Is the Chinese government serious about cracking down on online sales of counterfeit wines? Last month, an agency lashed out at Alibaba, the giant e-commerce site, for failing to curb the activities of unlicensed merchants and the sale of fake goods, including wine, on its sites. But the report was quickly retracted, leaving wineries and importers wondering if it was a warning shot or something else.
“The e-commerce market in China is rife with sellers who present wonderful-looking products, which turn out to be of a very different quality once they arrive at a customer’s door," John Watkins, CEO of major importer ASC Fine Wines, told Wine Spectator.
Alibaba, which owns e-commerce platforms Tmall and Taobao, a site similar to eBay, raised $25 billion in its IPO last September, making its founder, Jack Ma, the richest man in China. But Alibaba and Taobao made the United States Trade Representative's “Notorious Markets List” each year from 2008 to 2011. And a search of vendors on the sites will turn up wines with questionable labels and appellations.
Officials from the State Administration for Industry and Commerce (SAIC) first raised the issue of counterfeits with Alibaba executives at a meeting held July 17, 2014, in Hangzhou, prior to the IPO. The officials wanted to discuss a SAIC white paper detailing “the long-term existence of illegal problems regarding the management of transaction activity and other issues,” according to a translation of the report's text. The company began an effort to crack down on counterfeiters using its platforms before the IPO, according to wine merchants.
In January, the SAIC report was briefly made public and reported by Reuters. The SAIC found that Alibaba’s sites were havens for unlicensed merchants selling illegal imports and counterfeits, including fake wine, gambling equipment and wiretapping devices. It also accused Alibaba of allowing illegal advertising, taking bribes and failing to deal with fraud. The report was initially kept confidential so as not to affect the IPO, SAIC officials said.
But two days later, the SAIC posted a follow-up statement on its website saying the report was in fact not a white paper and carried no legal force. "The most recent SAIC posting speaks for itself. We feel vindicated," an Alibaba spokesperson said in a statement.
The incident has triggered concern over the online sale of fake goods, including wine. Many legitimate wine sellers such as Torres, Penfolds, Jacob’s Creek and ASC Fine Wines have stores on Tmall.
Several wine merchants declined to comment on the sensitive issue. Watkins says his team works with Alibaba for ASC’s Tmall shop, and he believes Alibaba is determined to stop the sale of counterfeit goods. But, he admits, e-commerce platforms in China, as in other countries, still need to improve their self-policing.
Currently, the wine trade can unmask a counterfeiter or unlicensed vendor online and ask for the site to be taken down. But nothing stops the fraudsters from relaunching under another name. Alibaba is cooperating with the government to create new regulations, and online retailers say they expect new measures to come into effect.
“The government regards the issue very seriously and is working actively with key industry players to tackle the problem,” said Watkins. The problems are similar to ones experienced by sites like eBay.
“Buying online requires even more vigilance about fakes, said Watkins. "Online purchases are natural targets for counterfeiters, because consumers do not see the exact item they purchase, only a generic picture and description.”
But in China, the stakes are particularly high for the wine trade. The Internet is the fourth-most popular channel for buying wine in China. The U.K. group Wine Intelligence released a study in 2014 showing that 33.4 million Chinese adults drink imported wine and use the Internet. More than 20 million look for wine information online and 16 million buy wine online. Of the top five stores for wine in China, two are online.
The potential for growth is massive. The Wine Intelligence study said 46 percent of the population uses the Internet—roughly 618 million people. Of those, 302 million shop online.
The growth in Internet wine sales and wine education is one of the more recent evolutions in the rapidly evolving Chinese market. And the majority of the wines being purchased online are for drinking rather than gifting.
In recent years, the Chinese imported-wine boom was driven by expensive wine, mainly Bordeaux classified-growths, destined for lavish banquets and influencing officials. That market dissolved almost entirely following the anticorruption campaign the government launched in 2012. Sales have shifted to more modestly priced wines that Chinese consumers uncork and enjoy.
Unfortunately, Wine Intelligence found that the No. 1 barrier to buying wine online was that customers did not know whether the wines they were purchasing were real or fake. “To ensure one purchases authentic products, we strongly recommend online wine purchasers to buy from reputable e-tailers,” said Watkins.
Many companies are awarding exclusive distribution rights in an effort to outsmart crooks. If the wine pops up somewhere else, it’s either being sold by an unlicensed vendor or a fake. In both cases the legitimate distributor and brand owner can take action, explained Watkins. In the case of Internet sales, they can shut down the website.
“We signed up five authorized e-tailers from different parts of China to sell DBR Lafite wines," he said. "If consumers buy DBR Lafite from these e-tailers or from ASC’s shop on Tmall, they can be confident they are buying genuine products.”