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Friday Read: Hidden in the Shadows

Published:  28 February, 2020

The realisation first occurred in Ho Chi Minh City, after a charming waitress at 'The Garlik' restaurant produced a concise wine list. The restaurant was full of middle-class Vietnamese – and a handful of tourists – most of whom were drinking wine. I observed a similar scenario one week later, at Riedel's bar-cum-restaurant in central Bangkok. The sommelier was proselytising the virtues of white Burgundy – one of the many bottles contained in a wall-mounted enomatic machine - to a young Thai couple. I left the restaurant convinced that due to the media's powerful China obsession, the potential of these cultures to love wine was being grossly underreported.

I spent three weeks travelling through Asia in February, leaving just as the global hysteria over coronavirus reached boiling point. In South Korea, India, Vietnam and Thailand, I consistently saw evidence that wine is becoming part of the middle-class repertoire, rather than an 'indulgence' of expats and tourists. The region has (generally) performed above expectations in economic terms since 2015; GDP has been rising, purchasing power is increasing and standards of living are unrecognisable compared to 20 years ago. Vietnam's total GDP in 2005 was 57.63bn USD. In 2017, that figure rose to 223.9bn. 

Of course, the barriers to entry in many Asian nations cannot be underestimated. Tariffs and taxes on imported alcohol – particularly in India – are  extremely high. Yet despite the challenges inherent to reaching this burgeoning consumer group, several markets are importing more foreign labels.

According to data from the IWSR, the top five markets in Asia for imported wine (in terms of percentage volume growth increase in 2018) are: India, South Korea, Sri Lanka, Indonesia and Singapore. Demand for imported wine in Vietnam increased by 1.7% ( CAGR 2013-2018), with reasonable expectations of further growth in 2020 and beyond.

Nevertheless, China continues to dominate all the headlines. This is despite the fact that  imports fell in both volume and value in the first six months of 2019. Optimistic predictions about China's continued health and buoyancy were resoundingly proven to be unfounded, although in hindsight, the trade war between the US and China was easy to foresee. Donald Trump is nothing if not predictable; incendiary rhetoric on China's allegedly unfair trading practices was part of his 2016 election campaign, while bellicose sabre rattling has become his USP. Nations such as Australia have benefited from the spat, but overall China's future as a major wine importer is looking uncertain indeed. 

Meanwhile, it appears that a growing firmament of brands are making money from the 'Asian peripheries’. Maison Sichel started exporting to Vietnam in 2016, encouraged by the wine market's expansion and the nation's growing economy. 

“Demand is being largely driven by the on-trade. Indeed, 5-star resort hotels are currently key and more are being built, although there are several major supermarket and department store construction projects that will drive retail growth in the future,” explains Charles Sichel.

“In addition, brands must remember that this is still a traditional and immature wine market - demand is usually driven by business dinners, gift seasons, karaoke, etc. But on the positive side, Vietnam boasts a very strong alcohol tradition and the younger generation increasingly are looking to expand their palates with foreign wines, moving away from beer and rice wine.”

However, Villa Maria is ahead of the curve. The company started exporting to Vietnam in 2005, encouraged by the country's fantastic food and wine culture, owing to its status as a former French colony. “The government continues to increase luxury goods tariffs which makes our wines, especially the premium range, prohibitively expensive for many Vietnamese consumers,” said marketing manager Garret Strange, during an interview in 2018. 

He added: “Conversely, Vietnam's tourist industry continues to grow and resorts now account for a good percentage of Villa Maria sales in Vietnam. This is the market to watch, the rapid growth of resorts and 5-star hotels along Vietnam's beautiful coastline.”

South Korea has also become an Asian temptress, encouraging shareholders to invest in its growing economy. The nation is blessed with a government that embraces open trade; South Korea has free trade agreements with the vast majority of wine-producing nations, and generally imposes no external tariffs on imported alcohol. This fact alone puts South Korea way ahead of its rivals in Southeast Asia, most of which impose crippling tariffs on foreign brands. Moreover, South Korea currently boasts the highest level of alcohol consumption per capita in the world and is one of the top 10 global economies open for business.

Spanish brand Codorniu first saw the potential to make money in 2014. The Cava firm opened the first Spanish regional sales office in Seoul that year, although it started exporting to Korea back in 2010. 

“Consumption of imported wine is being driven by the Millennial generation of urban, middle-class professionals, who are travelling with greater frequency and being exposed to western culture,” noted Carlos Bonet, regional sales manager at Codorniu Asia. 

“That said, the market for imported wine is almost totally dominated by Seoul and Korea has no really important tier-2 and -3 cities. The nation's capital, however, has seen a recent boom in the number of nightclub openings and the on-trade is where we are increasingly focusing our attention. Doing business here is relatively straightforward, compared to say China.”

But there are other reasons to prioritise the smaller Asian societies over the red dragon. As it stands today, the number of quality-focused, premium wineries in China is still relatively small. Yet the numbers are growing – in March 2020, Changyu-Moser XV is due to launch a new super-expensive, Chinese icon wine. It isn't inconceivable that a critical mass of premium and super-premium domestic brands will eventually do much damage to imports, luring Chinese consumers away with promises of quality and patriotism.

In contrast, the level of competition from domestic brands in other Asian nations is negligible. India has Sula – which I love – and Vietnam boasts Chateau Dalat. It's a Vietnamese—owned wine producer that sources fruit from around the world and makes wine back in Vietnam. This is mainly to avoid the import duty on luxury goods. The end result is, to use a technical term, utter dross.

Thailand also has a smattering of domestic brands, but no premium examples which could compete with the best of France, Italy and the US. If the Asian middle-classes continue to see rising standards of living and covet Western experiences, then there is every reason to believe that real money can be made. The Chinese myopia has to stop – other  Asian economies deserve their moment in the sun.