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January 23, 2014

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Golden age of wine e-commerce is coming

Roger Hou, cofounder and chief brand officer at, compares himself to Australian Shiraz and Burgundy Pinot Noir, bold and straightforward, but also subtle and implicit.

The 35-year-old entrepreneur runs the vertical e-commerce side of the business, China’s largest and fastest-growing such platform. Its name will be changed from Vinehoo to jiu yun (literally wine cloud 酒云) to make a clear distinction between sales and editorial.

The sales platform precisely targets customers, focuses on market segmentation and sells boutique wines in the mid- to high-level price range.

The Anhui Province native — known as the “emir” by colleagues because of his wide knowledge — majored in wine studies at Northwest Agriculture and Forestry University in Shaanxi Province.

“It is wine — gentle, changeable and complex — that requires people to be soft, patient and sensitive, otherwise they cannot enjoy it,” he tells Shanghai Daily in a face-to-face interview.

He concedes that he’s not a particularly good businessman, admitting that he sacrifices profits for quality.

“Wine lovers are generally emotional, integrating personal experience into wine. I can’t convince myself to sell wine I don’t like, especially cheap, poor-quality wine,” he says.

However, wine priced from 50-80 yuan (US$8.33-13.33) are the best-sellers in China, he notes.

Hou is one of the first in China to employ flash sales, inspired by American online

It combines scarcity with competition; limited quantity is sold for a short time, often two to three days, at the most competitive price.

The profit is tiny, but upstream wine merchants pay marketing fees. Merchants are willing to pay because of his target customers, Hou says.

“Wine is distinguished by its shared character and very subjective judging criteria. Experienced wine lovers become leading voices directing consumption through word-of-mouth marketing,” he says.

Hou was a pioneer in adding public blind tasting into e-commerce. Before each flash sale, he organizes a blind tasting among 10 to 15 people, including about four wine experts. The remaining spots are open to the public, usually the website’s registered users.

Wines that don’t make the cut are eliminated and around 50 percent are eliminated in each tasting, Hou says.

“This largely ensures quality,” he says, adding that many wines are dropped because they have deteriorated through improper transport and storage.

Blind public tasting also introduces unknown wines not yet rated by leading critics.

Purchasing also becomes more transparent and the “dark sides” of vertical e-commerce, such as kickbacks, are eliminated, Hou explains.

Sometimes there are clashes of opinion between experts and laymen, especially in old wines.

“The public usually dislikes them due to slightly cloudy appearance and aroma, lack of fresh fruitiness and dominance of spices from the barrel,” he observes. “But experts see these as indicators that wine has reached its peak.”

The golden age of wine e-commerce is coming, Hou says, because the market is maturing.

More individual buyers are sensitive to quality and price and are gradually replacing corporate consumers. “That pricks Chinese wine bubbles — unreasonably high profit margins caused by asymmetric information,” Hou says.

He cites the example of Vin de Pays, a French term meaning “country wine.” Each bottle costs around 30 yuan, covering customs and packaging, but it is resold at 200-300 yuan in China. Merchants exploit consumers’ lack of price awareness and tasting experience.

The saving is obvious, and it also changes people from passive to active consumers, Hou believes.

In physical stores, shoppers are not equally equipped to make informed judgment and often defer to sales people.

Online all the information is available, as well as tasters’ experience, much as travelers evaluate hotels and resorts online.

In this way consumers are empowered.

A major problem in wine e-commerce is logistics, because proper storage of delicate wines is costly, and transport costs are high. China has banned transport of wine by air for security reasons.

Transport in very cold and hot weather is a problem, since wines can be damaged, nevertheless, some unscrupulous e-commerce providers deliver wine under the wrong temperatures. Smuggled wine is also a problem and it occupies more than half of the high-end market, both online and off, Hou says.

Some vertical e-commerce websites fabricate so-called market prices, and then mark them down to lure buyers with big discounts.

“Around 70 percent of wine e-commerce platforms are run by people without wine background who don’t learn the wine market,” Hou says. “They focus on website marketing to attract venture capital, resulting in inferior platforms and products. Some have been phased out.”

Hou was attracted to drinking at a very young age when his grandfather dipped his chopsticks into baijiu (distilled spirit) and asked him to taste.

He eagerly signed up for a major in wine studies but found that the domestic wine in the late 1990s tasted horrible. It’s getting dramatically better.

Today his dream is operating a winery with a vineyard.

“For a wine insider having sold and tasted countless wines for years, nothing would be better than creating his own,” Hou says.



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