CHARLES Wu, chairman and CEO of winekee.com, the first and arguably most experienced wine B2C website in China, believes the key to his survival is never positioning his company as an e-commerce provider.

The Chinese wine industry, which has relied to a large extent on government entertainment, has suffered since President Xi Jinping launched his anti-corruption policy in 2012.

After a decade of uninterrupted growth of about 25 percent annually, Chinese wine consumption paused in 2013 for the first time, dropping 2.2 percent, according to this month’s report by Vinexpo Asia-Pacific, Asia’s largest wine expo.

Now industry insiders are placing their hopes on e-commerce targeting individual customers, a segment that has maintained rapid growth. With a very small base, the marketing share of e-commerce has increased continuously, ranging from 5 percent to 10 percent, according to insider reports. But there are serious problems lurking as the sites compete hard on price, the 49-year-old entrepreneur pointed out during an interview with Shanghai Daily in his Shanghai office.

A bottle of Yellow Tail 2013 Shiraz (a popular wine in Australia) sells for 69 yuan (US$11) at wangjiu.com. Wine Searcher (the world’s most authoritative wine price comparing system) shows that it is sold for 64 yuan in Australia. Given that China’s mainland tariff on bottled wine is 48.2 percent, wangjiu.com clearly is selling the wine at a loss.

“Selling wine at a loss is so popular in the Chinese e-commerce industry,” Wu says. “E-commerce providers don’t rely on making money from all of their wine, but market wine as a ‘sexy’ product to attract the first round of VC (venture capital). They use that to win the price war and contend for market share that is persuasive enough to attract the second round of VC.”

The money coming from VC firms, which invest based on the potential to sell wine to China’s huge consumer market, leads to e-commerce providers making headlines, boasting that they are “the biggest e-commerce wine provider in China.”

“This business model is highly risky,” says Wu. “If the company can’t get the third round of VC, it will die.”

Although Wu declines to comment on his competitors, the news of yesmywine.com, China’s biggest e-commerce wine provider, suffering from a lack of venture capital is on the lips of wine professionals.

That also leads to e-commerce and the brick-and-mortar wine industry facing off. Wholesalers and retail shops accuse the online sellers of fixing the price too low and raiding the market.

Winekee.com, founded in April 2006, has never raised venture capital. It has maintained a 70 percent annual growth in turnover in the last four years.

This year, ASC, China’s largest wine importer, chose winekee as one of its six authorized sellers of DBR Lafite, which owns Chateau Lafite Rothschild among other Lafite names.

The company also became the second authorized seller of Concha Y Toro (Latin America’s largest wine producer) in China.

Wu attributes his success to his never positioning winekee as an e-commerce provider but instead as a wine importer and distributor.

“E-commerce for me is just a selling tool, which is more vibrant than traditional retail channels,” he says.

He keeps his prices low by importing wine himself, cutting out the middleman, except for a few he sources from big distributors such as ASC. The wines he directly imports contribute to 80 percent of his company’s annual profit.

He has assembled a competitive management team to build relationships directly with wineries, which eases the financial strain and marketing.

The average age of his vice presidents is 30. All of them have overseas backgrounds, which helps their communication with wine producers.

“We are given long payment terms and can often invite winemakers and vintners to support our wine tasting,” says the CEO.

Winekee is also the first and only B2C wine website in China with both Chinese and English versions. That helps expats, who often lack options in buying wine at reasonable prices.

“It’s also part of our marketing,” Wu says. “The language barrier results in many Western wineries suffering from being unable to know how their wine and brand operates in China.”

Spot the trend

The Shanghai-born entrepreneur showed what may have been a shrewd business sense in the last several years. Many wine companies were blindly pursuing Bordeaux first growths (the highly expensive cream of the crop of Bordeaux wines), especially Chateau Lafite and Chateau Latour, which are popular among government officials. But Wu targets middle and low-end wines to attract private wine lovers.

“I didn’t think that kind of distorted wine consumption would last for a long time. How can you imagine the wife of a police inspector in a small Chinese town, also the owner of a restaurant selling wine, undertakes the government entertainment of the whole town!” says the businessman.

He says that the wine-consuming power in China is moving to the increasingly large middle class — people who are well-educated and  pursuing quality of life.

“Their (middle class) consumption concept is now at a turning point, from drinking wine to enjoying good wine. They expect to know more about the wine, including the vineyard and winemaker behind the bottle. It’s a natural change after three to five years’ drinking experience,” he says.

Under that new situation, Chinese are beginning to select their wines based more on palate than label. Wu anticipates that Chilean wine, known for its smooth character and reasonable price, may be as popular as French wine in the near future.

“We (Chinese) deeply appreciate smoothness and directness, which can be proved by our loving baijiu (distilled spirit made from sorghum),” says Wu.

According to the Shanghai Customs, France occupies 45.4 percent of China’s imported wine by volume, with Chile in a distant second place with 11.9 percent in the first quarter of this year.

Wu is now working with ctrip.com, one of the nation’s biggest travel agencies, to launch a Chilean wine tour.

“If customers have been to the winery, meeting the vintner and strolling along the vineyards, they usually have a lifelong loyalty to that wine,” Wu says.

One of Wu’s friends calls him “a textbook Shanghainese businessman, comparatively conservative, not too aggressive, steady and pragmatic.”

Most local wine professionals barely know of winekee. Their general impression is that it’s low-profile, rarely making headlines.

“It’s a company having survived in the wine industry for a long time. Strangely, it seems to be never pressed for money,” says Roger Hou, co-founder of wineyun.com, an e-commerce provider based in Shanghai.

Wu’s personal background may be the cause of the confusion.

“It is inherently my side business, my hobby,” he says.

Wu is mainly involved in construction and mining equipment. His passion for wine started in 1990, when he graduated from Shanghai University of Finance and Economics with a master’s degree in economics and flew to the US, studying for his MBA in international finance at California State University, Fullerton.

“People, including me, fall in love with wine in California naturally,” he says.

Together with his partners, who are all local media people, Wu established winekee.com eight years ago. It was originally a simple website for people to share their wine experiences. Starting in 2009, the company transformed itself into a wine e-seller. The inspiration came from Wu’s friend, Rich Bergsund, CEO at wine.com, a San Francisco-based e-commerce wine provider that sources wine from importers and has a just-in-time inventory system.

Wu didn’t simply copy that model, but adapted it, particularly drawn to the idea of importing himself and limiting the scale. He says that wine.com “burned more than 1 billion dollars” before it started making a profit.

He’s optimistic of his side business and thinks China will surpass America to be the biggest wine market in the world. The war for wine business is just beginning.

Wu’s favorite wine is Chateau Monbousquet, a Saint-Emilion grand cru classe Bordeaux, that is thick, complex and balanced.

Merits to both business models

The dispute between traditional wine retailers and e-commerce never stops. Stephen Li, China’s leading wine educator and a Master of Wine candidate, analyzes their advantages and disadvantages.

Price and convenience make e-commerce competitive. Without the slotting allowance and rental fee, wine sold on a website can be much cheaper. E-commerce’s home delivery service saves customers time and labor.

However, the logistics can be a big problem. Some e-commerce companies have destroyed wine by shipping bottles across the country with huge temperature differences between areas. Bottles exploding at freezing temperatures and wine deteriorating in hot areas are common.

Traditional retail, represented by supermarkets and wine shops, has its advantages. Customers can sometimes taste wine before buying it, and corked wine can easily be exchanged or returned.