Hong Kong's wine open door policy

Thursday, 21. December 2017 - 16:00

Hong Kong at night/The Ruester

Ten years ago, Hong Kong was a wine backwater. Today, it is one of the world’s most dynamic wine auction hubs, where valuable wines are traded. Its wine stores are full of fine wines, restaurants have glorious wine lists, and the Wine and Spirit Education Trust courses are full, thanks to a new generation of wine professionals and enthusiasts seeking to improve their knowledge.

In the years after February 2008, when Hong Kong dropped its duty on wine, the excitement was palpable. Despite the global financial crisis, the prices of super premium wines from Bordeaux continued to climb to dizzying heights, particularly in China. Getting the wine into China was difficult and expensive, however, not least because customs officials would take a bottle or two out of every shipment to check its bona fides, even if the shipment consisted of three bottles of the world’s rarest wines.

The pro-business Hong Kong government saw a major opportunity. The harbour city had been a maritime super power for a long time, but it had been smacked by two forces: first, China had liberalised trade rules, causing container ships to divert to the mainland. Then came the global financial crisis, which saw the overall volume of shipping trade decline dramatically. The volume of goods passing through the harbour are a barometer of the autonomous region’s financial health, so the government went looking for ways to increase its shipping trade. It identified wine as a potential cash cow. Not only that, but much of Hong Kong’s population was wealthy and sophisticated, and becoming interested in wine. There were also its many Chinese visitors to consider, who expected Hong Kong to act as a shop window for everything that was worth having or knowing about.

Not only did the government drop all duty on wine, but it also embraced the wine industry.  As Yvonne Choi Ying-pik, the then permanent secretary for commerce and economic development, told a press conference in 2009, Hong Kong had “also introduced a number of supportive measures in area such as customs facilitation, forging closer cooperation with our wine trading partners and counteracting wine counterfeits.”  A wine certification program was devised, to ensure that Hong Kong’s wine storage facilities met the best international standards. And the Hong Kong University Space signed an agreement with the Bordeaux Management School to offer local Wine MBAs, to ensure there was a ready supply of experts on hand.

While other, wilder, plans – such as a Hong Kong Wine Centre that was to run over 13 floors – have not come to fruition, the logistics, storage and educational initiatives have.

Business friendly
“The fair turns ten this year, a decade of success in building the wine business for Hong Kong and Asia as a whole,” said Paul Chan, Financial Secretary, at the opening ceremony. “A decade of achievement in celebrating a culture and the many passions surrounding wine.” Hong Kong is a business friendly city, he went on, remarking that it was the home of the world’s first wine storage certification scheme. “Last year alone, we imported more than 16m litres of wine from over 50 countries and regions, a record value exceeding $1.5bn. This is equivalent to more than 18 million bottles of wine. With a population of just about 7.3 million people, about half the wine imported into Hong Kong was re-exported.”

He also announced that the customs clearance arrangement with five mainland districts of China would now be extended immediately to all 42 custom districts. This means that pre-registered Hong Kong wine traders can submit advance wine consignment information online and have instant customs clearance when the consignments arrive at mainland ports. 

It was an auspicious start to the fair that, as always, offered professional and educational tastings, along with seminars aimed at the wine trade. One such was “Trends to watch in 2018 – the business of bubbles and beyond,” moderated by Hong Kong’s noted wine expert, Debra Meiburg MW, where presenters discussed the wine categories that tend to do less well in Chinese markets, such as sparkling and rosé. First up to the podium was Chuan Zhou, from Wine Intelligence.

He suggested that sparkling wine will be the driving force for wine consumption globally, given that the consumption of still wine is dropping in key markets. There are two fundamental cultural shifts driving this change, he suggested. “The increasing value of social interaction and experience over material goods,” he said. “In Asia, younger consumers are going beyond luxury goods. In the West, we see the experiential products are gaining popularity. Sparkling wine is about memory and experience. It reflects the ‘celebrate because we’re together’ feeling.” Sparkling wine also has a recognition factor. “Consumers can understand that when they see the foil and packaging” it comes with the name ‘cava’ or ‘Prosecco’ or ‘Champagne’, so “they don’t have to understand the varietals, or the difference between Pinot Noir from Burgundy or New Zealand.” 

He noted that Chinese consumers still prefer red wines and, while Japan is the number one Asian market for sparkling, it only consumes one-tenth the amount as Germany. Zhou believes that will change, however. “What we see is that sparkling wine is following the same path as red wine,” he said. “It was also used as a luxury product and for gifting and formal banquets. It’s mainly consumed in night clubs and five star hotels, but that may change as consumers get to know more.” He noted that in Wine Intelligence studies, Chinese consumers had said that drinking sparkling wine makes them feel elegant and sophisticated. “Sparkling dessert wine is popular in China at the moment, with more residual sugar or more floral or fruitier notes.”

Patrick Schmitt MW, editor-in-chief of The Drinks Business, noted that “China represents about 1% of the global market for sparkling wines – 1.2m bottles of Champagne. Sparkling wine is less than 2% of imported wine in China.” He made the suggestion that Champagne might not be the best ambassador for the sparkling category in China, and suggested that riper styles, such as sparkling wines from California or Franciacorta, might have a better chance. 

Debra Meiburg MW suggested there was no reason that Hong Kong residents shouldn’t learn to love rosé and that the greatest barrier was rosé producers themselves. “They talk about dining outdoors in summer – but we don’t dine outdoors in Hong Kong,” she noted. “Then they say ‘it’s a woman’s drink’.”  Her message was that tired stereotypes don’t work in Asia any better than they work anywhere else.

Snapshot of the world
Walking around the HKTDC fair gives a good insight into which countries are on the way up. The Japanese were out in force, pouring their Koshu to passersby and running master classes. The Azerbaijanis also had a large stand, while Slovenia’s deputy prime minister made an appearance, to help promote Slovenian wines. There was even a small Mexican stand showcasing a sweet blue wine, along with bottles of tequila. 

Karla Loyo Quintero, general manager of the Chinese Chamber of Commerce in Mexico, explained that her country – worried as it is about President Trump’s threats to roll back trade agreements with Mexico – is looking for opportunities in China. “We know that Hong Kong is the gateway, not only to China, but also the rest of Asia, and this fair is one of the most important in the region,” she said, explaining why they were there.

Over in the Russian section, Igor Serdyuk, deputy director of Alma Valley winery in Crimea, held an impromptu tasting of his wine range, whose quality has skyrocketed over the past couple of years. He said the winery had come to the fair to “compare ourselves with the level of the international wineries present on the market. We would like to know where we fit in the world.” He also noted that since Crimean products were under European sanctions, they needed Asia as an export destination. “This fair is very professional and people are interested,” he said, contrasting it with other fairs he had attended in China.

However, it was notable that there weren’t many exhibitors from Australia and New Zealand, Hong Kong’s neighbours. Either it’s because they already have distribution – or because they know that Hong Kong is now a hard market to enter.

“I have ten or so enquiries a day from companies trying to get into the market,” said Elizabeth Dorrough, an Australian marketing and event consultant based in Hong Kong. She says there is an ever-growing number of wine producers keen to enter the market, as it’s seen as the doorway to China. Unfortunately, she says, the bias is still towards French wines. Not only that, but “the market is downsizing. A lot of distributors want to reduce their portfolio, not increase it.” 

She noted that distributors are reporting downturns in on premise sales, but upticks in volumes sold, “so the market is mature. People have the confidence and education to make their own decision about wine and they’re buying more in retail.”

Although Hong Kong’s business friendly environment makes it easy to import and set up an independent wine store – which means that brands or regions can act as their own distributor – Dorrough thinks this is rarely a good way to get into the market, and not just because the city’s rents are some of the highest in the world. “Hong Kong is very relationship driven and quite complicated, and if you were just to enter the market, it would be hard to make contacts and meet people.”

Dorrough says that to break into this very competitive market, brands need to think beyond master classes and wine dinners. One surprising trend that she mentioned was selling via satellite television. “Selling via the television and accumulating orders via WeChat is a great way to reach lots of customers,” she said. 

As the HKTDC fair celebrates its tenth birthday, it is worth remembering that it is the same age as the iPhone. When it was launched, there was no such thing as WeChat or smartphone commerce, or a booming online market for wine in China. One thing is certain: in a vibrant place like Hong Kong, the next decade is sure to bring a lot more of those kinds of surprises. 
Felicity Carter