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Dynamics of Wine Consumption in China: an Empirical Study

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Dynamics of Wine Consumption in China: an Empirical Study Page 1 of 23 ANZAM 2013 Stream no 9. Marketing and Communication Competitive session Dynamics of wine consumption in China: an empirical study ABSTRACT: China may not be the first country that comes to mind when people think about wine consumption or production; however, the wine market is undergoing dramatic change. The recent increase in wine consumption in China has significant implications for researchers and the business community both within and outside of China, given its growing population and the rising purchasing power of the middle class. Using quantitative research methods, this paper examines the factors affecting wine purchasing decisions in China. This study reveals the intrinsic attributes-seeking segment in China. Furthermore, it finds rising income, gender and overseas experience to be key drivers of frequent wine consumption. Moreover, new media is recognised as an increasingly important information channel for wine promotion. Key words: Wine consumption, Intrinsic attributes-seeking behaviour, Marketing strategy, China Acknowledgement : This study is supported by a research grant from Faculty of Law, Business and Creative Arts, James Cook University. INTRODUCTION Given recent economic changes and the rise of China’s middle class, this ancient country is undergoing a social transformation. One of the striking changes is the rapid increase in wine consumption. China has become the world’s third largest red wine drinker in terms of total volume consumed in 2011, after France and Italy. Chinese adults are reported to drink 1.4 litres of wine per year, and are expected to increase their consumption, as its growth has also been driven by rising average incomes, the growing influence of Western eating and drinking habits in China, particularly among the young and wealthy Chinese consumers in urban areas (International Wine and Spirit Research, 2013). As Chinese wine consumption increases, imports of foreign wine are growing too. This fast growing market has become very attractive to many vineyards internationally. Some rich Chinese buyers are even considering buying red wine as a new type of speculative investment to counter inflation (Ni, 2011). France, Australia, Spain, Chile, Italy and the US, have accounted for more than 90 per cent of 1 ANZAM 2013 Page 2 of 23 China’s bottled wine import in the past two years (China Customs Statistics Yearbook, 2012; 2013). Wine imports witnessed a four-fold growth from 2005 to 2010 (China Customs Statistics Yearbook, 2006; 2011). Strong demand for imported wine is believed to have been contributing to this growth, as well as the reduction in tariffs following China's accession to the WTO. This demand for wine is noticeably in a key group of consumers, namely, G2 consumers. G2 refers to Generation 2, born after 1980, confident, independent and determined to display the independence through their consumption of new things. The G2 cohort is thought to be the most westernized consumers to date, emphasising enjoyment in life (Barton, Chen, & Jin, 2013). They are young, well educated, rich and prone to regard expensive products as intrinsically better than less expensive ones. Therefore, G2 consumers tend to consume not only more wine, but also more expensive wine than other consumers. This fast growing wine market has aroused the interest of academics. Previous studies show that Chinese consumers perceive wine to be a fashionable drink, as well as a status symbol and sign of upper social class (Camillo, 2012; Hu, Li, Xie, & Zhou, 2008; Liu & Murphy, 2007; Balestrini & Gamble, 2006; Jin, 2004). However, as the Chinese market is large, dynamic and made up of, in fact, many different markets, large scale, up-to-date research on wine consumption issues is vital. Unfortunately, such research is rare at the moment. This study aims to fill in a gap in the literature by developing insight into the drivers of wine purchasing in China today. This paper tries to answer four important questions. 1) Who is the wine consumer? 2) Why are Chinese consumers buying wine? 3) What are the most influential factors affecting purchasing behaviour in China? 4) How can the market be segmented? Answers to these questions are invaluable for marketing and strategic planning purposes. LITERATURE REVIEW Although Western wine is relatively new to the majority of the Chinese, wine itself is not. Wine production started in China more than 2000 years ago, in the Yellow River region (www.winechina.net). Constrained by soil and weather conditions, grape wine production in China had been far behind that of other alcoholic beverages, for example, those that are distilled from grains. However, it is the scarcity that leads to wine’s favourable image among Chinese (Camillo, 2012; Liu & Murphy, 2007; Jin, 2004). 2 Page 3 of 23 ANZAM 2013 There are two possible explanations for this scarcity: 1) in ancient times, only royal families, senior officials and the rich had privilege to drink wine for important occasions, which made wine a royal or noble drink (www.winechina.net); and 2 ）China had to import wines from foreign countries due to limited domestic production and unsatisfied demand, which made wine a symbol of mystery and exoticism. These can be easily seen from many ancient poems. Therefore, wine has had a positive image even before the arrival of foreign wine. Gradually, wine in China has evolved as a means to show one’s hospitality and as a lubricant to social communications (Li, Jia, Taylor, Bruwer, & Li, 2011; Balestrini & Gamble, 2006). In addition, wine’s country-of-origin (COO) serves as a symbol of face and social status, when Chinese buy wine as a gift or for special occasions (Somogyi, Li, Johnson, Bruwer, & Bastian, 2011; Hu et al. , 2008; Zhang, Casswell, & Cai, 2008). Moreover, researchers have found that COO affects consumers’ purchasing decisions when they have limited wine knowledge (Jin, 2004). Several other factors influence Chinese consumers’ choice of wine. For example, its health- related attributes, particularly in maintaining a healthy cardiovascular system, are regarded as a main reason to drink wine. Some Chinese consider wine drinking as a way of taking good care of their health, referring to traditional Chinese medicine theories (Somogyi et al. , 2011). Interestingly, some older women believe drinking red wine is helpful in maintaining youthful good lucks (Zhang et al. , 2008). Moreover, less alcohol content in wine is believed to be healthier, compared with the high alcohol volume of Chinese liquor (Liu & Murphy, 2007). In addition, effective translation and transliteration strategies, whereby brand names have positive connotations, have increased the appeal of foreign wines (Wilson & Huang, 2003). The predominant focus of research on Chinese wine consumers has been on the influence of wine attributes on consumer behaviour. Wine attributes have important implications for market segmentation, positioning and marketing communication. The literature on Chinese wine consumption has its strengths, but also weaknesses. First, many studies have based their conclusions on a limited sample. For example, studies have focused only on well-developed cities in China, such as Hong Kong, Shanghai, Beijing, Hangzhou and Guangzhou (Yu, Sun, Goodman, Chen, & Ma, 2009; Hu et al. , 2008; Wilson & Huang, 2003; Liu & Murphy, 2007). Others have studied special consumer groups, such as, 3 ANZAM 2013 Page 4 of 23 Chinese residents in Adelaide (Somogyi et al. , 2011) and Chinese immigrants in the US (Guinand, 2005). Secondly, most of the studies have used descriptive statistical analysis or analysis, for example, Li et al. (2011); Camillo (2012); Goodman, Lockshin and Cohen (2007); Wilson and Huang (2003); and Balestrini and Gamble (2006). However, it is worth trying other methods or techniques to gain more insight into the market. Last, segmentation studies of the Chinese wine market are practically non- existent. Market segmentation is common in wine marketing (Spawton, 1991; Keown and Casey, 1995; Bruwer, Li and Reid, 2002). Clusters in a new, emerging wine region have been identified and the need for further research highlighted (Kolyesnikova et al., 2008). The concept of market segmentation is well established and easy to understand. Product benefits sought by consumers is one key segmentation variable (Kotler and Armstrong, 2004; West, Ford and Ibrahim, 2006), along with lifestyles (Bruwer, Li and Reid, 2002) and age (Haverila, 2012). This research has been designed to fill gaps in the literature; it employs econometric modelling and cluster technique to provide in-depth insight into this promising market. The objectives of this study are as follows: (1) To investigate the factors that influence wine consumption in China, more specifically, the impact of demographics, purchase occasion and wine attribute preferences on consumption levels of wine. (2) To investigate whether feasible market segments exist in the Chinese wine market based on behavioural segmentation. RESEARCH METHODS This study adopted a quantitative approach and used the logit model and cluster analysis approach. The two methods were chosen for theoretical and practical considerations (Boatwright & Stüttgen, 2012; Chintagunta & Nair, 2011; Kaufman & Rousseeuw, 2009; Scott & Knott, 1974). The logit model is widely used to model dichotomous outcome variables. In this study, the dependent variable takes two values to indicate whether a consumer is a frequent wine buyer or a less frequent wine buyer. In the binary model, we assume that the
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