The gateway to Asia

Robert Joseph attends the trade fair run by the Hong Kong government, and learns about market development in the region.

Sarah Heller
Sarah Heller MW presents at the HKTDC Wine Industry Conference

When Hong Kong was transformed from a UK colony to a Chinese Special Administrative Region in 1997, no-one could have foreseen that, a decade later,  it would also become a hub of the wine world. As part of that transformation, Hong Kong’s rulers removed all taxes on wine in February 2008, but the launch of an annual exhibition and conference by the government’s Trade & Development Council (HKTDC) was almost as significant. From the outset, this was intended to make Hong Kong a dynamic market in itself, as well as a gateway to the larger prize of the Chinese mainland.

 

Steady growth

This year marked the 11th edition of the HKTDC fair, which was attended by a record breaking 1,075 exhibitors.

As usual, the event began with a presentation of the state of the region’s vinous economy. Imports had risen to HK$12bn ($1.53bn), seven times the figure of a decade earlier. According to Euromonitor International, wine sales in Hong Kong have risen at an annual rate of 5.2% by value over the five years to 2017, with that trend expected to be maintained at 5% to 2022. Last year, the market is estimated to have sold 34.8ml of wine worth $1.62bn, 24% of which was purchased (in value terms) in the off trade. Unlike most other mature markets, Hong Kong remains focused on on-premises wine drinking.

The figures for exports – Hong Kong is a major shipping hub and a gateway to southeast Asia – were less encouraging. After eight years of rising shipments, the graph flattened in 2016 and then turned downwards with falls of 9.3% in 2017 and 28.7% for the first nine months of 2018. This reversal, mostly related to mainland China, is at least partly explained by the fall in world production in 2017, but there were also rumblings that the Chinese pipelines are full of wine that needs to be cleared in order to make space for new stock.

Hianyang Chan of Euromonitor, who was responsible for the internal Hong Kong statistics, spoke at the HKTDC Wine Industry Conference. Moderated by the top local expert and consultant, Debra Meiburg MW, the conference is one of the highlights of the fair.

The Asia Pacific region, Chan explained, is now the second largest destination for wine in the world. As for individual countries, Thailand and India both offer huge potential, he said, thanks to prospects of lower excise duty in the former and growing appreciation of the supposed cardiac health benefits of wine in the latter. Most of Indonesia’s population (87%) may identify as Muslim, but Chan noted that with more than 260m citizens, this country also offers substantial potential for wine exports. Other factors Chan listed were the greater use of mobiles to purchase wine in Asia, the huge growth in outbound tourism – especially from China – and the arrival on the scene of a new generation of middle class wine drinkers.

 

Difficult data

The next speaker was Sarah Heller, who gained her Master of Wine qualification with the help of a research paper on e-commerce and whose educational wine videos have been seen by more than 3m students. Heller began by warning that the statistics for online wine sales in Asia are very unreliable, with estimates ranging from 3% to 15% of market share. In her view, the correct figure is almost certainly above 10% and probably 12%.

The picture is further complicated by the fact that in Taiwan, India and Korea, selling alcohol online is illegal, “but people in Taiwan get round the law”. Sidestepping the rules is far harder in India, where there is a minimum age rule of 25 in Delhi, and where a number of ‘dry’ states forbid alcohol.

There are no legal constraints in Thailand or Hong Kong but neither has proven to be fertile territory for this kind of commerce. In Hong Kong, Heller explained, this is probably because “it already has such good delivery services”.

The prices people pay for wine online vary widely too. In Japan, the mostly older, male buyers happily spend upwards of $45.00, while the leading Chinese digital retailer 1919 has struggled to sell wine priced at $15.00 or more. This is changing, however, with the price ceiling in China rising.

Heller’s research also included an analysis of internet searches. She found that while Japanese consumers commonly look for rare and premium wines, the Chinese are more likely to be seeking sweet and – increasingly – fortified offerings. Rosé, however, seems to be struggling to gain a foothold, which may surprise some industry members, given the growing proportion of Chinese female wine browsers.

Geographically, a predominance of all wine searches are, unsurprisingly, in the south of China, where most wine is sold. Encouragingly for those looking to sell wine outside the crowded markets of Shanghai and Beijing, Heller found that about half of all searches are in so-called tier two cities.

Finally, she addressed the issue of how to communicate about wine in China by showing a set of participants a range of images related to wine that she had found online. These included details of bottles such as labels, corks and punts, but none of these, it seems, appealed as much as lifestyle shots, especially when they included celebrities drinking wine. “The trade is getting it all wrong,” she said. “The pedantic details they think are important don’t matter to young consumers. We don’t talk about how the wine integrates into their lives.”

One example of how to get it right, Heller said, is that of online influencer Lady Penguin, who has more than 1m followers: “She offers education rather than dry reviews.”

Many of Heller’s points were echoed by Cynthia Yang, senior manager of JD.COM, one of China’s two Amazon-like online retailers. It is the leading business to consumer site, with annual sales of 50m bottles across 8,000 brands. Despite these numbers, Yang confirmed that a large proportion of JD.COM’s sales is made up of the big local brands such as Great Wall and Changyu, imports from high-profile brands such as DBR-Lafite, and private label wines, which are known in China as OEM. When challenged by Marcus Ford, formerly of the importer Summergate, Yang acknowledged the difficulty all 2,000 of her suppliers face in gaining visibility. “Yes, it requires marketing,” she admitted, agreeing with Ford that successful brands may have to devote 20% to 25% of their revenue to it.

Yang did, however, support Chan’s optimism about China’s future as a wine market. “We are growing very quickly,” she said. “Sales are up by seven times since 2013, including to new buyers in second and third tier cities.” Astonishingly for some Westerners in the audience, she went on to say that the company now delivers to 99% of the country and “has achieved rates of over 90% same- or next-day delivery”.

Today, thanks to JD.COM’s partnership with Tencent, owner of the WeChat online platform, it can reach more than 1bn Chinese consumers, and the company also has strategic relationships with Walmart and Google, despite the banning of the US giant’s search engine in China.

It remains to be seen how big a part Hong Kong will play in the Chinese and indeed Asia-Pacific wine markets over the long term. But with top executives of companies like JD.COM interested in the HKTDC fair, for the moment at least, Hong Kong’s role seems secure. 

 

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