In terms of where brands should be looking, Zhengzhou, Chongqing, Xiamen, Changsha and Xi’an have all been cities where we have enjoyed good growth over the past few years. Yet Tier 2 markets present many challenges, not least because many regional agents in these markets are wine importers themselves, and also many retail (chain) stores sell their own private label wines.
Torres has observed a massive rise in the number of retailers creating their own-label wine brands, and a concurrent increase in the number of agents importing wine directly. Nonetheless, ecommerce is rapidly becoming an important avenue for sales of Torres wines in Tier 2 cities – we distribute our major brands through ecommerce players like TMall, JD.com, etcetera. In addition, our margins are far higher than, say, ten years ago. But equally, it is harder to sell lesser-known styles of wine in Tier 2 cities compared to, say, Beijing or Shanghai, and the level of wine knowledge is still generally low.
Overall, I would say the retail segment is driving growth in China’s Tier 2 markets. In many Tier 2 cities a strong BYOB culture prevails in the on-trade, and therefore many traditional restaurants have to live with the fact that many consumers are bringing their own wines or spirits to restaurants, or even to banquets in hotels! However, consumers display little brand loyalty in my experience, and price is always key to sales.