29 Aug 2011
To Catch a Boom, Chinese Buy French Vineyards
Shen Dongjun is the managing director of Tesiro, a chain of 400 jewelry shops in China with an annual revenue of 150 million yuan (US$23.48 million).
In April, Shen opened a new front in his business empire – he became the proud owner of Laulan Ducos, a 22-hectare vineyard in the Bordeaux region of southwest France with an annual production of 150,000 bottles of wine.
"My friends and family were surprised at my choice,” he said. “But, because of the rapid growth and rising profits in the red wine market in China, they finally understood my decision".
Tesiro is the sixth Chinese firm to acquire a French vineyard. The first was Qingdao Hailong International Trading Firm, a private firm that bought a 500-year-old Bordeaux vineyard with 60 hectares in January 2008. In March this year, state food giant COFCO acquired Chateau de Viaud, also in Bordeaux, the first such purchase by a state company.
Driving these acquisitions is the astonishing growth of consumption of grape wine, especially red wine, in China. Over the last five years, wine consumption in China has risen by more than a double-digit percentage each year. In 2010, Hong Kong and China consumed 33.5 million bottles of Bordeaux worth 333 million euros, increases of 98 percent and 126 percent respectively over 2009. This year, mainlanders are expected to consume 828 million liters of wine.
China has become the world’s biggest importer of Bordeaux wine. In the light of this surging demand at home, Chinese are as eager to buy the sources and producers of wine as they are to acquire foreign oil fields and petrochemical refineries.
Shen, 41, said that he visited 40 vineyards before selecting Laulan Ducos. A lover of wine himself, he started importing French wine into China two years ago; this led him to consider the acquisition. “The wine of my new vineyard suits the Chinese market and the purchase will enable me to avoid the traditional distribution system."
The COFCO purchase took three years of negotiations. The vendor was Pierre Raoux, who owns four chateaux in the Bordeaux region, with an annual output of tens of thousands of bottles. Neither side made public the price; the industry estimates it at 10 million euros.
Raoux’ son worked for one year in the COFCO head office in Beijing, establishing a link between his father and the firm. Previously, Chateau de Viaud had not sold wine to China; its annual output is 800-1,000 hectoliters, of which half was exported to the United States. COFCO plans to leave management of the vineyards in local hands. It owns the Great Wall brand, one of the most popular brands of wine in China.
The Inter-professional Council of Bordeaux Wine, which represents the industry, said that it was not surprised by this investment by Chinese, following that of the British, Dutch and Japanese.
"Quality red wines have attracted investment from China for two years,” it said. “It has become a symbol of good taste for the middle class. We estimate that the growth of consumption could reach 11 billion bottles or 828 million liters".
The French wine industry expects wine consumption in China to grow by at least 20 per cent annually from the current level of one liter per person per year until 2014, when it will become the world’s sixth largest consumer. France accounts for 50 percent of China’s wine imports, followed by Australia and Chile. Red wine accounts for 90 percent of total wine sales in China.
Olivier Leblanc, an agent in the wine business, said the Chinese who invested in this sector took their time before making a decision. “Today they are investing in small vineyards in order to learn about the industry. Given their financial power, they could purchase large vineyards and major brands".
COFCO is well-placed to make large acquisitions because of its financial size and expertise in the food industry. “The wine (of Chateau Viaud) is very good, and the quality of the land and the level of management excellent,” said Jean-Luc Coupet, who advised the firm on the purchase. “COFCO has opened the way. Other Chinese conglomerates could follow them in Bordeaux, the wine-growing region most famous in China and the only one which counts there".
COFCO has bought a vineyard in Chile and has announced plans to buy such assets in Italy, Australia, the U.S. and South Africa. But, for a Chinese company, buying a French vineyard is not as easy as acquiring a shoe factory or department store. The French wine industry is a world of its own, with 250 different varieties, of which 60 are the best known.
Most of the vineyards are small-scale, family-owned and run on traditional lines. The investor must acquaint himself with the details of the industry and the regulatory and approval procedures, all in a language unfamiliar to the vast majority of Chinese. The business culture of Chinese private entrepreneurs is a world away from the traditional work practices of French vineyards. The main challenge is not money but bridging these two cultures.
Take Hailong International, the pioneer which bought its vineyard in 2008. It visited more than 30 vineyards over six months before choosing Latour Laguens, which had been in the same family for 500 years but had fallen into financial difficulty and needed an outside investor. Hailong plans to refurbish the chateau that came with the purchase and turn it into a place for seminars and receiving guests: like the vineyard, the chateau can become a centre of profit.
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