Wine Industry in Hong Kong

An Expert's View about Food , Beverages and Tobacco in Hong Kong SAR

Posted on: 28 May 2012

Wine Industry in Hong Kong
• Hong Kong's wine industry is supported by a significant pool of experienced fine wine merchants with good wine knowledge and international wine trade experience. Besides wine trading and distribution, wine-related business includes auction, retailing, warehousing, catering and transportation.
• Since the removal of all duty-related customs and administrative controls in February 2008, Hong Kong has further developed into a wine trading and distribution centre for the region, particularly the Chinese mainland.
• Hong Kong is the only place in the world that has entered into an agreement with the mainland Chinese Government, allowing wine imports to go into China under CEPA and enhanced customs facilitation measures.
Industry Features
Hong Kong has a significant pool of experienced fine wine merchants with good wine knowledge and international wine trade experience. Amid the growing demand for wine in Asia, the Hong Kong government removed all duty-related customs and administrative controls for wine in February 2008 to facilitate the development of Hong Kong as a wine trading and distribution centre for the region, particularly the Chinese mainland. Besides wine trading and distribution, wine-related business includes auction, retailing, warehousing, catering and transportation.
Following the deregulation, development of the wine industry has accelerated. Wine imports surged some 80% in the first year. According to an ad hoc survey carried out by the Commerce and Economic Development Bureau to evaluate the economic benefits of wine duty exemption, about 850 new wine-related companies were set up in Hong Kong in 2008 and 2009, bringing the total to 3,550; the wine sector as a whole gained HK$5.5 billion worth of wine-related business receipts in 2009, representing an increase of over 30% as compared with 2007; and the number of employees engaged in wine-related business increased by more than 5,000 as compared with 2007, reaching 40,000 by the end of 2009. This increase in employment was equivalent to about 1,000 full time jobs, 60% of which were for front-line staff; and the number of wine-related manpower and professional courses (including sommelier training as well as wine business/management courses) grew from 21 in 2007 to 86 in 2009. The number of participants in these courses reached over 8,500 in 2009, representing an increase of more than two times as compared with about 2,400 participants in 2007.
Hong Kong is the only place in the world that has entered into an agreement with the mainland Chinese Government, allowing wine imports to go into China under CEPA and enhanced customs facilitation measures. This makes the city an unrivalled gateway to China, attracting industry players from around the world to launch or expand their business in Hong Kong. Hong Kong, being a duty-free port with good air connectivity and storage facilities, is regarded by Asian investors as the most cost-effective and convenient distribution hub to store their investment-grade wines for delivery to their markets on-demand.
Since the weather in Hong Kong is not suitable for growing grapes, there is only very little wine production in Hong Kong, and therefore insignificant domestic exports. Virtually all exports are re-exports of imported wines to Asian markets. Chinese mainland and Macau, taking up 90% of the total in 2011, are the major wine exporting destinations of Hong Kong.
On the other hand, Hong Kong’s wine imports have maintained strong growth in recent years amid the development of the industry. In 2011, the value of wine imports reached HK$9.8 billion, up 40% as compared to 2010. Most of these wines originated from European countries such as France and the United Kingdom, but there has also been a significant share coming from the New World such as the USA and Australia.
In volume terms, Hong Kong imported some 48 million litres of wine in 2011, up more than 20% from 2010. In other words, the unit price of imported wine went up by some 20% in 2011. About 38% of the imported wines were re-exported in 2011. The rest – about 60% of wine imports were brought away from Hong Kong by individuals or retained in Hong Kong, for storage or immediate consumption.

Sales Channels
To facilitate Hong Kong as a trading and distribution hub for the region, the Hong Kong government has signed co-operation agreements with 12 major wine-producing countries/regions, including France (and its Bordeaux and Burgundy regions), the USA (and its Washington and Oregon states), Portugal, Spain, Australia, Chile, Italy, Hungary and New Zealand to strengthen promotional activities in areas including wine-related trade, investment and tourism. Various wine promotional activities, including seminars, wine tastings, receptions and food pairings, also take place in Hong Kong. In particular, trade fairs in Hong Kong provide good business matching opportunities, support new wines and labels launches, and facilitate market testing on Asian Palette. Below is a list of selected trade fairs in the industry.
High-value, investment grade wines are usually sold through auctions. Thanks to the surge in demand from Asian investors, Hong Kong wine auctions, mainly organized by Christie's, Sotheby's and Bonhams, usually outperform those in London and New York. Hong Kong has kept its title as the largest wine auction centre in the world, for two consecutive years, with the total auction sales amounting to HK$1.78 billion in 2011.
Domestically, wines are sold through off-trade channels such as supermarkets, specialty stores and convenience stores, and on-trade channels such as bars, restaurants and club houses. According to Euromonitor International, wine sales in Hong Kong amounted to HK$2.9 billion or 12.3 million litres in 2011, up 31% and 34% respectively compared to five years ago. For 2012-2016, it is forecast to grow 6% per annum in value terms and 3.9% per annum in volume terms. Off-trade channels account for approximately 46% of total wine sales in value terms and 64% in volume terms in 2011.

Industry Trend
While wine consumption is flat or sinking across much of Europe, the global attention has shifted to Asia. Consumers in Asia are increasingly wine savvy and their demand for wine remains strong. According to Euromonitor International, wine sales in Asia amounted to US$62.2 billion or 5.5 billion litres in 2011, up 63% and 56% respectively compared to five years ago. For 2012-2016, wine sales are forecast to grow 9.5% per annum in value terms and 8.9% per annum in volume terms. Sales in China are more spectacular, with an amount of US$214 billion or 3.9 billion litres in 2011, up 143% and 79% respectively compared to five years ago. For 2012-2016, sales are forecast to grow 15% per annum in value terms and 11% per annum in volume terms.
Due to the growing demand for wine in Asia and the deregulation of wine imports, wine business has boomed in Hong Kong. Besides new entries, increasingly, international wine companies and their specialists have moved to Hong Kong. For example, Robert Sleigh, senior director and head of Sotheby's wine department in Asia, has been relocated to Hong Kong from New York since September 2010. On the other hand, while Hong Kong is well recognised as the culinary centre in the region, wine matching with Asian cuisine becomes a trend in the form of food and wine appreciation sessions held by restaurants and hotels. There is also a food matching competition adjudicated by Asian experts in the HKTDC Hong Kong International Wine and Spirits Fair.
Responding to rising demand and driven by market forces, public as well as private training institutions are enriching or expanding their wine appreciation courses and developing enhanced manpower training programmes. For instance, the Vocational Training Council (VTC) offers trainings to personnel ranging from sommeliers to frontline catering staff, and will also establish an International Cuisine College in 2014, to provide training on food and wine pairing, wine appreciation and other wine-related matters. Meanwhile, the School of Professional and Continuing Education of the University of Hong Kong has partnered with a French institution to launch the first Master of Business Administration’s programme in Hong Kong on wine.
To support on-demand delivery to Asian market, storage facilities are necessary and being built and converted in Hong Kong. With the assistance of the government, the industry and the Hong Kong Quality Assurance Agency launched the Wine Storage Management Systems Certification Scheme, the first of its kind in the world. The Scheme has been enthusiastically supported by the industry, with a total of 29 fine and commercial wine storage facilities, wine storage facilities in wine retailers and wine transportation service providers accredited as of April 2012.
As for wine production, there are currently two wineries located in industrial buildings in Hong Kong. While grapes are imported, production processes such as fermenting, pressing and aging are all carried out in Hong Kong.

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Posted: 28 May 2012

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