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Italian Wine Market in China: Defining the Right Approach – a Study on Levers and Criticalities to Set up a Winning Strategy for Italian Wineries

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Italian Wine Market in China: Defining the Right Approach – a Study on Levers and Criticalities to Set up a Winning Strategy for Italian Wineries Master’s Degree Programme – Second Cycle (D.M. 270/2004) in Economia e Gestione delle aziende – Curriculum International Management Final Thesis Italian wine market in China: Defining the right approach – A study on levers and criticalities to set up a winning strategy for Italian wineries Supervisor Ch. Prof. Fabrizio Panozzo Graduand Valentina Malagoli Matriculation Number 848884 Academic Year 2014 / 2015 ACKNOWLEDGEMENTS This thesis is the result of a long work of research and analysis. The essence of this work is made possible thanks to the contribution of many persons and for this reason I would really like to express my gratitude to those who helped and encouraged me in accomplishing this result. First of all, I would express my sincere gratitude to Gabriella Mazzucato, the owner of Fattoria Monte Fasolo winery, because she initially introduced me the issue of Chinese wine market for Italian wineries and she dedicated her time in explaining me this matter, providing her experience and professionalism. Her work history gave me the idea about the object of my work: try to help Italian wineries in being successful in China. Then, I would really thank all those people who, even without knowing me, contributed at this thesis. I would start thanking Elisa Rossetto, Bisol’s Asia Pacific Export Manager, who contributed reporting her direct and broad experience of Chinese wine market and who get me in touch with Zonin’s East Asia Area Manager: Pierluigi Pollio. I would make a special thank to Pierluigi because he spent a lot of time in explaining me Zonin’s experience in China and he also provided me with particularly relevant market information. Hereafter, I would give thanks to all the wineries’ spokespersons who, even if very busy, spent some of their time in answering my questions, being very helpful and polite. I first offer thanks to Luigi Gagliardini, Export Sales Director at Moncaro, who provided me with additional material concerning Moncaro in China. Then I thank Domenico Angeloni, Export Manager at Cantina Tollo and Stenia Paparella, Export Manager at Farnese Group, who have been very willing and gave me a lot of interesting and useful information. I also give thanks to Roberta Urso (Public Relations & Communication Manager in Cantine Settesoli), Francesco Paganelli (Cevico Group’s Export Manager), Valter Bera (owner of Bera winery), Urs Vetter (Sales Marketing Manager at Alois Lageder), Roger Rossini (Distribution Manager at Ruffino – A Constellation Brands Company) and the winery Giulio Cocchi Spumanti. I give my sincere thanks to all those who helped me in finding these contacts and who provided me with their direct experience of Chinese wine market and the background 1 material. Therefore I thank Massimo Ceccarelli, China Consultant and Food&Wine Journalist at “Il Corriere Vinicolo” and Giovanni Marino, businessman in China. In addition, I thank my supervisor, Professor Panozzo, for his guidance which helped me in all the time of research and writing of this thesis. I thank all my friends who somehow helped and baked me during this period. Last but not the least, I would like to thank my family: my parents for supporting me spiritually throughout writing this thesis and my life in general, and my elder brother Federico, who always supports me with his expert and right advices. 2 ABSTRACT This dissertation has been developed with the aim of investigating the first market in the world, China, in one of the sectors that best represents the Italian style and the Made in Italy: the wine market. The Chinese wine market has a huge prospective for the Italian wine producers, since in the last few years it has been having an extremely relevant development. However, just a few are the Italian wineries that consider China as an opportunity and contemplate the Chinese market as a market where Italian wine has to participate in. Going through the paper, the reasons why China is for Italian producers a great opportunity, especially in terms of profits, will be investigated and brought to light. In order to do so, an introductive analysis of Chinese wine market will be presented, in order to provide the lector with an idea of the context and all the tools he needs to understand the matter of debate. Furthermore, case studies of Italian wineries which have or had contacts with the Chinese wine market will be presented. Some of them are present in China with their wines, someone else are not present, whereas others are still trying to penetrate it. Using such case studies’ results and experts’ in the fields opinions as references, the reasons for which China still remain an extremely tough market for Italian producers and Italian wine will be explained. The main criticalities and strategic drivers will be disclosed, in order to endow Italian wineries with a reference background that they can use to perfect their approach to the Chinese wine market and to set up a successful strategy. 3 CONTENTS INTRODUCTION CHAPTER 1 INTERNATIONALIZATION OF ECONOMIES: THE WINE SECTOR 1.1 TASTING ITALIAN WINE…………………………………………………………………. 11 1.1.1 The Italian wine appellation system…………………………………………………… 12 1.1.2 Italian wines classification……………………………………………………………… 20 1.2 A PANNING SHOT OF THE WINE INDUSTRY……………………………….……...… 27 1.2.1 The history of wine through ages……………………………………………………... 27 1.2.2 Global wine industry overview………………………………………………………... 31 1.2.3 Italian wine in the global scenario: industry considerations & future evolutions…. 41 1.3 INTERNATIONALIZATION: A THEORETICAL FRAMEWORK……………………. 47 1.3.1 Internationalization process determiners and factors………………………….…… 48 1.3.2 Foreign markets entry modes……………………………………………….………… 52 1.3.2.a Exporting……………………………………………………………….………... 54 1.3.2.b Strategic alliances: Franchising and Licensing……………………….………. 60 1.3.2.c Foreign Direct Investments (FDI)……………………………………………… 64 4 CHAPTER 2 WINE IN CHINA 2.1 INSIDE CHINA WINE MARKET……………………………………………………….…. 71 2.1.1 Wine consumption patterns in China………………………………………………… 72 2.1.2 China between domestic production and imports………………………………...…. 77 2.1.3 Take stock ……………………………………………………………………………… 83 2.2 BUREAUCRATIC & ADMINISTRATIVE ASPECTS: REQUIRED DOCUMENTS…. 84 2.2.1 Packing list……………………………………………………………………………... 86 2.2.2 Health certificate………………………………………………………………………. 87 2.2.3 Labeling requirements………………………………………………………………… 89 2.2.4 Quality inspection and certificate of authorization…………………………….….… 92 2.2.5 Customs Duty…….……………………………………………………………….……. 94 2.3 THE CHINESE WHINE CONSUMER…………………………………..………………… 96 2.3.1 Average profile of wine consumer in China………………..………..……………….. 97 2.3.2 Chinese wine consumer categories……………………………………………………. 99 2.3.1.a The Chinese consumer of the future (2020)…………………..……………… 103 2.3.3 Consumption occasions and taste preferences……………………………………… 105 2.3.4 Are Chinese wine experts?............................................................................................ 106 2.3.5 China: space for mid-range wines……………………………………………..……. 107 IN - DEPTH ANALYSIS 110 HOW TO SET UP AN EFFECTIVE COMMUICATION TOWARD CHINESE WINE CONSUMERS 2.4 ONLINE IN CHINA…………………………………………………………………..……. 113 2.4.1 Online shopping………………………………………………………….………..….. 119 2.4.2 The E-commerce and the wine – The major platforms……………………….…… 123 5 2.4.3 Online: not just for buying……………………………………………………….….. 130 2.4.5 Social networks……………………………………………………………………….. 131 2.4.6 Wines on Wechat, Weibo and Chinese social media…………………….…………. 134 2.5 DISTRIBUTION NETWORK ……………………………………………………..……… 136 2.5.1 Wholesalers………………………………………………………………………….... 137 2.5.2 Off-trade distribution channels……………………………………..……….………. 139 2.5.3 On-trade distribution channels – Ho.Re.Ca…………………….………………….. 144 2.5.4 Chinese distribution channel system…………………………………….………….. 147 2.5.5 Imported wine distribution channels ……………………………………………….. 148 2.5.5.a Wine Shops…………………………………………………………………...….. 149 2.5.6 Price of wines in China………………………………………………………………. 150 2.6 APPLYING THEORY: WAYS TO ENTER THE CHINESE WINE MARKET……… 152 2.6.1 Exporting in China………………………………………………………………….... 153 2.6.2 Entering the Chinese wine market: the Chinese partners…………………….…… 154 2.6.3 Contractual agreements in China: Franchising & Licensing……………………... 159 2.6.4 Setting a Representative Office in China………………………………………….... 164 2.6.5 FDI in China: Joint Ventures and Wholly Owned Subsidiaries……………...…… 166 2.6.6 Online as a way to enter the Chinese wine market…………………………..…..…. 170 2.6.7 Incubator platforms: an attractive alternative option…………………..…………. 171 2.6.8 Hong Kong focus and the Shenzhen Hot Zone…………………………….……….. 172 CHAPTER 3 3. ITALY AND ITALIAN WINE IN CHINA 3.1 ITALIAN POSITION IN THE CHINESE WINE MARKET……………………..…….. 174 3.1.1 Initiatives for the promotion of Italian wine and Italian culture in China……….. 176 3.1.1.a Fairs with Italian protagonists…………………………………………….….. 177 3.1.1.b Tasting occasions………………………………………………………………. 180 3.1.2 Advantages of e-commerce for Italian wineries……………………………………. 181 6 3.2 TODAY’S SITUATION – THE EXPERIENCES OF ITALIAN WINERIES……….…. 183 3.2.1 Bisol (Veneto): a successful entry strategy…………………………………………. 184 3.2.2 Zonin 1821 (Veneto): among the top three Italian brands in China……………… 190 3.2.3 Moncaro (Marche): a marked brand strategy…………………………………..…. 197 3.2.4 Cantina Tollo (Abruzzo): an educational strategy…………………………….….... 201 3.2.5 Ruffino (Tuscany): an historical presence in China……………………………...… 206 3.2.6 Farnese Group (Abruzzo-Basilicata-Puglia-Campania-Sicily): a right communication strategy………………………………………………….…
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