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Champagne to Ring in the New Year? Sorry, China Wants it ALL!

December 31, 2011, 1:57 PM
Champagne

Tonight, you'll pop a bottle of Champagne, and raise a flute to the promise of sweet, newborn 2012.  As this is a time for all things reflective, stop to think about a few things related to that glass of Champagne.

Thanks to the global economy, we live in a virtual wine paradise: more wines, varietals, countries, regions, and best of all, lower prices.  As far as the American consumer goes, the global wine market has been an unprecedented success.

Paradise might be lost sooner than you think.

In 2012, your flute might not be filled with brother Dom Perignon's drinkable stars. You might have to settle for plain old sparkling wine. Why? Someone in Beijing may have it all.

Hard data

Wine writers panic about this and there's a fair amount of saber-rattling over the Chinese effect on wine markets, but rarely do I see any hard data about the size and shape of the market. Let's do the numbers.

Size matters. Economist Zsombor Sümegi calculated wine demand based on the 2005 Chinese census and estimated the size of the 2005 Chinese wine drinking market in 2005 to be 90 million drinkers. One year later, the potential wine market has doubled in size to roughly 200 million.

200 million potential wine drinkers! That's two-thirds the population of the United States.

Consumption is surprisingly low. The Wine Institute put Chinese wine consumption in 2009 at 1.1 liters per capita. The Turks and Caicos islands and Denmark drank more wine.

For now.

In 2010, Sümegi concludes that the average per capita consumption would be about 5.5 liters (a little over a gallon) per year. A huge jump in size, but still roughly 5 times smaller than Uruguay or Belgium.

200 million wine-thirsty Chinese would strip suppliers of all but the largest production wines, so what kind of wine do the Chinese drink? In another stroke of luck for the American consumer, 90% of wine consumed is local. For now, our wine stocks are safe.

Let's review. China has taken a great leap forward. Big market, growing fast, but mostly local wines. How, then, could China be such trouble for the world markets, and why is there widespread panic in the wine press?

Heavy hitters

Simply put, the Chinese market buys wine for prestige. Just possessing them is a sign of the owner's position in the economic food chain of the Middle Kingdom. They buy to show off, not drink.

But wow, do they buy! Time Magazine reported that an anonymous Chinese bidder bought the last three bottles of the 1869 vintage of Château Lafite-Rothschild for a staggering $232,000 each.  It's not just older wines they are breaking price records for, either. A case of  2009 Château Lafite-Rothschild sold for $70,000. These prices are unparalleled.

This is fantastic news for the Bordeaux producer, but ominous for consumers.  High quality, minuscule production, huge demand and vast disposable income always equals high prices.

The high-end Chinese consumer has already started eyeballing other French regions, too. Jancis Robinson points out that Burgundy producers, like Domaine de la Romanée Conti - long considered one of the world's best wines - are the next wines being targeted by these dynamic, status-conscious Chinese buyers. That wine is produced in tiny amounts, compared to Bordeaux, so if Chinese consumers start buying that wine?

Gone, baby, gone.

Champagne is also a target. A buddy of mine in the retail wine business told me that his chain's allocation of Veuve Clicquot Champagne had fallen drastically. A few years ago, stores were getting 150 cases of the wine each. This year, the entire chain's allocation was under 200 cases. He also said the chain had stopped buying First Growth Bordeaux futures entirely.

Preparing for the Flood

Wine Spectator's James Laube seems to express doubt that China's going to find American wines anytime soon. I'd have to disagree. This will happen and sooner than you think, so you'd better prepare.

If you're a collector, ramp up your efforts. If you love Screaming Eagle, Sine Qua Non, or Quilceda Creek, buy more now. When China finds these wines, kiss them goodbye.

If you're mostly a wine drinker, in the short term, it might be smart (but only this once) to follow Mao's advice: Let a hundred flowers bloom.

What do I mean? As I said, the greater wine world is larger and more abundant than ever. Tired of Napa and Sonoma? Try New York or Colorado. In a Cabernet rut? Try a Tannat. Get out there - there are thousands of wines, hundreds of grapes and dozens of regions.

In the long term, there's good news. Given the size and diversity of Chinese geography combined with global climate change, China will begin producing world-class wines and demand for imports will decline, exactly what happened in California.

How long will this take?  A couple of generations.

Happy New Year!

Mark T. Card is a native Texan and founder and generalissimo of Accidentalwine.blogspot.com. When  he's not pontificating about wine, he's teaching 18-22 year olds about politics. He's wandered the halls of some of the best universities in the country and the greatest vineyards in the world.  His triumvirate of passions - politics, wine and writing - have kept him poor in money but rich in experience his entire life.

 

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