According to China Research and Intelligence (2010), distribution channels are still the key factor to success. Since the Chinese and Hong Kong markets show a slight preference for on-trade channels, especially concerning exclusive products such as wine, E&J Gallo Rose concentrates on them (China Research and Intelligence, 2010). According to Hollensen (2011), given that Gallo Rose is a high quality product selective distribution would be the appropriate form of distribution as Gallo Rose would be targeting a specific market.
Gallo would depend on Chinese and Hong Kong wholesalers to distribute the wine to hotels and supermarkets, preferably those whom the competitors are not currently using. Therefore, a range of intermediaries has to be chosen carefully: mid to high price restaurants offering Western food, international pubs and lounges build a trading base. Once the wine is established, cooperation with high class Chinese and Hong Kong establishments could be considered. However, a presence in high segment supermarkets will be obligatory to make the product accessible.
Jenster and Cheng (2008) stress the rise of other off-trade channels, such as specialty wine stores and online wine-sites. The former is particularly important for new Chinese wine drinkers. The latter will be a part of Gallo’s distribution chain as soon as it reaches a higher market share. As outlined by Bretherton and Carswell (2001), the Chinese distribution system is improving slowly. To set up in Hong Kong and coastal areas of China is relatively easy, as the infrastructure is excellent. Direct exports with the support of an executive office are sufficient.
Nonetheless, further expansion will conflict with trade barriers and local protectionism. Areas have to be treated separately and high transaction costs are necessary to build own distribution channels. However, the advantages of higher reliance and lower control costs are obvious. Import taxes in China are lowered according to WTO agreements (9), but still 14% (Yu and Sun et al, 2009) plus value-added and consumption tax. On the other hand, Hong Kong tries to create a wine trading hub with the exemption of import taxes since 2008 (Winechina. com, 2010).
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