A scan of the top holdings in the Matthews China Dividend Fund (MUTF:MCDFX) reveals one holding that may appear a bit curious. The fourth largest holding at 3.7% of assets is Yantai Changyu Pioneer Wine Company Limited. In this mutual fund full of consumer discretionary and consumer staples stocks, Yantai Changyu is labeled a "consumer staples" holding.
A closer look at global wine trends over the last few years reveals a great deal about today's Chinese consumer market and its evolving growth drivers.
Growth of the U.S. vs. the Chinese Wine Market: While the U.S. wine market is vibrant and growing, the Chinese wine market is even more so.
United States: According to the latest Vinexpo findings, in 2011 the U.S. became the world's leading wine-consuming nation in volume and value. From 2010 to 2011 U.S. wine consumption jumped 4.5%, a record-growth.
During 2012, U.S. wine sales were up 2%, while European consumption remained stable.
China: On the other hand, in 2012 Chinese wine consumption was up 9%. China has now surpassed the U.S. as the third-largest red wine consuming country.
In 2011, the value of the Chinese wine market grew by 24.1%, according to an April 2013 MarketLine industry profile. The volume of Chinese wine market grew by 22.9% in 2011 to reach a total volume of 1,318.4 million liters.
In 2016, the Chinese wine market is forecast to have a volume of 2,546.6 million liters, an increase of 93.2% since 2011.
How the Chinese Consumer Buys Wine: Two major trends clearly show the future of the wine trade in China. These trends reflect concurrent nascent developments around the globe.
Mass retailers: Mass retailers are now and will continue to expand as the major sources of wine purchases. The corner wine shop is rapidly disappearing.
Wine consumption will be more and more "off-trade." Recent data show that wine consumed away from the premises, such as bar and restaurant, accounted for 71.7 percent of all volumes worldwide.
Today just over three in four Chinese buy wine in hypermarkets, compared with two-thirds in France and 46 percent in Germany.
Online Purchases: The second developing trend is the purchase of wine online. Currently 27 percent of Chinese consumers sometimes buying wine this way. Japan, Brazil and Britain were just behind this trend. A recent VINEXPO report predicted 47 percent of Chinese would buy wine on the Internet by 2020.
According to WineIntelligence.com, two of the top five retailers used by wine drinkers in China are purely Internet-based: Yesmywine and Tmall. And with all things Internet-based these days, yesmywine.com, with its iPhone app and its 5.2 million members has even added a social networking twist with an innovative i-Cellar.
This online retailing trend is expected to accelerate as the mobile Internet becomes more widespread and accessible to growing numbers of Chinese consumers. Secondly, the sales of tablet devices are soaring with research showing that owners of tablets are twice as likely to buy wine online.
Why the Chinese Consumer Buys Wine: The Chinese consumer buys wine for the same reasons that wine consumers worldwide buy wine: for pleasure, for health reasons, and, to a certain degree, as a status symbol. The one difference may be a slightly greater emphasis on the health aspects of wine.
A cursory look at the websites of the major players in the Chinese wine industry (the government-owned COFCO, and four other wine companies: Dynasty Fine Wines Group, Ltd, Yantai Changyu Group Company Limited, and the Yantai Weilong Grape Wine Co.) suggest tie-ins of wine and its benefits to traditional herbal medicines long-respected and used in the culture.
Conclusions: The market for wine, as well as the market for a variety of other consumer products, will continue to expand rapidly within China. Mega retailing, online purchase options for busy consumers, and attention to local tradition are all obvious components for success in this growth market, as well as other global markets.