Building business in Asia Pacific New Distribution Models : Building business in Asia Pacific New Distribution Models By Mark Bedingham,
Moet Hennessy Asia Pacific Ltd.
Regional Managing Director – Asia, Japan, and Australasia
Asia Today : Asia Today CHINA
GDP Growth*: 9.1%
GDP: USD 1,472bn
Popn: 1.299 bn
GDP/head: USD1,140 HONG KONG
GDP Growth*: 3.3%
GDP:USD160.9bn
Popn: 6.845 m GDP/head:USD23,350 INDIA
GDP Growth*: 8.1%
GDP: USD 585.1bn
Popn: 1.055 bn
GDP/Head: USD550 KOREAN
GDP Growth*: 3.1%
GDP: USD 521.4bn
Popn: 47.9 m
GDP/head: USD 10,880 TAIWAN
GDP Growth*: 3.2%
GDP: USD 281.9bn
Popn: 22.6m
GDP/head: USD12,552 THAILAND
GDP Growth*: 6.5%
GDP: USD 140.5bn
Popn: 64.2 m
GDP/head: USD2,200 SINGAPORE
GDP Growth*: 1.1%
GDP: USD 91.4bn
Popn: 3.407m
GDP/head: USD21,710
MALAYSIA
GDP Growth*: 5.3%
GDP: USD 102bn
Popn: 23.7 m
GDP/head: USD4,080
* 2003 GDP Growth Rate
Source: Economist Intelligence Unit, 2004 First Qtr Update
HSBC Global Economics Report, Q3 2004
Japanese Market : Japanese Market JAPAN
GDP Growth: 2.5%
GDP: USD 4,317.8 bn
Popn: 127m
GDP/head: USD33,941
Global Asia Wine Market : Global Asia Wine Market Total Wine Market = Still + Sparkling Wine
Source: IWSR, June 2004/Sopexa/Industry Total Vol: 50.059mil
Key Still Wine Markets in Asia 2003 : Total Vol: 20 mil 9L c/s Key Still Wine Markets in Asia 2003 Total Vol: 47.335 mil 9L c/s Source: IWSR, June 2004/Sopexa/Industry Estimated Total Value of Key Asian Still Wine Market 2003 Source: IWSR, June 2004/Sopexa/Industry
Outlook for the Future : Outlook for the Future Forecast volume growth in Key Asian Markets incl. Japan % Growth in vol (2009 vs. 2004): +29%
The Consumer in Japan : The Consumer in Japan Life Style of Japanese wine consumers aged between 25-35years old
Asian Wine Consumers : Asian Wine Consumers
Japan: Where do they consume? : Japan: Where do they consume?
Asia: Where do they consume? : Asia: Where do they consume?
Still Wines Consumption per capita : Still Wines Consumption per capita Tokyo’s consumption per capita is 2.7 times the National consumption!
Purchasing Power Parity in China & Key Regions : Purchasing Power Parity in China & Key Regions Shanghai’s GDP per capita is 4 times that of China, and Guangzhou’s is more than 5 times!
Australia’s Position in Asia : Australia’s Position in Asia Value based on Import Value
Total Volume of Still Bottled Import Wines
Australia’s Position in Asia : Australia’s Position in Asia Source: IWSR, June 2004/Sopexa/Industry Total Vol. in
K std cases: 1,052 444 570 20,000 1,575 388 571 168 600 21,540
Australia’s Position in Asia : Australia’s Position in Asia Source: IWSR, June 2004/Sopexa/Industry
Australia’s Position in Asia : Australia’s Position in Asia Source: IWSR, June 2004/Sopexa/Industry Total Still Imported Wines
Australia’s Position in Asia : Australia’s Position in Asia Total Still Imported Wines Source: IWSR, June 2004/Sopexa/Industry
Australia’s Position in Asia : Australia’s Position in Asia Total Still Imported Wines Source: IWSR, June 2004/Sopexa/Industry
Duty and Taxes : A Key Factor for Imported Wines : Duty and Taxes : A Key Factor for Imported Wines
Duty and Taxes : A Key Factor for Imported Wines : Duty and Taxes : A Key Factor for Imported Wines
Duty and Taxes : A Key Factor for Imported Wines : Duty and Taxes : A Key Factor for Imported Wines
Consumer Behaviour: The Success of Australian Wines in Asia : Consumer Behaviour: The Success of Australian Wines in Asia In Asia, we can make out two distinctive market profiles:
The Success of Australian Wines in SE Asian Markets – WHY? : The Success of Australian Wines in SE Asian Markets – WHY? New young generation / more open-minded wine drinkers start with New World wines
Traditional / ‘older’ generation wine drinks followed spirits-beer-red wine pattern
Australian wines are accessible wines for beginners - offer drinkability, fruit character and easy to understand varietal labels (easy to order cabernet sauvignon or shiraz)
Strong influence of multi ethnic cuisine, fusion and less reverence for the association between wine and food (French wine for French cuisine, Italian wine for Italian cuisine..)
The Success of Australian Wines in SE Asian Markets – WHY? : The Success of Australian Wines in SE Asian Markets – WHY? ‘Cultural’ reference for many SE Asian markets is the ‘anglo-world’ (USA, UK, Australia) with many tourists and expatriates coming from these countries
Knowledge of English language and relative simplicity of Australian wine labels.
Geographic proximity with Australia and prime destination to immigrate, travel, study and do business.
The Success of Australian Wines in SE Asian Markets – WHY? : Higher frequency of activities, influence from Australian trade (chefs, restaurateurs and hoteliers) in the region have given Australian wines an edge
Australian Wine Export Council
Austrade
More laid back, open-minded attitude very much in line with local mind-set, rather than the more formal and more ‘cultural’ French wines The Success of Australian Wines in SE Asian Markets – WHY?
Old World Markets: The Case of Japan : Old World Markets: The Case of Japan Deeply entrenched in wine drinking tradition (more than 100 years) despite rapid growth in market in the last 20 years
Old World Markets: The Case of Japan : Very strong fidelity to matching style of cuisine with wine origin – do not accept drinking Australian wines in French or Italian restaurants.
Fidelity is reinforced not only by consumers expectations but by the restaurants themselves
Japanese Chefs & sommeliers regard French and Italian wines as being more a part of the ‘true’ tradition of wine. Old World Markets: The Case of Japan
Old World Markets: The Case of Japan : Approachability of Australian wine labels not much of an advantage in a country where general knowledge of English is weak
Communication / Publicity skewed towards Old World
Huge publicity on French and Italian wines in Specialist wine magazines even if they have smaller influencing power on their readers than in the UK or USA
Highly influential fashion and lifestyle magazines feature France, Italy and the USA, more than Australia Old World Markets: The Case of Japan
Old World Markets: The Case of Japan : Specialist Wine magazines
Circulation : 30,000 copies/month
Target: Sommeliers/chefs
Mainly focused on French/Italian wines Old World Markets: The Case of Japan
Old World Markets: The Case of Japan : Mass market – there is a great range of options for Japanese trade customers and consumers to source inexpensive wine
Chile has done well (and in the future Argentina?), brands such as Gallo are well established, Liebfraumilch still sells well.
Significant volume of sales between ¥ 300- ¥ 700 (AUD 5 – AUD 12) dominated by domestic brands (mostly local bottling). They are successful in occupying much of the supermarket shelf or as part of a beer company’s portfolio they achieve the lowest price pouring contracts. Domestic wines ¥1,000> 84%
Market Share by brand
Ureshi Wine 13%
Bistro 11%
Bon Rouge 9% US Wines ¥ 1,000> 78%
Market Share by brand
Carlos Rossi 13%
Rivercrest 21%
Franzia 9% German Wines ¥ 1,000>30%
Market Share by brand
Valckenberg 14 % (Liebfraumilch)
GA Schmitt 12%
Racke 7% Chile Wines ¥ 1,000> 49%
Market Share by brand
Concha y Toro 31 %
Santa Carolina 10%
San Pedro 9% Market ¥ 1,000> 65% Old World Markets: The Case of Japan
The Future for Australian Wines : The Future for Australian Wines How can we accelerate the growth in the large current and potential markets?
How big is the prize?
Blue Sky Projections : Blue Sky Projections 2003-2009 CAGR: 7% 5% 20% 4%
What About China? : What About China? In 2003, imported wines market grew by 17% to 437K cases led by France (40%) and Australia (15%). But overall New World wines show the strongest growth rate (30% vs. 20% for Old World)
China has its own local wine production - new drinkers start with Local Chinese Brands such as Great Wall (2.5m std cases in 2003) and Dynasty (2.1m std cases in 2003).
Drinking French wines remains a status symbol and a way of displaying wealth and success.
To succeed in China, Australian wines need to become aspirational to urban young emerging ‘middle’ class aspiring to a trendy/contemporary lifestyle.
What About China? : What About China? China could be compared to HK. Strong growth of Australian and New World wines but no ‘domination’ like Singapore and Malaysia because:
What About China? : What About China?
What About China? : What About China? Major urban centres:
Beijing (Government, Culture, Business)
Greater Shanghai (Business, Culture)
Guangzhou / Pearl River Delta (South) (Business)
Explosion of International Hotel Chains & Restaurants
Olympics, Beijing 2008
World Expo, Shanghai 2010
Explosion of Hyper-market business –increasing distribution network
(Carrefour, Shanghai; WalMart, Shenzhen; DairyFarm opening in 2006)
What About Japan? : What About Japan? Explosive growth of International Hotel Chains – “Lost in Translation” etc.
Australian wine friendly F&B – high proportion being foreigners who are open-minded about New World wines, especially Australian wines
Only in International 5-star hotels do Japanese restaurants succeed in selling a lot of wine
New World (especially Australian) wine – a good match for Fusion cuisine which represents an increasing share of the restaurant market in Japan (Tokyo/Osaka)
What About Japan? : What About Japan? Younger, wealthier consumers – more open to New World / Australian wines
Travel a lot especially to Australia, including young sommeliers - increasingly more Australian wine specialised on/off-trade premises being created
What About Japan? : What About Japan? Also in Tokyo are some top-end Japanese restaurants (Kaiseki) in trendy places like Aoyama, Nishi-Azabu
Otherwise, 90% Japanese restaurants use Sake / Beer to go with meals
What About Japan? : What About Japan? New Retail Licensing Laws:
Convenience stores and home delivery food companies (Pizza/Asian cuisine) can sell alcohol
Regular supermarkets can now sell liquor
More specialised food and wine offerings are available in supermarkets situated in affluent areas
Discounters will become less important (?) as these other outlets gain more influnece
At the moment, Convenience stores sell low/very low end wines
Australian Wine Industry : Australian Wine Industry AREAS TO EXPLORE:
Communication
Wine Education & Programs
Distribution
Communication : Communication Brand Australia
Australian Wine Export Council
Conducts marketing activities in Europe, Japan, USA, Canada & Asia (through Austrade)
A number of good events organised in Asia region by AWEC – Trade Fairs, Consumer and Trade Tastings, and sponsored visits of key journalists and trade personnel to Australia
Austrade – assists entire Australian wine industry by presenting a collective and collaborative image development via its marketing activities in key export markets (have offices in most Asian markets)
Key Points for Australian Wine Producers to Consider: : Key Points for Australian Wine Producers to Consider: Emphasis on viticultural regions and diversity
(ie) “Terroir” – especially relevant for Japan
Invitations to visit Australia - Lifestyle Press/Publications and TV stations with influential Lifestyle programs
Be more involved and influential with Japanese Sommeliers
Young Sommelier Award (?), Sponsored trade-visits to Australia (?), More visits to Japan by very famous winemakers (?)
Need of real commitment in investing in long term brand building activities
Better understanding and analysis of channel or distribution
Wine Education Programs : Wine Education Programs Proper educational materials in the local language (e.g. Mandarin, Japanese)
Australian wine courses delivered in the local language – designed separately for the trade and the consumer – could be held locally and also in Australia
Recognition of the key prescriptors in each market (e.g. Japanese Sommelier’s Association)
Collaboration with the leading Tour operators from China, Japan, Korea and Taiwan to arrange properly structured wine tours (currently very ad hoc) to Australia in the correct language
Growth Opportunities in Asia Pacific for Australian Wines : Growth Opportunities in Asia Pacific for Australian Wines SE ASIA:
Singapore, Malaysia, Thailand, Philippines, Hong Kong, Indonesia (?)
CAGR 4-8% over Short to Medium Term
Long Term? NEW LONG TERM MARKETS:
India
Vietnam
Improving Distribution : Improving Distribution Distribution is the most neglected area for all Australian wine companies, big and small Local Agent Australian Wine Company
(Export Manager based home) CLASSIC MODEL Australian Wine Company
Local Market Subsidiary Australian Wine Company
(Head Office in Home country) Adopted by most wine companies but some innovation emerging by establishing own subsidiaries or joint ventures
Still slow to adopt, even in major markets
No accident Australian wine companies attached to international groups develop most quickly!
Distribution Models : Distribution Models Various models adopted by wine companies today:
Export Model
Local Subsidiary
Local Joint Venture
Joint Venture alliances with other Australian wine companies for developing specific overseas wine markets
Today, all of these models exists in Japan – French, Italian and US wine companies are present in each format
Distribution Models : Distribution Models More control over Distribution, means:
More control over Pricing
Can work directly with Trade Customers
More control over Marketing and Communication
Add 20% to 40% to see-through Gross Margin
One the other hand, more risk and more initial cost
Distribution Models – China? : Distribution Models – China?
Completion of accession timetable of WTO membership in China means that all these models will be possible in China from January 2005 CHINA
Distribution Models – China? : Distribution Models – China? Wholly owned foreign entities (WOFE) prohibition on engaging in any sales activity for wine & spirits distribution in China will be abolished from 1st January 2005.
Today, companies set up in the Free Trade Zones (e.g. Waigaoqiao, Shanghai) can import and sell wine into China.
WOFE can set up companies outside the Free Trade Zones to get involved in consultancy services of wine & spirit business. 2004 OPERATION MODEL
China: 2005 Onwards : China: 2005 Onwards WOFE can apply for importation and distribution rights under the “Measures for the Administration of Foreign Investment in the Commercial Sector” issued in April 2004.
Waigaoqiao distribution company can be maintained owing to the duty and tax privileges in the Free Trade Zone.
Consultancy company outside the Free Trade Zone can turn into a distribution company selling directly to customers.
2005 TARGET
OPERATION
MODEL:
Improving Distribution : Improving Distribution Assumption that local agents have strong economic interest to develop an agency always need to be reconfirmed
frequently, contractual targets lead to price destruction
Focus and share of mind Price structure management Multi-channel distribution Managing the conflicts between on-premise and off-premise distribution created by off-trade accounts trying to import directly Building the brand in the trade Choice of local agents limited & local presence will be key to managing these challenges:
Improving Distribution : Improving Distribution Few single wine agencies represent a majority of economic profit for importer/distributor
Distributor’s total margin approx. 40% total see-through gross margin
Difficult to manage length of contract:
Local Presence can be progressive: Too Long (Japanese style) contracts : too little incentive to perform Too short: venture plagued by doubt and shot term thinking Base winery representative in-market Export Manager becomes Business Development Manager Develop joint ventures or local subsidiaries as next steps
Challenges Today : Challenges Today Building superior trade profitability to take share from other wine suppliers Building communication and education programs – develop trade and consumer awareness. The ‘automatic’ interest in wine is much less strong than in the USA or UK Deepen understanding of channels of distribution (e.g.) Chinese restaurants in China, but NOT Japanese restaurants in Japan! Understand the power of local brands and identify the best price/profit opportunity. Typically Asian/Japanese pricing gives opportunities for superior profitability Consistent pricing and promotion activities
Challenges Today : Challenges Today Winners in the next phase of development of the wines markets of NE Asia will depend on which country’s wine industry develops the more effective distribution strategies.
THANK YOU! : THANK YOU!