China is on its way to becoming the second-biggest wine market in the world as Chinese tipplers grow increasing fond of the grape, and now one Israeli winery is set to get a piece of the action.
Hayotzer Winery, a unit of the Arza Winery, has reached an agreement in principle to help the Chinese group Hubey Pengdun to set up an $8 million winery in Hubei Province and advise it on viticulture and winemaking, Guy Edri, Yayotazer’s CEO told TheMarker.
Under the terms of the agreement the two sides are now discussing, Hayotzer will get a 20% or 25% stake in the new venture, which will take two years to erect once it’s received all the regulatory approvals.
“In China, those who know Israel admire us because of our high-tech and admire the Jews because of history going back thousands of years and our Nobel Prizes,” Edri said, explaining why a Chinese company would turn to Israel rather than France or Italy for wine expertise.
Chinese wine consumption has experienced double-digit growth in recent years and by one estimate by the year 2020 it will have surpassed France and Britain to become the world’s second largest business market after the United States. That adds up to $21.7 billion in sales in 2020.
Even now, Chinese wine consumption amounts to 1.5 billion bottles annually. Only about a quarter of that, mostly cheaper labels, are produced locally; the rest comes from imports, mainly from France, Italy, Spain and Australia.
Israel, by comparison is a small player. Just six years ago, exports of Israeli wine to China were nil. Last year they totalled $570,000, or 1.4% of total exports. And that was down by more than a third from the record year of 2015.
Hayotzer first made contact with executives from Hubey Pengdun at an international wine exhibition in China last year during which they won an export order for 40,000 bottles. From there, said Edri, the two sides began talks on wider cooperation.
Arza, Hayotzer’s parent company, is Israel’s fifth-largest winery, producing about five million bottles annually. Owned by the Shor family and based in Mishor Adumim, Arza’s history goes back 170 years, but it was known as a maker of kosher wines for kiddush and sacramental purposes.
Under the direction of its French-born winemaker Philippe Lichtenstein, Hayotzer was formed as a high-end label for the international market, following the trend elsewhere in the Israeli wine industry over the last two decades. Its strategy is to sell large quantities of quality wines at affordable prices – for example a wine aged one year sells for about 35 shekels ($9.80) in the Israeli market.
Today, said Edri, Hayotzer produces about 300,000 bottles annually and last year had a turnover of about 60 million shekels, but its goal is to reach one million bottles.
Edri said that if the two sides reach a final agreement, the winery will be built in the Hubei city in Jingmen, with vineyards established in the surrounding countrywide. Hayotzer will provide advice on grape-growing,what equipment to purchase, as well as plan the facility and develop a business plan. The goal is to produce one million bottles in its first full year of production, said Edri.
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