Imports of French Wine in China

Report on French wine from France to China

France shared about one third of the import wine market in China. And China is now the fifth biggest export destination for French wine. In Figure 1, we briefly describe the main process of French wine from France to China.

Figure 1. Main Process of French Wine Supply chain

The supplier in the supply chain is the French vineyard. The manufacturer, winery, purchase the grapes from the vineyard and ship the wine to bottling estate. The French wine import company, as the distributor, import different brands of French wine and then distribute all the French wine to retailers in China such as Carrefour and Walmart. At last, Chinese customers can buy French wine from these retailers. Regarding to the organizational network in this case, wineries or agencies of the import companies play the role of shipper. And the import companies play the role of consignee. At port of arrival, the financial flows are from import companies which is the distributor to the forwarder and bank; from forwarder to customs, inspection authorities, on carriers and shipping line agent; from shipping line agents to port authorities, port services, customs and terminal operators. At port of departure, the financial flows are from shipping line agents to port authorities, customs, port services and terminal operator; from forwarders to insurance companies, pre-carriers and shipping line agents; from wineries or agents of import companies, which are the shippers in this case, to the forwarder. And connect the organizational network in ports of departure together with the network in ports of arrival, the financial flow also exists from banks in ports of arrival to banks in ports of departure and from banks in ports of departure to the wineries or agents of import companies. When it comes to the logistics network, the goods flows generally follow the main process of the supply chain. Wines are bottled by bottling estates and stuffed in empty containers and then transported to the export terminals. Containers with wines then collected and loaded on sea vessels and arrive import terminals. At last, after discharged from sea vessels, wines can be collected by import companies and distributed to retailers. If we put the supply chain processes into a cycle view, the procurement cycle is between wineries/bottling estates and vineyards/bottles suppliers. The manufacturing cycle is between wineries/bottling estates and French wine import companies. The replenishment cycle is between French wine import companies and retailers such as Carrefour and Wal-mart. And the customer order cycle is between retailers and customers such as restaurants and individuals. On the other hand, if restaurants or other customers place orders directly to the import companies, the import companies bypass the retailer such as Carrefour and Wal-mart, then the customer order cycle will be between customers and import companies, and the replenishment and manufacturing cycle will be between import companies and wineries. If we put the supply chain in a push/pull view, retailers execute the process in the customer order cycle after the customer order arrives. All processes that are part of the customer order cycle are pull processes. And other processes from suppliers to retailers are push processes because they respond to speculated rather than actual demand. If we also take direct order from customers to import companies into consideration, the push/pull boundary will be between import companies and customers, and import companies will be the actual retailers in this situation.

There are several transport activities involve in French wine. First, vineyards ship fresh grapes to the wineries. Second, wineries will use the producing process to brew wine. Third, wines will be transported to bottling estates to subpackage them to wine bottles or just handled by bulk in barrels. Meanwhile, empty bottles and corks are transported to bottling estates for bottling French wines. No matter what kind of packages, bottles or bulk, wine will be loaded to containers. The containers which load wine bottles or barrels will be shipped by sea transport or air transports.

Figure 2. Sea transport route from France (Paris) to China (Shanghai)

The sea transport route from France (Port Rouen) to China (Shanghai) is mainly through the Suez Canal and showed in Figure 2. After wine arrive at the port, they will be stored in warehouse of distributors. When Distributors received orders from retailors, they will ship the wine to retailors’ warehouse and customers are able to purchase French wines from retailors, just like Wal-mart or the shop of vintner. On the other hand, some big customers, for instance, hotels will give orders directly to the distributors to get French wine and they store wines in their cellar.

The main packages used to transport wines are barreled or bottled, they will all be loaded into containers for further sea transport or air way which we mentioned above. However, bottled wines are more popular than bulk ones to individual custumers and restaurants. Due to glass bottles are fragile cargo, transport requirements are undoubtedly more higher than normal goods. Reefer containers are requested for several types of wines to maintain the transport temperature at about 10 degree centigrade, which cause transport costs for wines are higher. For French wines, storage and handling procedure happen in all process of supply chain. The storage of fresh grape in vineyards and wineries. The wines stored during manufacturing procedure and warehouses of distributors and retailors. The main handling process of French wines to China is container ship voyage and showed in figure. After arriving at China port, wines will be discharged from containers and sent to distributors’ warehouse. Finally wines will be delivered to final destination that is retailors’ shops according to retailors’ order. This is the main logistics network design of French wine to China.

To assess important supply chain characteristics of French wine to China, we have to understand French wines’ characteristics and their customers. The transport requirements of French wines are high due to the frangibility of glass bottles and a constant temperature is requested in the whole supply chain of French wine. On the other hand, French wines are variable and classified to different levels, from Vin de Table to A.O.C so that target customers are totally different. As a result of that, the uncertainty of French wines to China are higher than normal beverage supply chain, such as fruit juice or bears.

From the book of Sunil Chopra and Peter Meindl, supply chain responsiveness including the definitions: “Respond to wide ranges of quantities demanded; Meet short lead times; Handle a large variety of products; Build highly innovative products; Meet a high service level and Handle supply uncertainty”. Based on Chinese custom report，Chinese imports of wines increased from 2.86 hundred million in 2010 to reach 3.95 hundred million in 2012. French wines share about one of third import wine market of China. The quantities and variety of French wines increasingly raised and their characteristics of high value-added than normal beverage require a higher service level. From the question 3, we estimate the transport and warehousing costs of the final product price which we notice the transport cost of French wine to China are higher than normal beverage like Coca-Cola is about 6% of final price. So supply chain efficiency of French wine supply chain is not great due to costs of manufacturing and delivering to customer is not average compared to other beverage supply chain.

“The Great Wall” wine is a famous wine brand in China which manufacture in Hebei Province and all its supplier is from China. It is very clear that the transport cost, labor cost and material cost are obviously lower than French wines that manufactured in France and bottled in France. And the target market of “The Great Wall” is focus on the low-end market so that the price of “The Great Wall” is also lower than some brands of French wines. A normal bottle of “The Great Wall” retail price in 750 ml is about 3 to 5 euro and a French one is about 10 to 15 euro. According to a Chinese wine information website, the profit of French wines in China is about 30%~50% and Chinese wines are only about 11% which is much lower than French wine. From the aspect of supply chain characteristics, Chinese wines are not like French wines, the brand of Chinese wines are much less and manufactured by only several big companies. Due to focal warehouse and manufacture with headquarter in China, Chinese wines supply chain can use minimize inventory and pursue the lowest cost of transport. “The Great Wall” can predict the market more accurate than French wine company and the uncertainty of domestic supply chain is lower.

The conclusion is that “The Great Wall” wine compared to French wine supply chain is less responsive. However, its supply chain efficiency is greater than French brands imported from France.

After evaluating the supply chain of French wine from France to China and comparing it with local brands, we conclude that the supply chain has some disadvantages as follows. Firstly, due to the sea transportation part, the transportation costs are much higher for French wine than those for local brands. Secondly, a French wine costomer places greater emphasis not on quantity of the product but the product variety and response time than on cost. So that wineries need to base their competitive strategies on costomer priorities. However, also due to the sea transportation part, wineries may fail to response immediately to costomers’ orders of French wines of different year. For example, once a costomer want one bottle of French wine produced in 2004, and he can’t find it in Carrefour and Wal-mart, he will turn to local brands’ products. To solve this problem, our idea is to build a new vineyard and chateau in China. Through this new strategy design of supply chain, wineries are able to transport French wines by road or railway instead of sea transportation, which can dramatically reduce the transportation costs for wineries. Furthermore, wineries don’t need to cooperate with import companies anymore and take over the role of distributor, which can increase the supply chain ownership. Last but not least, this new supply chain strategy also fit the competitive strategy better since wineries can response immediately to costomers’ priority of product variety. On the other hand, it takes time for wineries to build local vineyard and chateau in China, so they have to keep the old supply chain strategy before the local vineyard and chateau are built. Besides, the investment in China also influence the profit of wineries in the short run. But we believe that the new strategy is much better and it worth the investment in a long run.

References

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5. Anonymous (2012), “Statistics report about 2012 Import wines”, wine.cn, http://www.wine.cn/html/201302/17560.html derived in 2015.1.11
6. Great Wall Wine Staff (2015), “ Brand Introduction of Great Wall Wine”, Great Wall Wine, http://www.greatwallwine.com.cn/pinpaijieshao.html derived in 2015.1.10