Voluntary Report - public distribution

**Date:** 2007/6/13

**GAIN Report Number:** TW7027

TW7027

**Taiwan**

**Wine**

**Wine and Spirits Market Update**

**2007**

**Approved by:**

![](media/image1.wmf)Keith Schneller, ATO Director

American Institute in Taiwan

**Prepared by:**

Jeff Miller, ATO Marketing Specialist

**Report Highlights:**

The market for wine and spirits in Taiwan, still an important
trendsetter for the Greater China market, has grown significantly since
2001. Distilled spirits continue to dominate sales (54% of total
volume), with whiskey representing the largest (65%) component of such.
While the United States continues to gain ground for its grape wines
among Taiwan consumers, distilled spirits continue to be dominated by
premium suppliers from the U.K. and France. Although U.S. suppliers lack
the cultural cache essential to break into the high-end spirits market,
the market offers significant potential if the U.S. spirits industry
were to take an interest in developing into this very lucrative market.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Taipei ATO \[TW2\]

\[TW\]

**Background**

The Taiwan market for wine and spirits has roots that run long and deep.
Like many markets in East Asia, the Taiwan market has long been familiar
with grain-based alcoholic drinks - both fermented and distilled. The
50-year period (1895-1945) during which Taiwan was ruled by Japan
further inculcated a familiarity and appreciation for rice wine (sake).

Unlike fermented beverages (e.g., grape wines), mainstream western
distilled spirit products fit relatively readily into traditional
Chinese/Taiwanese drinking habits. Brandy, whisky, etc. share
characteristics similar to traditional distilled Asian grain spirits
and, to a significant degree, share a similar qualitative "depth" (e.g.,
in terms of ingredient use, processing / storage methods, and aging) and
inferred "cultural depth" (i.e., drinkers' participation in a venerable
tradition that enhances social interaction, relaxes social barriers and
welcomes discussion and comment).

Brandy and whisky have been an accepted part of life at the top of the
Chinese "social pyramid" for more than a century. Expensive and consumed
almost exclusively in social settings, western distilled beverage have
consistently served as symbols of status, disposable wealth and
indulgence between social/business contacts and friends. Grape wine,
while making impressive gains in recent years in terms of status and
consumption, still lacks the cultural roots that distilled beverages
have in Asian culture, and thus demands more of the consumer in terms of
crossing cultural and taste barriers in order to appreciate and feel
comfortable in using grape wines at the center of social and business
gatherings.

![](media/image2.wmf){width="6.122222222222222in"
height="3.902083333333333in"}

Thus, with their friendliness to the Asian palate, cultural caché, and
high unit price, premium western distilled drinks remain king of the
hill in terms of Taiwan's overall wine and spirits imports by a wide
margin. Distilled beverages (HS code 2208) accounted for 62% and 54% of
overall wine and spirits import volume in 1999 and 2006, respectively.
In terms of distilled beverage categories, whisky dominates (65% of
distilled spirit import volume in 2006), followed by brandy (10% of
distilled spirit import volume in 2006). These percentages are
significantly larger when the same calculations are run based on value
rather than volume.

![](media/image3.wmf){width="5.996527777777778in"
height="3.761111111111111in"}

**The Post-2000 Market**

In terms of volume and value, the wine and spirits market has
experienced a significant recovery since 2000-2001, when economic
troubles in the technology sector, a collapse of the "speculative"
market for grape wine that predominated in the 1990s and general worries
about the spread of avian influenza (SARS) combined to slash consumption
of "social" consumables and significantly reduce the size and frequency
of social gatherings. Distilled spirit and grape wine sales have risen
37% and 221%, respectively, in terms of volume since 2001, with the
whiskey subcategory gaining 76% during the same period.

![](media/image4.wmf){width="4.914583333333334in"
height="2.6256944444444446in"}

The post-2000 market for wine and spirits is significantly more mature
in terms of both importer and consumer sophistication. Pre-2000 imports
focused on traditional old world suppliers and enjoyed relatively high
per unit profits on high markups that took advantage of consumers'
general lack of awareness of labels and prices. Increasing consumer
sophistication with regard to labels, production regions/countries and
quality has fed back to importers who have, since 2000, focused
increasingly on building brands and adding depth to category offerings.
In an era of easy access to overseas retail prices -- especially for
established wine and spirit labels -- Internet savvy Taiwan consumers
can quickly compare domestic sticker prices to those in the United
States, the EU and elsewhere to assess value for money on their domestic
purchases.

Rising consumer sophistication and increased risks for wine and spirits
importers (the result of thinning per unit profit margins) have also
driven importers to improve their handling, storage and delivery
systems. While storage continues to remain a problem for some retailers
and distributors in subtropical Taiwan, most are careful to handle their
stock in conditions properly controlled for temperature and humidity.

![](media/image5.wmf){width="4.613888888888889in"
height="2.466666666666667in"}

![](media/image6.wmf){width="6.416666666666667in"
height="3.6152777777777776in"}

**Opportunities for Growth?**

With increasingly sophisticated consumers at the top of the market and a
growing number of consumers becoming wine and spirits (particularly
wine) consumers at the lower end, U.S. exporters are encouraged to
identify which slice(s) of the market offers the greatest opportunity
for sales and then tailor an appropriate follow-on strategy that
includes selecting an importer / distributor with the appropriate sales
channels and developing appropriate marketing support and training
programs. While it is true that some major wine labels (e.g., those
highly rated by widely-published experts) may need minimum marketing
support for successful sales, most will benefit greatly from a
well-targeted marketing program to make sure a label becomes familiar
and respected among target consumers. Also, national trade offices are,
to varying degrees backing entry of their country's wine and spirits
into the market. Countries with active marketing programs targeting wine
in Taiwan, in addition to the U.S. (California Wine Institute) include
France, Chile and Italy. Significant growth in recent years has
encouraged competitors to increase their attention to this market, with
visible success.

[Grape wine]{.underline}, as a "new" taste to the Asian palate,
certainly has more room to grow in terms of depth and breadth. Wine is
now accepted as a fashionable beverage to enjoy at banquets, low-key
social gatherings, receptions and -- slowly, but surely -- in the home.
Even at the entry level, Taiwan consumers are curious to try different
production regions, varietals and levels. While European-style wines
still enjoy a first-comer advantage, most consumers are aware of New
World wines and recognize California as one of the world's top wine
producing areas.

At the lower end, price remains key. French wines, backed by favorable
pricing from producers and the support of Taiwan's two leading
hypermarket chains (Carrefour and RT-Mart, both French owned), have
continued to press forward with their leading position in the market
with a high volume, low pricing strategy that in recent years has
focused competition for entry level wines on the unprecedentedly low
NT\$199 to 299 price range (approx. US\$6.00\~9.00).

![](media/image7.wmf){width="4.416666666666667in"
height="2.477777777777778in"}At the higher end, quality, marketing and
technical / education support are key to developing and growing label
sales. Carefully vetting and selecting an agent based on their current
product offering and sales channels will go far in ensuring long-term
success. Appropriate marketing and education support, particularly
during the initial stage of business, is typically needed to back
importer/distributor sales and marketing through their channels.

[Whiskey and brandy]{.underline}, as established "status" drinks, are,
to a much greater degree than grape wine, affected by marketing and
fashion trends. Brandy / cognac, heavily promoted and consumed in Taiwan
through the 1990s as a drink of the elite and the successful, has since
been eclipsed by single-malt whiskey as the most fashionable drink with
which to seal strategic partnerships, impress friends and generally
establish yourself as part of the "in" crowd. Label and reputation are
keys to sales, with price (in the mid- and premium-price ranges) often
having a positive relationship to demand.

![](media/image8.wmf){width="4.832638888888889in"
height="2.707638888888889in"}

Single-malt whiskey, purchased with an eye toward image value and
consumed in high value social settings, is a classic luxury product
designed to reflect positively on the buyer. Therefore, as with luxury
products from designer fashion to sports cars, price is of secondary
importance. As illustrated in the two graphs comparing the country of
origin of whiskey sales in 2000 and 2006, whiskey sales have experienced
a major consolidation around U.K. suppliers -- the home of single malt
whiskey -- to the detriment of other suppliers (e.g., Japan, France,
U.S.). This has in turn fueled an even more significant rise in market
value as consumers pay significantly more per unit for U.K.-origin
whiskey than for whiskey from Japan and the United States (see graph
below).

**Landed CIF Value of Whiskey**

**as calculated from Taiwan Customs Data**

![](media/image9.wmf){width="6.499305555555556in"
height="3.842361111111111in"}

In general, U.S. origin spirits, including bourbon, rum, and vodka,
among others, do not offer the caché that U.K. whiskey and French brandy
do. Therefore, market share for such products remains quite small,
largely competing in the mixed drinks and second-tier markets where
price per unit is significantly more important.

However, Taiwan is a dynamic consumer market that both welcomes new
products and offers good potential for product sales in categories where
two conditions can be met: 1) flavor profile / product format fits into
the accepted "universe" of Taiwanese culinary tradition and 2) a story
can be told that captures consumer interest and curiosity. In terms of
the former, distilled spirits, as described above, fit well into
Taiwan's culinary landscape. In terms of the latter, products such as
rum and bourbon draw on traditions that extend back many centuries.
Creating consumer interest and focusing on product attributes that
support the introduction of such products at the "luxury" end of the
spectrum can help open the door for the introduction of the full depth
of offerings available in a given product category.

Taking bourbon as an example, Taiwan is already an importer of major
label U.S. products. However, lack of understanding and promotion of
bourbon as a sophisticated product with a depth of offering similar to
Scotch whiskey, gives bourbon a relatively low profile and keeps
competition along price lines.

Given supply and interest, U.S. industry associations would be in a
strong position to assist bourbon, rum or other spirits of interest to
raise product profiles, develop a market appreciation for product
sophistication and encourage product differentiation to support premium
sales at the top of the market. The success of initial sales at the top
end would have a fair chance of sparking a multiplier effect, as
importers take interest in an area of new market sales potential and
high-end consumers begin to take an interest in a "new" area of culture
and knowledge. As often noted, Taiwan consumers are often looked upon by
consumers in China and Southeast Asia as "opinion leaders" in terms of
fashion and food trends. A successful breakthrough in selling high-end
U.S. spirits to Taiwan consumers can then be leveraged as a platform to
launch similar efforts in China and other key markets in the region.

![](media/image10.wmf){width="6.010416666666667in"
height="3.5319444444444446in"}