A Comparative Study of Wine Consumer Behavior in China and the United States

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A COMPARATIVE STUDY OF WINE CONSUMER BEHAVIOR

IN CHINA AND THE UNITED STATES:

DOES CULTURE AFFECT CONSUMER BEHAVIOR?

A Project

Presented to the

Faculty of

California State Polytechnic University, Pomona

In Partial Fulfillment

Of the Requirements for the Degree

Master of Science

Hospitality Management

Michael Wang

2017 SIGNATURE PAGE

PROJECT: A COMPARATIVE STUDY ON WINE CONSUMER BEHAVIOR OF CHINA AND THE UNITED STATES: DOES CULTURE AFFECT CONSUMER BEHAVIOR?

AUTHOR: Michael Wang

DATE SUBMITTED: Winter 2017

Hospitality Management Department

Dr. Zhenxing Mao ______Project Committee Chair Professor of Hospitality Management

Dr. Neha Singh ______Graduate Program Director Collins College of Hospitality Management

ABSTRACT

Chinese wine culture has been flourishing recently, with more and more Chinese consumers wanting to purchase and consume wine. The U.S., being the largest consumer nation for wine in the world, still fails to significantly impact the Chinese wine market, and lies far behind France, which is the largest exporter to China. Using comparative analysis, this study seeks to find similarities and differences between wine consumer behavior in China and the U.S., and investigate relationships between these similarities and differences in consumer behavior towards the final purchase. Using this analysis, this study will recommend methods for American wineries and wine companies to better penetrate the Chinese wine market.

Keywords: wine, consumer behavior, American wine, Chinese wine, comparative analysis

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TABLE OF CONTENTS

SIGNATURE PAGE ...... ii

ABSTRACT ...... iii

CHAPTER 1 ...... 1

CHAPTER 2 ...... 4

CHAPTER 3 ...... 12

CHAPTER 4 ...... 14

CHAPTER 5 ...... 24

REFERENCES ...... 32

CHAPTER 1

Introduction

In 2013, the film “Red Obsession” by filmmaker Warwick Ross explored Chinese wine consumers’ obsession with red Bordeaux wines and their increasing demand for the best of these wines. According to a 2013 article by Wee, during the height of the 2011

Bordeaux bubble, prices of sought-after bottles soared. Cases of the famed Chateau Lafite were going for $23,000. As a result of limited production and the amount of media attention an exceptional vintage brings, these top-tier Bordeaux wines are rare and highly desirable. As these Chinese consumers voraciously drive up the prices for these wines, therefore, they are either “drinking the wines, presenting them as gifts, or serving them to guests to show the esteem in which they are held” (Wee, 2013).

Chinese consumers religiously follow the idea of mianzi, or face, in their consumer behavior. Mianzi adds significant societal value to the Chinese consumer, especially when they purchase a particular bottle of wine (e.g., a French red wine). This allows the buyer to show other Chinese society members that they have excellent taste and follow modern tradition. Recently, however, Chinese professionals have been spending more than ever to experience extravagance, trying to experience more wine from all over the globe. This shift in Chinese wine culture seems to indicate a more westernized approach to wine consumption, with consumers experimenting and spending more on wine. Most recently, a 2016 study conducted by the Wine Market Council showed that consumers are increasingly opting to purchase more expensive wine, from

$15-20 upwards (Hernandez, 2016). Additionally, the millennial generation has increasingly become the generational group to market towards, being extremely well-

1 connected and having consumed the largest amount of wine of all the generational groups in 2015, 159.6 million cases of wine. Furthermore, while the baby boomer generation, the largest generational group of wine drinkers to date, has been the largest purchaser of domestic bulk wine, the millennial generation (generally born between the 1980s and the

1990s) has been increasingly experimental, driving imports for wines from Greece,

Portugal, and South Africa.

Thanks to the Judgment of Paris in 1976, where two bottles of Napa Valley wine bested some of the best French wines of the time, respect for American wine has been increasing. And while Chinese wine culture has recently been flourishing as well (as evidenced in “Red Obsession”), exports of U.S. wine are still significantly behind those of other countries, at a meager sixth place compared to the number one Chinese exporter,

France. Given recent shifts in Chinese wine culture and consumer behavior, an investigation of similarities and differences in wine consumer behavior in China and the

U.S. could enlighten American wineries and wine companies on how to better market their products towards the Chinese wine consumer, and penetrate the Chinese wine market. Furthermore, the investigation of relationships between consumer behavior and final purchase decisions could reveal how better marketing strategies could increase purchases of American wine. The purpose of this study is twofold:

1. To conduct a comparative study of Chinese and American wine consumer behavior to find similarities and differences between the two cultures.

2. Having conducted this analysis, to offer practical suggestions for the American wine industry on how to better market to the Chinese wine consumer.

In order to fulfill the purpose of this study, the author will seek to answer the following research questions:

1. What are the similarities in Chinese and American wine consumer behavior?

2. What are the differences between Chinese and American wine consumer behavior?

3. How do these similarities/differences affect the final purchase decision of wine?

CHAPTER 2

Literature Review

The literature review will be presented in two main sections in order to give a background to the current study: Wine in China, and Wine in the United States. Each section will have two sub-sections detailing the history of wine and the wine culture of each country.

Wine in China

History of wine in China

According to a study conducted by Jenster and Cheng (2008), there were three periods in Chinese history in which wine production and consumption were recorded: the

Han Dynasty (206 BC – 8AD), the Tang Dynasty (618 – 907 AD), and the Yuan Dynasty

(1279 – 1368 AD). In 138 BC, Emperor Han Wu sent diplomatic envoy Zhang Qian to the western region of China, which is today comprised of the Xinjiang Province and other western provinces. It was in the western region that Zhang discovered a popular local alcoholic drink made from grapes, which he then brought back along with viticulture and viniculture techniques. Jenster and Cheng (2008) explain a few of the reasons that wine did not flourish after the Han Dynasty. First, harvesting grapes was a seasonal activity; second, viniculture was not very well developed at the time, wine made from grain (the most famous being baijiu) being far better developed; and, finally, wine was only served as a tribute to the emperors, making the consumption of wine very selective. At the beginning of the Tang Dynasty, Emperor Tai Zong occupied the city of Gaochang where he collected Maru grape seeds that were indigenous to the area to be grown in the

4 imperial gardens; by this simple act, he revitalized winemaking in ancient China and grape wine began to gain popularity in the capital city of Chang’an (Jenster & Cheng,

2008).

In 1892, towards the end of the Qing Dynasty, a Chinese businessman by the name of Zhang Bi-shi returned to China from overseas and set up China’s first wine company, the Chang Yu Winery. Chang Yu’s success derived from its owner’s collaboration with international partners and specialists, which resulted in innovations in the Chinese winemaking industry. The Qingdao or Tsingtao winery, more famous for its beer than its wine, was first established by Germans as the Melco winery in 1912, and in

1937, the Tonghua winery was established on Changbai Mountain in Jilin Province.

These wineries served as the backbone of China’s modern winemaking industry, even though by 1949, because of consecutive periods of war, the industry was barely sustainable (Jenster & Cheng, 2008).

As a result of the 1949 Chinese Revolution, Chinese Communist leader Mao

Zedong’s rise to power, and the creation of the People’s Republic of China, all wineries were “confiscated and turned into state-owned enterprises” under the Ministry of Light

Industry (Jenster & Cheng, 2008). During this time, economic development focused on a quantity-oriented industry. As a result of this new industry and the lack of updated winemaking techniques, Chinese wine was made using a blend of wine with water, fermented cereals, colorings, and sugar, leading to a sharp decrease in the quality of

Chinese grape wine at the time. By the 1970s, there were more than 100 wineries in

China producing 64,000 tons of wine, an increase of 200 tons from 1949. As a measure to bring down the overall consumption of grain-based alcohol such as baijiu in order to

5 combat hunger throughout the country, the Chinese government encouraged consumers to drink grape wine and, in 1993, imposed a tax increase of up to 25 percent on baijiu.

These measures brought new opportunities for grape wine to reach a wider audience of

Chinese consumers. With new winemaking techniques introduced by Guo Qi-Chang, known as the chief architect of the Chinese wine industry, China’s wine became more standardized, and the blending methods introduced after 1949 came to an end. With

China opening up its economy to foreign businesses, wineries such as Dynasty (a joint venture by the Tianjin government and Remy Martin), Huadong (established by investors from Hong Kong), and Marco Polo (an Italian venture) have transformed the modern

Chinese wine industry (Jenster & Cheng, 2008).

Wine Culture in China

While the market for grape wine is steadily growing, the most popular alcoholic drink in China is baijiu, a distilled spirit made mostly from sorghum, as it has strong roots in Chinese history and society. According to Jenster and Cheng (2008), Chinese consumers drink baijiu to symbolize their “frankness, friendliness, and sociability”; drinking baijiu is a common practice amongst Chinese businessmen to deepen their bonds with one another and settle business deals. As such, wine has never gained the popularity enjoyed by spirits and even beer because of their long cultural history.

Tradition still dictates who drinks wine and on what occasion. As a rule, wine is drunk by the educated, wealthy, middle to upper class of Chinese society, and is consumed mostly at important social events or business occasions. As such, wine is seen by Chinese consumers as a luxury product conveying a certain image (Liu & Murphy,

2007). Image is a large driver of Chinese gift-giving behavior. According to a study conducted by Yang and Paladino (2015), the act of giving and the reciprocity of such gifts “demonstrate one’s moral obligation and fulfillment of social duty” (p. 338), and any violation of these social norms could damage a person’s reputation and standing in society. There are three primary goals of gift-giving behavior in Chinese culture: first, to manage one’s social status; second, to maintain and/or improve one’s relationships with others; and third, to conform to social norms (Yang & Paladino, 2015).

When wine is purchased for gift-giving purposes, Chinese consumers consider the approval of the gift, not just by its recipients but also by those surrounding them, such as other guests and/or dinner companions. As such, wine as a gift needs to fulfill the three primary goals of gift-giving stated above. Western brands, particularly French ones such as those made by the French chateaux mentioned in the film “Red Obsession,” are favored by Chinese consumers and are the most widely used for gift-giving. Because they are so highly favored, western brands of wine are more widely accepted and approved by recipients and/or relevant third parties, and consumers are more inclined to pay more for a bottle to boost their image and not “lose face” (Yang & Paladino, 2015).

Red wine is the most widely consumed of all wine in China, with 1.86 billion bottles of red wine consumed in 2013, which, according to an article from the Guardian, is an increase of 136 percent since 2008. Researchers estimate that Chinese consumers will drink more than 4 billion bottles by 2017 (Willsher, 2014). The popularity of red wine in China can be explained by its symbolic color and its health benefits. Red, in

Chinese culture, represents luck, happiness, and celebration; in contrast, white represents death and is often thought of as an unlucky color (Jenster & Cheng, 2008; Liu et al, 2014;

Willsher, 2014). The fact that wine also has lower alcohol content than the more popular

Chinese spirits such as baijiu also means it is often regarded as healthier, particularly if drunk in moderate amounts. Red wine is also linked to blood circulation and traditional

Chinese medicine.

Wine in the United States

History of wine in the United States

The first actual reference to winemaking in the U.S. was in 1565. It is recorded that a French Protestant admiral by the name of Gaspard de Coligny established a colony in what is now known as Florida at the mouth of St. John’s River. Captain John Hawkins, the man who wrote the record, found the surviving members of the colony on the verge of starvation. Hawkins noted that although they had failed to grow any food for themselves, the colonists had been able to produce about 63 gallons of wine made from the muscadine grape, one of the few indigenous grapes in the U.S. After two unsuccessful attempts by Spanish colonists and Sir Walter Raleigh’s unfortunate Roanoke colony, the next early attempt at winemaking was recorded in Virginia, where nearly 20 million gallons of wine were made by hand-crushing and letting the juice settle for 5 to 6 days.

Difficulties for the early winemaking industry arose in the form of a more extreme climate than the milder one of the wine-growing regions of Europe, to which were added numerous problems with pests and mold. Overall, the American colonists failed to establish a winemaking culture (Barber et al., 2007).

After the Revolutionary War, the first notable attempt at establishing a successful viticulture was conducted by Frenchman Peter Legaux near Philadelphia. While Legaux

8 claimed that he had produced wine using European varietals, according to records the wine was most likely made from the indigenous Alexander grape (Barber et al., 2007).

While early successes of American winemaking can be traced back to the third U.S. president, Thomas Jefferson, Nicholas Longworth truly revolutionized the Ohio wine industry by establishing successful wineries in Cincinnati, producing sparkling wines using the Catawba grape. The first planting of grapes in California occurred when

Franciscan missionaries came to develop the missions throughout the state. Winemaking in Los Angeles became a commercial enterprise under the Frenchman Jean-Louis Vignes, who imported European varietals from France to lay the foundations of Californian wine

(Barber et al., 2007).

With the ratification of the 18th Amendment in 1919, which forbade all trade in alcoholic beverages, Prohibition began, and effectively ended the wine industry. While liquor was still drunk one way or another, the effect of Prohibition was to destroy the wine industry, which did not recover for many years although wineries tried to stay in business by producing juice and other grape products such as jam and jelly. The wine industry managed to survive despite the difficulties caused by Prohibition and the subsequent repeal of the Amendment; however, it was in ruins. Of the 977 licensed wineries established before Prohibition, only 268 survived in 1933 (Barber et al., 2007).

The American wine industry took nearly a full generation to recover from Prohibition, and U.S. wine was little more than an afterthought to the rest of the world. Large producers such as E & J Gallo made huge amounts of cheap “jug wine” with only a few wineries producing quality wines that could remotely match their famed European counterparts (Barber et al., 2007).

This all changed in 1976, thanks to an Englishman named Stephen Spurrier who ran a small wine shop in Paris, France. Spurrier almost exclusively sold French wine, leading him to assume that French wines were the most distinctive and interesting in the world. However, the American bottles that he had sampled were surprisingly good – but virtually no one in France knew anything about American wine. Spurrier decided to hold a tasting of American wines and invited some of the most distinguished wine professionals of France to act as judges. Twenty bottles were tasted and evaluated, with ten whites made from Chardonnay and ten reds made primarily from Cabernet

Sauvignon; some of the wines were from France and some were from the U.S. The results of the tasting shocked the wine world: when all the wines had been tasted and evaluated, the highest rated were from the U.S. The highest-scoring red was a Stag’s

Leap Wine Cellars 1973 Cabernet and the highest-scoring white was a Chateau

Montelena 1973 Chardonnay, both from Napa Valley. The results of the so-called

Judgment of Paris were far-reaching: not only did the tasting demonstrate that American winemakers could make world-class wine, it led European winemakers to give more respect and appreciation to American wine. The Judgment of Paris changed American winemaking dramatically (Barber et al., 2007).

Wine Culture in the United States

According to Steiman (2016) in an article written for Wine Spectator, Americans’ interest in and consumption of wine have grown steadily since the Judgment of Paris in

1976. By the 1970s, a wine culture seemed to blossom in the U.S., along with a food revolution, thanks in part to famed television chef Julia Child. Steiman (2016) describes

10 how the landscape of wine has changed since he and his wife discovered their passion for wine. For example, Riesling enjoyed a great popularity boom during the 1980s, went out of fashion, and then burst back onto the scene in recent years as a trendy alternative to the favorite American white wine, Chardonnay (2016). In fact, during the 1970s, red wine was more widely consumed than white, at 36 million cases compared to 27 million. In

2014, white wine was the more popular, with 142 million cases consumed, compared to

125 million cases of red (Steiman, 2016).

After the Judgment of Paris, the U.S. became definitively a wine-drinking country that now buys and consumes more wine than any other. Preferences have changed throughout the years; for example, Merlot used to be all the rage in 2004 until the film

“Sideways” touted the greatness and beauty of Pinot Noir and reversed the popularity of the two varietals, leading to the “Sideways effect”. However, these trends suggest that

American consumers are increasingly becoming more experimental, trying to find the best value at the best price. According to Steiman (2016), the millennial generation, or generation Y, is far more experimental and appreciative of diversity than any other generational group. Being the generational group that will soon overtake the baby boomer generation as the largest consumer of wine, this generational group will set the scene for the future of the wine industry.

CHAPTER 3

Methodology

For this study, the writer will conduct a comparative study of the wine-drinking cultures of China and the U.S., and the behaviors of Chinese and U.S. wine consumers.

Pickvance (2005) defines the two main features of comparative analysis:

1. an interest in the explanatory question of why the observed similarities and

differences between cases exist; and

2. reliance on the collection of data in two or more cases, ideally within a

common framework (p.2).

This method has been widely used in different fields of study, from economics to social sciences. For example, comparative analysis has been used to research differences in analyses of dangerous roads to prioritize locations to be updated (Lipovac et al., 2016), difference in tourism higher education in Latin America and Spain (Sosa, 2016), and differences in visitor satisfaction with national parks in the National Park Service (NPS)

(Roemer & Vaske, 2014). The strength of this style of analysis is that several variables can be used to explain the similarities in and/or differences between cases and to show generalized relationships between cases (Pickvance, 2005). The weaknesses of this style of analysis include a clear definition of concepts prior to conducting the analysis (e.g., the concept of environmental regulation), and the fact that each introduction of new variables brings unknown variations as well (Pickvance, 2005).

In a study conducted by Kim and Kincade (2007), the retail industries in China,

India, and the U.S. were analyzed to determine cross-cultural similarities and differences

12 in retail institutions and store patronage behavior in the three countries, as India and

China were growing in population and wealth. By analyzing the two-fold study, the authors were able to recommend strategies based on the different types of retail store consumers (brand-conscious, fashion-conscious, etc.) and the different types of retail institutions (specialty stores, commodity trading stores, etc.) (Kim & Kincade, 2007). The strategies used in the Kim and Kincade study can be directly related to the study being conducted for this paper, as the author is analyzing differences between wine consumer behavior in China and the U.S.

Thus, a revised comparative analysis will be conducted for this study. The author, using secondary data from literature used for this study, will observe the similarities and differences in the wine consumer behaviors of Chinese and American consumers.

CHAPTER 4

Analysis

As mentioned, a revised comparative analysis will be used to determine similarities and differences in the wine consumer behaviors of Chinese and American consumers. The analysis section of this paper will be divided into three parts: wine consumer behavior in China, wine consumer behavior in the U.S., and the analysis of the two groups. The analysis will detail the similarities and differences between the two countries.

Wine Consumer Behavior in China

Chinese consumers drink wine depending on the occasion and purpose, and whether this is in public (business dinner, date, as a gift, etc.) or in private (daily use, family, etc.). Chinese consumers generally pay more for wine for public than private occasions (Liu & Murphy, 2007; Yu et al., 2009). This factors into all consumer behavior in China and is based on the idea of mianzi, or “face” in Mandarin. According to Liu and

Murphy (2007), as China is a collectivist society, mianzi drives consumer buying, or

“what consumers purchase may influence what others think of them (p. 106). An example of this would be if a Chinese consumer purchases a foreign product for the sake of boosting their image, even if they do not like the product. Mianzi is especially important in a public setting because public occasions will not only involve people familiar to the consumer, but also less familiar people, who are more important in the Chinese evaluation of mianzi (Liu & Murphy, 2007).

As mentioned, to Chinese consumers price has a positive relationship with value; the more a product is worth, the higher a consumer’s mianzi. Chinese consumers see wine as a luxury product and the consumption of luxury products increases a person’s social status and personal identity (Liu & Murphy, 2007). As such, when a Chinese consumer drinks wine, particularly red wine, they earn mianzi; simply, red wine indicates a good social image and those who drink it are said to have good taste. To the Chinese consumer, all good wine is red wine (Camillo, 2011) Moreover, the higher the price of the wine, the more mianzi the person will earn. Thus, the Chinese consumer is willing to spend more just to increase their mianzi (Liu & Murphy 2007; Camillo, 2011; Liu et al., 2014). This is apparent in their gift-giving behavior, as Chinese consumers will spend most purchasing a bottle of wine as a gift and least on wine for daily use (Yu et al., 2009).

Additionally, Chinese consumers generally regard red wine as being healthy, especially in comparison to spirits, as wine has lower alcohol content. In a study conducted by Somogyi et al, (2011), Chinese consumers believed that red wine was good for their blood and contained antioxidants to reduce cholesterol levels. Chinese consumers also believed that red wine was good for blood circulation, which, as Somogyi et al. (2011) noted, may be based on consumers’ experience of traditional Chinese medicine. They also added that consumers often drank wine in specified amounts, as though they were consuming a measured dose of medicine.

Interestingly, because of mianzi and the other associations of red wine, most

Chinese consumers believe when one refers to grape wine, or pu tao jiu in Mandarin, one is referring to red wine alone. In Liu and Murphy’s study (2007), when asked whether they had ever tried wine, the subjects asked if they were referring to red wine. The

15 subjects who were aware of white wine preferred red wine because of its color; red is often associated with luck and celebration whereas white is often associated with death and funerals.

This lack of wine knowledge can be associated with the lack of wine culture in

China. Many Chinese consumers are novice wine buyers and most buy wine from supermarkets because of a lack of specialty stores. Thus, local Chinese wines account for most of the Chinese wine market; imports have only 10 percent of market share, due either to Chinese consumers deeming them too expensive to purchase, lack of advertising and information about them, and/or a lack of knowledge to make a good selection (Yu et al., 2009). The Chinese even consider that local wine is comparable to, if not better than, imports (Camillo, 2011).

In spite of this, of all the imported wine that China is able to obtain, European wine is the most favored, especially French. The country of origin is a prominent factor in a Chinese consumer’s evaluation of wine and their purchasing behavior, especially when it is purchased as a gift (Hu et al., 2008). Chinese consumers are willing to pay more for a bottle of French red than a local or U.S. (particularly Californian) one (Xu &

Zeng, 2014). However, Xu and Zeng (2014), like Camillo found that even though

Chinese consumers find Californian wine no better than local wine and are willing to pay more to purchase local wine, they are still willing to purchase Californian wine to entertain guests or as a gift to show their guests and gift-receivers that they are

“westernized,” which adds to their mianzi.

As mentioned, mianzi is the overarching concept in Chinese wine consumer behavior. Mianzi affects Chinese consumers’ decisions in making the final purchase.

According to the secondary data used for this study, key factors in making the purchase decision are price, the type of occasion, gift-giving behavior, the country of origin, and the type of wine (mostly red). Price is affected by all other factors, as Chinese consumers are willing to pay more for a bottle depending on which factors will affect mianzi. In other words, the more the Chinese consumer wishes to increase his or her mianzi, the more they will pay for the bottle of wine at the final purchase. Thus, mianzi is the primary factor in Chinese wine consumer behavior.

Wine Consumer Behavior in the United States

With Olsen and Nowak, Thach (2007) conducted a study of wine preferences between four different generational groups: traditionalists (born between 1900 and 1945), baby boomers (born between 1946 and 1964), generation X (born between 1965 and

1976), and generation Y or millennials (1977 and 1999). In general, all four generational groups preferred to drink dry red wines (Cabernet Sauvignon and Merlot being the most popular), with dry whites and Champagne following. The most common situation of consuming for all generational groups is with meals, whether at home or at a restaurant, followed by relaxing after work, and during formal occasions.

Thach, with Chang (2015), continued studying American wine preferences by conducting a survey of American wine consumers to analyze their preferences and answer such questions as to where American consumers purchase wine and why

American consumers drink wine. The 2015 survey sampled 1,072 Americans from all fifty states; 27 percent were aged 21 to 29, 29 percent were aged 30 to 37, 23 percent were aged 38 to 49, and 21 percent were aged 50 to 68. The median income was $50,000

17 to $69,999, with 18 percent of the sample making over $100,000 per year; 60 percent of the sample had completed a college degree, and 56 percent of the sample reported that they consumed wine daily or several times a week (Thach & Chang, 2015). In 2016, these high-frequency wine drinkers made up 35 percent of the wine-drinking population

(Gillespie, 2016).

When asked to select their favorite type of wine, 74 percent of the sample selected red, followed closely by those who chose white, at 72 percent, with rosé at 43 percent, sparkling at 42 percent, dessert at 19 percent, and, finally, fortified at 8 percent (Thach &

Chang, 2015). These numbers corresponded to wine sales the following year, with 46.3 percent of total wine sales being of red wine, followed by white, at 44.3 percent, and rosé at 4 percent (Brager, 2016). The top three reasons that Americans drink wine, according to Thach and Chang (2015), were taste (“I like the taste”; 83 percent), relaxation (“It helps me relax”; 70 percent), and socialization (“To socialize with friends”; 59 percent).

Respondents generally purchased wine from wine or liquor stores and grocery stores and considered price and brand as dominant factors in their purchase decision (72 percent and

67 percent respectively).

Respondents to Thach and Chang’s survey seem to agree that the consumption of red wine seems to provide health benefits, such as reducing the risk of heart disease and increases lifespan (2015). According to St James and Christodoulidou (2010), red wine’s health benefits have become a significant factor in influencing wine consumption in

Southern California, just behind taste, food complementarity, and sociability. Other health benefits of moderate red wine consumption include boosting the immune system, adding antioxidants to the body, and reducing the percentage of body fat, waist

18 circumference, blood pressure, blood glucose, insulin, and triglycerides (St James &

Christodoulidou, 2010). These health benefits have led to a positive coverage of red wine consumption in the media, which eventually leads to an increase of knowledge amongst wine consumers. The proliferation of media coverage of red wine’s health benefits has significantly influenced wine consumers in Southern California, who have increased their wine consumption (Hussain et al., 2007; St James & Christodoulidou, 2010).

Knowledge of wine is a significant influence on wine consumer behavior, more specifically the consumer’s involvement in purchasing wine and the consumption of wine. Simply put, the more the consumer knows about wine, the more that consumer will purchase and consume wine; in some cases, this can likely change monthly wine consumption by more than three glasses a month (Hussain et al., 2007). By having greater knowledge of wine, a consumer can mitigate his or her confusion in the wine purchasing process, and will, therefore, have a greater chance of having a satisfactory experience with his or her choice. However, wine is a very complex product, and consumers with less wine knowledge usually need to consult multiple sources of information in order to make a purchase decision. In some situations, wine consumers simply choose a brand or type of wine they are familiar with, in order to avoid having an unsatisfactory experience (Olsen et al., 2015). In some cases, consumers can exhibit variety-seeking behavior, whereby they can be prone to switch brands, wine type, and region (Olsen et al., 2015). In a study by Olsen et al. (2015) that analyzed variety- seeking behaviors amongst generational groups (millennials (aged 21-33), generation X

(aged 34-45), baby boomers (aged 46-63), and seniors (older than 63)). Millennials were found to exhibit the highest variety-seeking behavior. These young wine consumers are

19 more likely to drink unusual wine, and wines from different countries, even if they had not tried them previously. They spend more money on wine and consume more wine than any other generational group (Olsen et al., 2015). This corresponds with recent findings of generational wine consumption, showing that millennials have finally surpassed the baby boomer generation as the largest wine-consuming generational group, with millennials making up 36 percent of the wine-drinking population compared to the baby boomer generation at 34 percent (Gillespie, 2016).

For the American consumer, especially of the millennial generation, knowledge is the primary factor in American consumer behavior. As brand and price are the significant factors in the consumer’s final purchase, knowledge can potentially affect these factors.

For example, if the consumer has low wine knowledge, the consumer may simply purchase a brand that is familiar to mitigate the risk of a bad experience, and/or may spend more on a bottle they believe is better quality. Knowledge could also affect variety-seeking behavior; a consumer may exhibit higher variety-seeking behavior if they have experimented with unusual brands and types, thus increasing their knowledge for the next purchase. Thus, depending on the American consumer’s knowledge of wine, they could purchase and experiment more with wine.

Analysis of Wine Consumer Behavior in the United States and China

From observing similarities between the two consuming groups, it appears that both groups have a preference for fruity, sweeter wines. Although millennials, like all other generational groups, drink more red wine than white, they are the leading drinkers of sweet white wines such as Riesling and Gewurztraminer. It is also interesting to note

20 that White Zinfandel, the sweet blush wine of the Zinfandel grape, is the third most preferred varietal of wine following Chardonnay and Merlot (Thach & Chang, 2015).

According to Somogyi et al. (2011), Chinese consumers have a habit of combining red wine with lemonade or another soft drink to make it more palatable, which can be traced back to the former Chinese premier, Li Peng. Respondents explained that not only does lemonade or another soft drink make the bitter taste of red wine sweeter, but the cocktail is also health-conscious as it references the Chinese belief that alcoholic beverages containing lower alcohol content are better for one’s health.

Similarities can be observed in both groups’ belief that red wine is, in fact, healthy. Both groups believe that red wine is good for blood health and is a source of antioxidants. Thus, knowledge of the health benefits of red wine influence both Chinese and American wine consumers, as evidenced by the high preference and consumption of red wine in both countries. However, Chinese consumers have additional reasons for believing red wine is a better option. Again, red wine with its lower alcohol content is preferred to local spirits such as baijiu, and is deemed healthier than spirits. Moreover, red is a very lucky color in Chinese culture and, as such, is often drunk during special occasions such as the Chinese New Year, as well as during business dinners, to stimulate conversation and build good business connections (Liu & Murphy, 2007; Yu et al.,

2009). The color and type of wine (particularly red) also affects mianzi, especially for the

Chinese consumer, as a Chinese consumer seems more westernized, with better taste, when drinking red wine.

Price is a common significant factor in wine consumption behavior. However,

Chinese wine consumers have a more significant relationship with price as this pertains

21 to the idea of mianzi. As mentioned, the higher the price of a glass or bottle of wine purchased by the Chinese consumer to entertain or give as a gift, the more their social image will improve, and thus the higher the increase in mianzi that the consumer will obtain. Referring back to the gift-giving tradition, a study conducted by Orth and Kahle

(2008) to analyze the influence of brand choice on giving wine as a gift in the U.S. found that, while the brand’s quality and social status (how fashionable or trendy it is) were the most desired benefits in the gift-giving situation, its value or price was the least desired.

This is in sharp contrast to the Chinese tradition of gift-giving, in which the price and value of the wine being presented are seen as one of, if not the, most desired benefits of the gift.

Thus, the Chinese consumer relies heavily on mianzi to make a purchase decision.

As mentioned in the analysis of the Chinese consumer, mianzi affects the price of the bottle upon purchase depending on the occasion, the country of origin, and the giving of gifts. While these factors can also affect the American wine consumer’s behavior, there is no study that observes that a similar idea of societal value primarily affects the American consumer’s purchase.

American consumers’ overall wine knowledge seems to have more effect on consumer behavior than it does among Chinese consumers. Knowledge also affects the

American consumer’s variety-seeking behavior, as the more the American consumer purchases wine, the more their knowledge of wine increases, and (particularly for the millennial generation) the more the consumer is willing to experiment with unusual brands, countries of origin, and varietals. This higher knowledge of wine can be attributed to the U.S.’s high volume of wine consumption, given that, globally, the U.S.

22 has been the largest wine-consuming nation since 2010 (Wine Institute, 2015). It imports a large amount of wine, with popular imports being from Italy, France, Spain, and

Australia (Thach, 2015). In contrast, while the literature used for this study does not specifically state a lack of variety-seeking behavior in Chinese wine consumers, the limited supply of imported wine, the insistence that European, particularly French wine, is superior, and the lack of information on imported wine leads to an assumption that

Chinese wine consumers may be far more apprehensive than American wine consumers in seeking out innovative types and brands of wine. This assumption can also be linked to the lack of wine knowledge amongst Chinese wine consumers, even those of the millennial generation (Li et al., 2010). However, the more a wine consumer purchases and consumes wine, the more they will know about wine and partake in wine-related activities (tastings, food- and wine-pairing classes, etc.) (Hussain et al., 2007), regardless of whether the consumer is from China or the U.S.

CHAPTER 5

Conclusion

The objective of this study was to conduct a comparative analysis of the wine consumer behavior of Chinese and American consumers in order to recommend marketing strategies for the American wine industry to better penetrate the Chinese market. The author also hoped to show the similarities and differences in Chinese and

American wine consumer behavior and the relationships between these similarities and differences to wine consumer behavior in each country. In conducting the analysis, the author identified two major similarities and two major differences in Chinese and

American wine consumer behavior: the similarities are a preference for fruity red wine, and price being a significant factor in a purchase decision; the differences are the idea of mianzi (particularly for the Chinese consumer), and overall wine knowledge.

Both Chinese and American wine consumers prefer red wine over all other types of wine. One shared reason for this preference is red wine’s apparent health benefits.

Both Chinese and American consumers believe red wine is good for the heart and will help in lowering cholesterol. Chinese wine consumers seem to take this a little further and apply traditional Chinese medicine practice to the consumption of wine, such as drinking a specific amount. Moreover, not only do both Chinese and American consumers prefer red wine, but they prefer their wine to be more fruity and sweet. In contrast to American wine consumers, Chinese wine consumers factor cultural reasoning into their preference for red wine more, attributing luck and good fortune to the color.

Price is another major similarity in Chinese and American wine consumer behavior. Both factor price significantly into their final purchase decision. While

American consumers are willing to pay more to find the best bargain and the fairest price for quality, Chinese consumers are willing to pay more for a bottle of wine to add to their social value or mianzi (accounting for other factors such as occasion, country of origin, purchasing as a gift, etc.).

A major difference in wine consumer behavior in each country is the idea of mianzi, which particularly pertains to Chinese consumers. As mentioned, Chinese consumers are willing to pay more for a bottle of wine to gain more mianzi, even if they do not particularly like the bottle they are purchasing. Again, mianzi is the overarching factor that affects the final purchase decision of wine for the Chinese consumer, affecting purchases depending on the type of occasion they are for (public occasions being of higher value, and thus requiring more expensive bottles to be purchased), what kind of gift the consumer would like to give, the country of origin (France being the most sought- after and revered), and the price (the higher the price of the bottle, the more potential mianzi can be obtained).

Mianzi is not the overarching factor in American wine consumer behavior but, rather, overall wine knowledge. Where the millennial generation, in particular, is concerned, wine knowledge can affect variety-seeking behavior in American consumers.

The more knowledge the consumer has, the more they are willing to experiment with different brands, types, and varietals, and pay more to experiment with wine. In contrast,

Chinese consumers have a limited wine culture, due in part to limited amounts of imported wine to experiment with, lack of overall wine knowledge (believing French is the only worthwhile wine to purchase), and lack of information on other countries of origin (which adds to the lack of wine knowledge). Should American wine companies

25 wish to better enter the Chinese market, the Chinese preference for red wine, price, mianzi, and lack of knowledge should be considered.

Recommendations and Implications

According to Insel (2014), Americans have not been able to penetrate the Chinese market or “apply their aspirational wine marketing skills” (p. 56) to exporting to the

Chinese market, which would consolidate their position amongst the world’s finest.

American wines have consistently come sixth in Chinese market share, with U.S. wine exports dominated by low-priced wine, adding credence to the Chinese perception that

U.S., and particularly Californian, wine is inferior to Chinese wine.

From the analysis of similarities and differences in Chinese and American wine consumer behavior, inferences can be drawn to help the American wine industry better approach the Chinese market. The most important inference is that the American wine industry must understand the concept of mianzi, as this drives the behavior of the Chinese consumer. That is, the American wine industry, based on the analysis of this study, should:

1. Ensure its red wines are of high quality and market them as such;

2. Price these wines as high as possible to match their quality, and;

3. Educate the Chinese consumer through marketing, sending American

winemakers or experts, or wine conventions.

First, since the Chinese prefer red wine, American red wines should be more readily available for the Chinese consumer and should be exported more to China than any other wine type. With respect to mianzi, American winemakers need to ensure these

26 wines are of high quality. Additionally, as the Chinese prefer wine to be sweet and fruitier, these exported American wines should be sweeter and fruit-forward to please the

Chinese palate.

The quality of U.S. wines should be emphasized before appropriate pricing can be done. Again, with respect to mianzi, Chinese consumers are more inclined to pay more for a bottle of wine they believe is of good quality, even if they do not particularly like drinking the wine. As such, if an American producer makes a high-quality bottle, the bottle should be priced accordingly. A higher price on a bottle should make it more appealing to the Chinese consumer, especially during gift-giving or any other time when mianzi is involved. The potential challenge for this is that Chinese consumers are cautious about purchasing American wine because they do not believe that it is of as high quality as French wine. As such, American winemakers may need to be careful not to price a high-quality bottle too high, as it will encourage Chinese consumers to not buy

American wine.

To mitigate this potential problem, American winemakers must better educate the

Chinese consumer about the quality of American wine and the merits of drinking it. In order to do this, American wine companies should invest in better marketing and advertising throughout China to spread the word about the quality of American wine.

Awards should be listed and displayed to demonstrate its quality to the Chinese consumer. Wine experts, sommeliers, and winemakers themselves should invest time in traveling to China in order to educate not only Chinese wine consumers but also Chinese winemakers and wine professionals so that these Chinese experts can better educate other consumers. American wine professionals can host wine tastings, classes, and special wine

27 conventions in order for Chinese consumers to be able to try U.S. wines further. A potential challenge to this is that Chinese consumers are mostly familiar only with

Californian wine. As such, Californian wine should be emphasized. And since Chinese consumers are more familiar with Californian wine, they may be more comfortable to experiment with this than with wine from other regions in the U.S. Once Chinese consumers become more familiar with Californian wine and their appreciation of

Californian wine has increased, other states may be able to follow suit and begin to introduce their wine to the Chinese market. American wineries and wine companies should investigate hosting wine tastings and classes so that Chinese consumers will be able to try more U.S. wines.

Problems and Challenges

One challenge, as identified in the literature and analysis, is the Chinese perception that local wine is just as good as, if not better than, imported wine, particular

U.S. and Californian wine. Part of that challenge, as mentioned in the analysis, is that

Chinese wine consumers lack the knowledge to choose between imported wines, which are perceived as too expensive, and have no information readily available about them.

For this reason, imported wine only has a 10 percent market share in China. Thus, as mentioned above, American winemakers will have to conduct a thorough analysis of acceptable prices to ensure that Chinese consumers will buy American wine.

Another challenge is the lack of satisfactory shipping across China. According to an article by Torres (2016), many trucks used for wine distribution are not refrigerated and warehouses used to store wine are not weather-controlled, leading to a lack of quality

28 control of the product. Other challenges include entering the market itself, as most respectable companies are very small, with only 3 to 10 employees on average; China’s taxes can raise the price on a $50 bottle of wine to $150 at retail; government austerity programs established by President Xi Jinping in 2013 have caused a consumer shift to less expensive wines and an increase in import wines (Jing Daily, 2016); and there are cultural differences, particularly the tradition of gan bei, where the consumer downs a whole glass of alcohol (Torres, 2016).

Trends

One of the biggest trends changing the wine industry, especially in the U.S., is the proliferation of social media. Social media usage has become the new “social norm” as user engagement in social media platforms has increased, with 64 percent of all social media users using social media websites at least once a day from their computer (Nielsen,

2014). Social media have been adopted by the average American wine drinker, with 80 percent of wine drinkers using Facebook, 41 percent YouTube, 39 percent Twitter, 28 percent LinkedIn, 25 percent Google+, 24 percent Pinterest, 20 percent Instagram, and only 9 percent not using social media at all (in a sample of 1028 wine consumers across the United States); of those who do, 13 percent use social media to obtain information about wine, pricing, and reviews and recommendations (Thach et al., 2014). The number of wine consumers who used these social media websites had increased in a similar study conducted in 2015, with 90 percent of the sample also owning a smartphone (Thach &

Chang, 2015). More wineries around the world are designing websites to better communicate with their customers and facilitate e-commerce to reduce costs and deliver

29 to customers quickly and efficiently (Nowak & Newton, 2008; Pelet & Lecat, 2014;

Szolnoki et al., 2014).

Another important trend is the marketing shift towards generation Y, or the millennials, as they are now the largest generational wine-consuming group in the U.S.

Electronic media, such as social media and the internet, are the most widely used in this generational group (Valentine & Powers, 2013), making it increasingly important for wine companies to use social media. Millennials in China, like the average Chinese wine consumers, lack basic wine knowledge, prefer red wine, and drink socially; while they rarely drink wine (once a year), they plan to drink it in the future (Li et al., 2010).

Moreover, more Chinese millennial professionals have become game-changers in the

Chinese wine industry, increasing the need for wine education (Ge, 2016). These

“developing drinkers” (Ge, 2016) are buying wine at mainstream prices and are drinking more frequently, accounting for 19 percent of Chinese drinkers of imported wine. These drinkers not only prefer the taste of imported wines to that of local wine but are starting to prefer sweeter and white wines. Not only could this change the market for white wine in China but these affluent Chinese millennial drinkers could be the catalyst that changes the future of premium wine in the country (Ge, 2016).

Limitations and Future Research

Limitations of this study include the usage of secondary data. Conducting a more detailed study and obtaining primary data through the use of instruments to obtain quantitative data, such as surveys, would add more rigor to the study. Further investigation should be done on the millennial generation in both China and the U.S.;

30 while the American group is now the largest wine-purchasing generational group, the

Chinese millennial generation is slowly gaining strength, including purchasing and experimentation. Further studies can provide more insight into shifts in wine culture and the consumer behavior of Chinese millennials and how American companies can now start planning for this group. A recent article by Meiburg (2015) has detailed how

Chinese wine culture is going more “mainstream”, and that mianzi, especially in gift- giving alcoholic beverages, is slowly waning. Further investigation should be made to substantiate this claim, as mianzi defines Chinese culture (particularly for gift-giving).

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