Tax-free move fails to spark great interest from consumers

PUBLISHED : Monday, 15 December, 2008, 12:00am
UPDATED : Monday, 15 December, 2008, 12:00am

The removal of the city's wine tax earlier this year may have signalled the beginning of a new era, but independent retailers and hotels say the move did not significantly affect consumers' buying patterns.

'The tax removal has translated into a more competitive environment for wine retailers but it has not had as huge an effect on consumers. We have seen a slight increase in terms of more buying by consumers but it is not significant,' explained Stanley Yeung, Soho Wines and Spirits' wine adviser.

'Regular wine drinkers will continue to drink in the same way. The tax lift will not trigger them into buying substantially more wine.'

Rod Munro, general manager of Novotel Citygate Hong Kong, said he had not seen an obvious increase on bottled wine sales in his hotel's restaurants and bar compared to last year.

Rather than rely on the waiving of the wine tax, which he said has led to a decrease in retail price of an average of less than 3 per cent, the hotel is promoting wine through a value-for-money pricing strategy.

'We are competitively priced for a glass of house wine, with six selections from four countries and a buy-one-get-one-free deal during the happy hour,' he said.

Although the government's moves to develop Hong Kong as a regional wine hub have had little impact on the hotel so far, Mr Munro said that more wine trade fairs may bring in higher numbers of overseas exhibitors or visitors. As the hotel is a short distance from the AsiaWorld-Expo, fairs at this venue boost bookings at the hotel.

The abolition of the wine tax has however resulted in some liquor drinkers shifting to wine, according to Mr Yeung, as spirits are still taxed at 100 per cent. Wine is also perceived as having more health benefits.

In recent months, the economic downturn has proved to be the more immediate challenge as wine drinkers have slashed budgets for expensive wines and are opting to drink mid-to-low-end ones at less than HK$300 per bottle.

'The recession will of course affect us because wine is a consumer product after all. People are buying less expensive wines and are entertaining less, too,' said Mr Yeung.

Soho Wines and Spirits, which dropped its retail prices by an average of 12 to 20 per cent following the tax lift, said the zero-tax environment has given it more independence and flexibility to import a greater number of value-for-money wines, notably from countries such as Spain, South Africa and New Zealand.

But though the tax-free environment has allowed retailers to become more adventurous in the choice of wines they pick for their shelves, it has, by the same token, raised the stakes for existing retailers by opening the door to a growing number of players who are importing poor-quality wines.

'Retailers were more cautious about selecting the wines they bring to Hong Kong before the tax cut was introduced, but because wines have become that much cheaper now, bad wines are being introduced to the market,' said Mr Yeung.

'If first-time drinkers come across these poor wines, it could affect their overall perception of wine drinking. Just one bad experience with a poor wine could put them off drinking.'

In the long term, the zero tariff could actually put independent operators out of business as they confront an increasingly cut-throat retail landscape and struggle to compete with larger chain stores on pricing and overheads.

'If an independent retailer doesn't have enough resources, it is possible that it could eventually be bought out by a larger operator,' Mr Yeung said.

'The retail wine market could see some consolidation in the next 10 years, particularly if smaller establishments cannot secure good deals on rent and location.'