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Sacramento Bee-Chinese wine buyers visit Lodi

LODI – With bottles ready for tasting, a group of Lodi wine producers waited
anxiously Friday morning for a delegation of monied business people they hoped
to impress. The vintners burst into applause when the group finally arrived,
over an hour late.

These honored guests weren’t Hollywood moguls or Silicon Valley venture
capitalists. They were potential customers and investors from the city of
Shenyang in northern China, coming to check out Lodi as a potential source of
affordable wine to supply China’s rapidly growing market.

A second delegation from Shanghai is scheduled to visit Lodi today, exploring
potential business partnerships with the state’s largest wine grape growing
region. Chinese investors are also eyeing Northern California vineyards.

The rising middle class in China and other Asian-Pacific countries is fueling
one of the wine world’s fastest-growing markets. According to the McKinsey
Global Institute, China is expected to add 235 million consumers by 2020 and
will account for 20 percent of the global luxury market by 2015.

U.S. wineries exported $62 million in wine to China in 2011, a 42 percent
increase from 2010, according to the Wine Institute, an advocacy group for
California’s $61.5 billion wine industry. Exports to Hong Kong jumped 39 percent
in the same period, to $163 million.

Those numbers – while small compared with the total market – have grabbed the
attention of Northern California wineries looking for alternatives to the
cutthroat competition of U.S. wine sales. California wine makes up 90 percent of
U.S. exports.

“If you structure the deal correctly, it’s both safer and more profitable to
sell to China than it is to sell domestically,” said Frank Gayaldo, director of
international development for the Lodi District Chamber of Commerce and
organizer of Friday’s tasting.

“Imports are eating up roughly 20 percent of our domestic (wine) market, and
it’s difficult for small wineries to get good distribution contracts.”

One Lodi winery at Friday’s tasting already sells more wine in China than in
the United States. Benson Ferry Vineyards has shipped wine to China since 2007,
mostly to Beijing. It exported 2,000 cases of pinot grigio and 4,000 cases of
merlot in May.

“There’s over 80 wineries in Lodi, and we’re just one,” said Wendy Stokes,
who oversees sales and marketing for Benson Ferry. “Right now, China’s an open
market and we’re looking to expand in all parts.”

Along with a growing taste for designer clothes and high-end watches, China
and other Asian nations are deepening their thirst for wine. At first, Chinese
consumers were interested mostly in elite California brands and highly coveted
“first-growth” French wines, such as Chateau Petrus and Chateau Lafite
Rothschild, which sell for thousands of dollars per bottle. Now, a softening
Asian economy has led to more interest in value-friendly California brands, such
as those from Lodi.

“They’re looking at Lodi and even Napa for bottles in the $20 to $30 range
that are tasting good,” said Turino Fuad of VINX International, Inc., a Gold
River wine brokerage. “As brokers, we continue to educate our partners about
where wines are coming from. What is Lodi known for? What is Amador know for?
China’s learning the market faster than we think.”

France still leads other countries for wine exports to China, followed by
Australia and Chile. Market share for the United States remains small, about 5
percent, said Rex Zhang of the U.S. Agricultural Trade Office in Shenyang, who
accompanied the Chinese delegation Friday.

“In my area it’s even lower,” Zhang said of Shenyang. “Americans consume
about 80 percent of their total production, and haven’t had to depend on the
overseas market that much. Now, they’re seeing big potential in China.”

Other members of the delegation included Yuan Tuo, a sales manager for
Shenyang Wine Fairy Tales Trade Co., and representatives from Shenyang Jiatong
Trade Co. Along with a morning tasting near downtown Lodi, the delegation toured
Sorelle Winery on Highway 88, Omega Vineyards & Winery and Oak Ridge

“At the beginning we knew California, then we knew Napa and now Lodi,” said
David Hua of the Dalian Wine Association, who acted as a consultant for the
delegation. “I enjoy (Lodi wines), but they’re a little different. It’s a little
sweet, but easy to drink.”

California wineries are selling more of their product to other Asian
countries as well. U.S. exports to Japan rose 39 percent in 2011, to $105
million. Sales to Vietnam jumped 266 percent – to $21 million.

Exchanges between Lodi wineries and Chinese business delegates started in
2008. The Wine Institute has also organized trade missions to China with
California vintners for 12 years, including a California delegation to Hong Kong
in May representing 250 wine brands.

The Wine Institute has targeted China with an ad campaign that joins the
words “Discover California Wines” with images of the Golden Gate Bridge.

The Chinese aren’t interested in buying only California wine. Increasingly,
they’re also looking to buy the wineries and vineyards themselves.

The high-end Sloan Estate Winery, which offers some bottles for upward of
$600, sold its property to a Hong Kong conglomerate in 2011 for $40 million.
Also last year, Zhang Winery of China purchased Napa’s Frazier Winery out of
bankruptcy protection.

Other countries have also invested in Napa wineries. The Australian Foster’s
Brewing Group paid more than $1 billion for Beringer Wine Estates of California
in 2000, and Stag’s Leap Wine Cellars sold for $185 million in 2007 to a
partnership that included Italian vintner Piero Antinori. Kenzo Tsujimoto, a
Japanese video game magnate, invested $100 million for his high-end Kenzo Estate

Gayaldo recently met with an investor from Shanghai who was interested in
purchasing a Lodi winery.

“I’ve received a couple of inquiries where companies are looking for a
workhorse winery that can produce ultra-premium wine at medium prices, and
nobody can do that better than Lodi,” Gayaldo said.

Though Friday’s exchange wasn’t specifically for scouting vineyards, Zhang
said that some Chinese investors are eyeing such investments.

“Now that the economy in China is slowing down, (business people) don’t want
their money to depreciate and some want to move their money to other
industries,” said Zhang. “After tasting, they feel the U.S. has very good wine.
They’re really impressed and think, ‘Here is some proper vineyards and maybe I
can invest in that.’ ”

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