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Wine Industry Tries to Fix Image in China

wsj by BEN WORTHEN 21/03/2013  

When Mark Bright attends wine events in China, he says, people often complain that California wine is overpriced and of poor quality.

The San Francisco-based winemaker and sommelier blames that reputation on vendors who have flooded China with cheap "plunk" wine that they sell at prices normally charged only for better vintages.

"It's horrible for California," says Mr. Bright, who laments that if this continues, "we're never going to be able to build a business in China."

California winemakers—in particular those in Bay Area counties like Napa and Sonoma—have spent decades establishing their wines as some of the best in the world. But in China, where drinking wine is a more recent phenomenon, these well-constructed wines compete with bulk wine from the state that is bottled, branded and sold at prices they could never command elsewhere.

California's wine establishment, led by Bay Area vintners, brokers and trade representatives, is now trying to change the image of the state's wine in China. Mr. Bright is working on a Mandarin-language book about California wines. The Wine Institute, a San Francisco-based advocacy group for California wines, in July 2011 started holding virtual tastings via video conference for Chinese journalists. And earlier this month, Gov. Jerry Brown announced plans to promote California wines on an upcoming trip to China.

There is a lot riding on the efforts. While China in 2012 accounted for just under $74 million of the $1.4 billion of U.S. wine exports—about 90% of which comes from California—that is up from $16 million in 2007 and $2.6 million in 2003, according to the Wine Institute.

"There's an amazing opportunity with this emerging middle class [in China] that's buying cars and watches and wine," says Linsey Gallagher, international marketing director for the Wine Institute. She adds that about 90% of the calls she gets these days are about China.

Some California wine businesses say they have seen firsthand how poor wines from the state have wound up in China. "We've had people just show up with bags of cash and say give me the cheapest wine. It was that bad," says Robert Dahl, chief executive of California Shiners, a Napa-based company that buys bulk wine and then blends it and bottles it for customers, who brand and sell it. The people, who are either from China or have business connections there, are often looking to make a quick buck, he says. He declined to name any of them.

Mr. Dahl started his company two years ago and says he is on track to ship one million cases of wine this year, almost all of it to China. He says that he takes steps to ensure that his is a high-quality product, including having the proper facilities to store and filter the wine.

"People were just sending junk," he says. "We've been pushing 100% against that. It makes us all look bad."

David Duckhorn, whose family once owned a Napa winery and who now lives in Shanghai, started a business importing wines to China in 2008 and has taken steps to distinguish the wine he sells from the lower-quality stuff. He says he only sells bottles that are branded the same as the ones a customer in the U.S. would get, from the same winemakers and sourced from the same vineyards.

Wine imported into China, like that brought to the U.S. from overseas, require a local-language label on the back.

California winemakers would leave the back of their bottles blank or ship them with the Chinese-language labels already affixed. To demonstrate his wines are the real deal, Mr. Duckhorn now asks for winemakers he works with to ship bottles with an English-language label on the back and he sticks the Chinese import label over it.

"You can peel it off," he says, which lets buyers confirm the authenticity of the product.

Mr. Duckhorn's company, Via Pacifica U.S. Inc., will soon have eight offices in China, where his staff puts on tastings for Chinese buyers. He encourages them to check online the prices that the same bottles sell for in the U.S. so that they can tell whether it is overpriced.

A bottle of wine in China typically costs about two or three times what it would in the U.S. because of taxes, import fees and other costs.

Still, as a middleman Mr. Duckhorn can't always stop overpricing. One of his customers once bought some Decoy wine, a less-expensive release from the Duckhorn Winery—formally owned by Mr. Duckhorn's family—that retails in the U.S. for around $20 per bottle, and at a 10-times markup in China.

Ms. Gallagher of the Wine Institute says some of the current problems will go away as Chinese wine buyers become better educated. The institute has led trade missions to China with California winemakers to promote the wines and recently launched a Chinese-language website about California wines.

Ms. Gallagher says she has lately had some success marketing food-and-wine pairings, with California wines going well with spicy dishes and traditional Chinese food like barbecued meats. The Wine Institute has put on events with sommeliers and chefs to tout this in Beijing and Shanghai.

"Journalists [in China] now write about food-and-wine pairings and how good California wines are," she says.