Historical Perspective of Changyu Wine Company

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Table of Contents

Sales Volumes
Products
Number of Stores
Overall Industry Context
Relationship with marketing
Developments in China’s Wine Industry
Critical Evaluation
Conclusion
Works Cited

Ynatai Changyu Pioneer Wine Company Limited is a Chinese wine company that produces and sells wine, brandy and tonic wine in the Chinese market as well as other international markets.

The company was established in 1892 and remains the largest and oldest wine producing company in the Chinese market. The cumulative wine output is estimated to be 80,000 tons annually (Changyu 3). The company has a 21 percent of the Chinese wine market share.

Sales Volumes

Amid the global recession experienced in 2007-2009, ChangYu was ranked by a Canadian research firm among the few wine companies that beat the financial odds to improve their market shares in foreign markets as well as earn a more strategic place in the global wine market (CN wine news (a) 2).

In the period between January and November 2008, the volumes of wine sales in the Chinese wine market registered a 32.9 percent increase (CN wine news (a) 3). In the global market place, Changyu was raked in the seventh place after attaining $890 million in 2008.

Wine enterprises that came before it included Constellation brands ($ 3358.8million), E&J Gallo ($3080 million), Foste’s Group ($1667.9 million), Castel-Freres ($980 million) and the Wine group ($910 Million). Earlier in 2007, Changyu had attained the 10^th ranking in the global market, and was ranked at 79^th place among the largest Chinese companies in the local market.

At the time, the sales revenue for the wine company was approximately 27 billion Yuan. Still, this was way below what market analysts believed a global wine company should have in terms of sales revenue.

Changyu’s general Manager said that the company was targeting attaining annual sales revenue of at least $ 1.5 billion annually (CN wine news (a) 11). To do this however, the company acknowledged that it would need to increase its production, adopt better sales techniques and move to newer markets.

Products

Some of the wine brands that have great sales potential include the 4 chateaus brand and the Jiebaina Brand. The latter registered 1,600 tones of sales in 2007, consequently earning the company 700 million Yuan, which translated to 40 percent of the total Changyu revenue in the same year. Overall, the company has products in the wine category, brandy, sparkling wine and healthy liquor (China daily 1).

Number of Stores

In China, Changyu has at least one distribution outlet in each province. The outlets sell wine and other products manufactured by Changyu to wholesalers only. The wholesalers on the other hand are mandated to deal with retailers, who sell the products to the consumers.

In the export market, Changyu has distribution networks in over 20 countries. The largest exporters of the company’s products include the United States, Netherlands, Thailand, Belgium and Singapore among other countries. Between 2001 and 2007, Changyu had only four wineries in New Zealand, Beijing and two provinces of Shandong and Liaoning (Underwood 5).

The company promoted these wineries at wine culture clubs and eventually managed to get more consumers to come aboard. This was in line with the “4+1” strategy that the company had earlier adopted.

The strategy involved opening four chateaus and developing a single core product. In most chateaus that came up after the initial trial, the Jiebaina was the core product that was promoted (Underwood 4).

Changyu increased its distribution network by employing more people in its sales team. Jenster (cited by Underwood 4) notes that in 1989, the company had only three sales people. In 2006 however, the company had a record 1500 sales people.

In 2008, the company was working with a web of wholesalers throughout China to distribute its products to 3,000 nationwide retail outlets. In 2009, Yan reported that Changyu had adopted a vertical distribution in 2002 with the aim of addressing some of the challenges that the company faced with powerful distributors (11).

With such distribution, the company was able to break down the control of sale terminals from the distributors and give the control back to the company. Changyu did this by sending regional sale representatives to the main sales regions.

The action to send the sale representatives to specific regions weakened the power that distributors had on the company’s products and consequently helped the company to achieve control of all the terminals in its sales networks. Yan reports that this approach enhanced distribution of the company products and also improved sales (10).

In a report filed by CCTV in 2006, Changyu’s General Manager was quoted as saying that the company had constructed a distribution network in more than 40 regions and countries in preparation to rolling out an international brand.

“We will purchase wineries in Australia, France and Italy when the right time comes” Hongjiang (quoted by CCTV broadcast 3).

In 2008, Changyu invested 200 million Yuan in promotional activities of the Jiebaina Brand. The company also put up a new product line for the brand and also improved its manufacturing technology (Yan 3).

Overall Industry Context

Changyu’s performance since its return to the active market in 1989 has been a story of one success after another. Its “4+1” strategy has worked well with the consumer to restore the Chinese confidence in their locally brewed wines.

The winning of a court battle in 2007 in order to retain the Brand name “Jiebaina” for its red wine had positive outcomes for the company, because the Chinese had come to associate the “Jiebaina” brand (although different wine brewers used the name for their red wines) as an authentic Chinese brand.

Relationship with marketing

In the Chinese Market, Wine is categorised as a fast moving consumer product. Changyu’s main competitors in the Chinese market are: Dynasty and Great Wall. According to CN wine news (a), Dynasty and Great Wall concentrate their marketing activities on restaurant channels (12).

Chang Yu on the other hand markets 55 percent of its products to the retail market. Statistics on China’s wine marketing trends indicate that restaurants account for 51 percent of the market share, while retail channels account for 49 percent of the market share.

From this statistics, it is therefore apparent that the Dynasty and Great Wall concentrate their marketing efforts on the 51 percent market share (which they have to share), while ChangYu concentrates on the 49 percent market share represented by the retail outlets.

The retail outlets gives the marketing department in ChangYu quite a number of marketing platforms since the retail channels comprise of supermarkets independent food shops and specialty shops (Yan 12).

Like every other fast moving consumer product, there must be an existing good working relationship between sales and marketing in Changyu. This is especially so because sales usually depends on the amount of efforts that the marketing department puts in place.

In Beijing for example, CN wine news (b) notes that Changyu faces stiff competition not only from the main competitors mentioned elsewhere in this essay, but also from small wineries which sell their products at relatively low costs (4).

In spite of the competition however, the sales for Changyu products have remained constant over the years especially in the restaurants and retail outlets.

To uphold this, the marketing department in the company have had to enter into an agreement with Donghaixinye Trading Co., which is responsible for the placement of Changyu’s two brands (Cabernet and Castel) in Beijing (Styles 4).

In this market, this action by the marketing team has enabled the sales department to record 35 million Yuan in the Beijing’s 800 people high end market and 45 million Yuan in the middle and low income target market.

Changyu’s preference within the Beijing market is rated at 35 percent, something that is credited to the marketing efforts by the company towards placing its products more strategically in the highly competitive market.

CN wine news (b) further reports that Changyu has taken advantage of the Chinese high patriotism, which means that most people prefer local wines than imported wines (4).

Since Cabernet and Castel are two of its brands that target the high-end market, Changyu specifically markets such in high end hotels in major towns where the wealthy Chinese patrons frequent. To beat competition, Changyu like other players in the wine sector also carries out promotions and sells consumption packages at reduced costs during holidays (Wine China 2).

The wide range of wine and alcoholic beverages, Changyu is able to tap into both the brand –conscious consumer market that attaches quality to the specific brands, and the price-conscious consumer market, which is easily swayed by prices and promotions.

According to CN wine news (b), majority of the middle-class and low income earners falls in the latter category. Incidentally, any market player intent at selling volumes has to focus their marketing efforts on this category of buyers, since the majority of the population in china are middle income earners (16).

Market statistics indicate that young people who have fewer commitments in life, and have just entered the job market are more willing to spend money on entertainment.

Compared to the senior citizens, CN wine news (b) notes that wine selling at 250 to 300 Yuan has more appeal with the young population, while the senior citizens tend to prefer wine priced between 10-35 Yuan. Middle aged wine drinkers on the hand prefer wine priced between 40 and 60 Yuan (45-52).

Developments in China’s Wine Industry

With Changyu being among the three biggest wine makers in the Chinese market, the growth of the wine industry has worked to the company’s advantage. Together with Dynasty and GreatWall, Changyu enjoys 50 percent of the Chinese wine market share.

The remaining 50 percent is shared by other local wine makers as well as international wine imports. Collectively, the three leading wine manufacturers (Changyu, Dynasty and GreatWall) earn 67 percent of all profits generated in the industry (China Business Intelligence 6).

According to China Trade Gateway, the Chinese wine markets has started experiencing the positive effects of a booming economy, where a considerable number of the population acquires purchasing power and are hence able to spend on consumption patterns which were previously seen as a preserve of the rich (1).

In addition to consumers purchasing alcohol for purposes of using the same at home, the increased entertainment venues which serve wine as one of the main alcoholic beverages is another consideration that will enlarge the wine market in the country (Styles 3). Being one of the large wine companies in the company, the recent trends can only mean better sales for Changyu.

Critical Evaluation

Changyu’s selling approaches is seen to be serving the company’s interests well so far. The company seems to have a clear target market for each of its products and also seems to have a strategic position in the market.

While the company has some of the premium wines meant for the high end market, it seems to recognise that volume of sales in a business do matter and have hence designed specific products to cater for the emerging middle class income earners.

The court battle won against other wine makers over the trademark of the name “Jiebaina” seems to be working well so far. Before winning this court case, which will eventually mean that Changyu is the only company that trades its red wine under the Jiebaina label, the name was used as an antonym for red wine (Underwood 8).

The effect of the sole ownership on the red wine brand manufactured by Changyu will most probably be an increase in the sale volume of this specific brand of wine. Reports by the CN wine news (a) indicate that apart from the Chinese people buying local made wines out of patriotism, they also consume red wine more due to related health benefits (45).

The recognition of the wine maker in international wine circles also means that its products can now target an international market just like other international wine makers do. Luckily for the company, the wine quality seems to be satisfying both the domestic and international markets meaning that product quality is one of the company’s strong marketing strategies.

Conclusion

In most consumer products, sales are a direct resultant of marketing, whereby the right product is sold to a specific market at the price most appropriate for that market. How a product is branded or packaged and promoted also contributes significantly to the volume of sales that a product attains in a competitive market.

Other factors that affect sales include product placement and distribution. By placing the product in outlets where the intended consumer can easily see and purchase the same, the product manufacturer is more likely to register increased sales.

For Changyu, the distribution in the Chinese market looks like a well thought strategy that not only makes the products available to the mass market, but also one that seals any loopholes that may create dependence on the distributors.

Overall, Changyu sales continued on an upward trend even in the middle of the recession. This could only mean that either the quality is extremely good that people still bought even when the economic times were hard, or that the marketing of the products still continued irrespective of the recession.

A third alternative would be that the target market Changyu’s products were not as severely affected by the recession like other people were. Whatever the case, it is evident that Changyu made profits when other companies (especially) in other sectors were complaining about reduced consumerism.

Works Cited

CCTV broadcast. Construct Global Distribution Network, Create International Brand. 2006. Web.

ChangYu. Getting Better with Age. 2004. Web.

China Business Intelligence. China’s Wine Industry development and Import Analysis (Part 1): Bright prospects for China’s Wine Market. 2008. Web.

China Daily. The predicts for Chinese wine industry of 2008. 2009. Web.

CN wine news (a). Wine sales of Changyu Jumped to No. 7 in the World. 2007. Web.

CN wine news (b). China’s Wine Industry development and import Analysis. 2009. Web.

Styles, Oliver. China to become leading wine producer? Decanter Newsletter. 2008. Web.

Underwood, Laurie. Winning Strategic case 1: Up the price ladder with Changyu: China’s Oldest wine producer moves upscale, heads offshore. 2009. Web.

Wine China. Changyu. 2008. Web.

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