Yantai cultivates overseas growth to avoid red marks

Leading winery Yantai Changyu Pioneer Wine Co Ltd is shifting its focus overseas, with plans to buy foreign vineyards and increase wine imports.

The domestic wine industry has sustained a double blow from imported wines and a government crackdown on extravagance, so Changyu will look abroad to boost its profits.

Changyu is one of the top three Chinese wine producers, which together account for about 70 percent of the market.

Sun Jian, deputy general manager of Changyu, which is based in Yantai, Shandong province, said it was a natural choice for a company such as Changyu, the world's fourth-largest winemaker by revenue.

"We are looking for vintages in both Old World and New World wine regions," Sun said, although he declined to discuss the timing or cost of possible acquisitions.

Old World wines are produced in traditional wine-growing areas of Europe. New World wines are produced elsewhere, especially in Argentina, Australia, Canada, Chile, South Africa, New Zealand and the United States.

"As the competition in China's wine market intensifies, it becomes harder and harder to maintain high profits, so buying overseas vineyards is a way out for us.

"We can have diversified wine-growing resources and distribution channels in overseas markets," he said.

Wine experts said China's limited land for vineyards is prompting many domestic wine producers to seek acquisitions abroad, where differing harvest seasons will also help complement domestic production schedules.

Changyu, which has an annual production capacity of 300,000 metric tons, has enjoyed rising gross margins: 79 percent in 2011 on sales of 90,000 tons of red and white wine.

Its alcoholic drinks portfolio includes brandy, sparkling wine, Chinese health liquor and imported wines.

But imports have put pressure on domestic winemakers such as Changyu and its major rivals, China Great Wall Wine Co Ltd and Dynasty Fine Wines Group Ltd.

In 2012, Changyu's revenue fell 6.8 percent to 5.3 billion yuan ($864 million) and net profit slid 11.1 percent to 1.7 billion yuan.

It was the first time that the listed company experienced a "double dip" of revenue and net profit in the past 13 years.

Imported wines previously occupied the high-end market but can now be found on the shelves of local supermarkets, posing a major challenge to domestic brands.

To deal with such problems, Sun said the listed company plans to boost its imported wine business by about 30 percent.

"We prefer to do import business ourselves rather than just being challenged by foreign wine brands," he said, adding that the company has established a separate sales team to take care of branding and imported alcohol operations.

Customs figures show the value of imported wines in the first five months rose 10.6 percent to $660 million, with France taking the highest share of 46 percent.

Although the fine wine sector has been seriously affected by the government's moves to crack down on extravagance and corruption and curb government spending, the country is still regarded as a market with high potential growth in wine consumption.