source: Daxue Consulting]

As Dezan Shira and Associates claim Mexico continues to seek to improve its participation in the Chinese market to achieve more balanced trade, despite the fact that approximately 70 percent of Mexico’s imports from China are intermediate or capital goods, which are used or repurposed for re-export.

Beer, one of Mexico’s main export products to China, grew 35.5% to US$38.59 million.

Vladimir Kocerha, economic and commercial counselor of Peru in Shanghai, said the avocado trade had benefited from China’s cuts in import tariffs and continuous increases in imports of Latin American fruit.

China imported 8,800 tonnes, 16,700 tonnes, and 6,700 tonnes of the nutritious-rich fruit from Mexico, Chile and Peru, respectively last year.

Trade relations between South America and China

Brazil’s business avenues to China: Chinese business investment

[Source: Daxue Consulting]

“We’re definitely going global,” said Didi Chuxing president Jean Liu in one interview. And the company is moving fast towards that direction, each partner or region at a time. Didi invested in Brazil through investment in local ride-hailing leader 99. The investment builds upon the deep existing partnership between DiDi and 99 to further accelerate market growth in Latin America and bring more transportation choices to the region’s citizens.

Chile’s business avenues to China: Chinese trade partner

[Source: Daxue Consulting]

According to President of the Association of Fruit Exporters of Chile AG (ASOEX), Ronald Bown Fernández, Chilean fruit exports during the recently completed 2017-2018 campaign reached a total of 2,781,092 tons. This entailed an increase of 6.7% compared to the 2016-2017 season. He said: “This increase has been achieved thanks to the record volumes of cherries and blueberries shipped, mainly in Asia and China”.

In conversation with Produce Report at FHC China 2016, Juan Enrique Lazo, General Manager of the Chilean Hass Avocado Committee, described the success, present and future, of Chilean avocados in China. “Chile will supply 60 percent of China’s avocado market this November, and the majority of avocados one finds in Chinese supermarkets and fruit stores these days originate from Chile.”

Talking about the upcoming plans, Chile will join China´s Belt and Road initiative, Foreign Minister Roberto Ampuero said, in a move to deepen economic and political cooperation with the Asian powerhouse. Ampuero emphasized that joining China´s global infrastructure initiative would make Chile more attractive to Chinese investors and position the Andean nation as the “landing point for investments in Latin America.”

Trade relations between Japan and China

[Source: Daxue Consulting]

In 2017, China’s importation of electric-mechanical products and parts from Japan rose 4.5% to $4.22 billion, accounting for 25.6% of the total imports. China is Japan’s second largest foreign automobile markets. In 2017, sales by Japanese carmakers Toyota, Nissan, Honda and Mazda in the Chinese market all hit record highs. Nissan reported a 12% rise in sales to more than 1.52 million units last year, while Honda sold more than 1.44 million cars, up 15.5 percent year on year.

Tourists from China’s mainland made more than 7.3 million trips to Japan in 2017, up 28% from 2016. Tourists from Japan traveling to China boosts 3% in 2017 from 2016 up to 2.68 million visits.

In 2018, the population of Chinese students studying in Japan had surpassed 100,000, achieving 40% of overall overseas students in Japan.

Daxue Consulting helps you get the best of the Chinese market

Do not hesitate to reach out to our project managers at dx@daxueconsulting.com to get all answers to your questions.

This article Prospects behind the Great Wall: Who are Chinese business and trade partners? | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

In 2013, China became the biggest consumer of red wine in the world on a per capita basis, overtaking France, and Italy. Moreover, between 2015 and 2020 Euromonitor International believe that the total growth in the volume of red wine in China will increase by 82.5%. Growing demand, however, does not necessarily equate to easy sales. Indeed, selling wine is still challenging and requires a sophisticated knowledge of Chinese consumer habits, perceptions, and tastes. By mainly focusing on the red wine sector in China, this article will demonstrate how to sell wine to Chinese consumers.

Perception of Imported Wines in China

Imported wine, especially red wine, is becoming popular among the upper and the emerging middle classes. Indeed, the red wine industry has been registered as the fastest volume growth in 2015, with an increase of 11% in sales.  it is viewed as a luxury gift and even perceived as a healthy alternative to other high-end drinks. Red wines, however, have an advantage in the market as the color red is synonymous with luck, wealth and power to Chinese consumers. Moreover, it is associated with the communist government. By contrast, white wine as for the color is associated with death and seen at funerals. Consequently, it is evident why imported wine is gaining in popularity and equally clear why the red wine market is excelling especially.

Pricing strategy

In terms of a pricing strategy, cheaper imported wines are unlikely to be held in esteem by Chinese consumers. After all, red wine is a symbol of wealth, not frugality. Imported wines, therefore, take advantage of the admiration Chinese consumers prescribe to European society and quality. Chinese interest in wine is entwined with a cultural image, having an effect on the cost. Indeed, buying an expensive French or Italian wine allows buyers to earn face in China. Their premium quality makes Chinese consumers feel safe about their purchase and avoids losing face in front of their guests.

Although the significant prices of red wine in China have led the beverage to be viewed as a drink for the elite, it is becoming increasingly “fashionable” among young people. Indeed, most foreign enterprises are now holding many tasting promotions across China in order to enrich consumer knowledge in different social groups. This transition could affect pricing in the future.

Lastly, foreign producers are also advised to note that China is not a singular market, but many. Prices of wine will vary depending whether they are sold in Beijing or Shanghai for example.

Chinese Consumers Taste

Consumer drinking habits have changed in China. Chinese consumers are progressively seeking to emulate the drinking habits of their Western counterparts. Indeed, wine is often consumed during Chinese banquets, official ceremonies and feasts. As in most Western countries, it’s not unusual for someone to propose a toast in the traditional form of  “ganbei“. Wine has also become very popular as a gift for the Chinese New Year, the Spring Festival, and the mid-Autumn Festival. In other words, wine satisfies the needs of Chinese businesses culture and upper classes to enjoy and enhance social occasions.

Additionally, young and middle-aged Chinese people emulate Western drinking habits more frequently too. An increasing number of Chinese women are buying red wine for its healthcare functions such as the beauty maintenance. Wine-tasting clubs have become popular in Beijing, Shanghai and Shenzhen. It has also become easier to find specialist wine stores in the first-tier and second-tier cities.  Until now, the stereotype of a Chinese wine drinker is a businessman with an official, over a bottle of Chateau Lafite.

It is, however, still important to recognize that Chinese consumers have different tastes. They like sweet drinks and it is still common in China to either drink fruited wines or to mix wine with lemon, ice or soft drinks to achieve a sweeter taste. This is the reason why Chinese consumers are more attracted to still red wine than sparkling wine which is sourer.

Purchase methods of Chinese consumers

Chinese consumers often go online to look for information on wine. Hence, social media has become a source of information to exchange ideas and perceptions of the wine industry. Consequently, any winery planning to enter the Chinese market should look at the digital world, with mediums such as WeChat and Weibo, as a way to market their bottles and educate consumers about wine culture. Furthermore, several exhibitions and international wine and spirits fairs are held annually across China. With an upgraded consumption in China, the demand for wine has shifted from products with lower unit prices to products with higher unit prices.

How to sell wine to Chinese consumers?

Chinese consumers are clearly different from Westerners in terms of their tastes and some of their perceptions about wine. That being said, Chinese consumers are willing to accept new sorts of wines and ample room still exists in China to benefit from this huge market, alongside the dominant French, Spanish and Italian vintners who already dominate the territory. Additionally, as the middle-class population increases, more consumers might be willing to obtain a deeper understanding of wine and consequently, we can expect imported wine to become more popular in the coming years and perhaps a wider range of it.

Case study: Grape Wine Industry  

Daxue Consulting has several experiences within the wine industry, one of its client selling grape wine in Europe wanted to understand the opinion of the Chinese consumers in choosing the most compelling wine product. Daxue Consulting had run different methodologies in order to get the Chinese Customers insights. One of the methodologies implemented was the focus group, Daxue had gathered 2 different groups of people, Chinese people who were the connoisseur and Chinese people who were drinking wine occasionally. The first step of the focus group was based on the whole product selection of the client, the second batch was a mix of the client’s product and its competitors in China.

The report has helped the client to seize the opportunities in China. One of the main trends of the results shows that Chinese wine consumers have a huge preference on still light grape wine, especially for the red one.

Read more:

• http://online.wsj.com/articles/chinas-wine-market-shifts-toward-entry-level-1405305923
• The market of Wine in China

Follow us on our Social Media – Below is our latest post on the beverage market in China: 

The #beverage market in #China is one of the fastest growing markets. Read our full report: https://t.co/35hCKveclH #ChineseConsumers

— Daxue Consulting (@DaxueConsulting) September 8, 2015

This article How to sell Wine to Chinese consumers? is the first one to appear on Daxue Consulting - Market Research China.