Hong Kong takes to the bottle
Gordon Yuen Tien-yau sold top-notch cameras for years before discovering another high-end product could be even more profitable - wine.
The 52-year-old retired HSBC banker-turned-retailer is among a new breed of wine sellers in Hong Kong, capturing a business now worth over HK$5.5 billion a year in the city.
Government statistics show the wine business has ballooned since wine duties were scrapped in 2008 as part of efforts to turn Hong Kong into an Asian wine hub. It has proved to be the right move - revenue from the industry is up 30 per cent from 2007.
Yuen said the decision to axe the tax was one reason he decided to start his company. 'If the duty had remained at 80 per cent, it would be impossible for any wine business to set up in Hong Kong,' he added.
The government slashed wine duty from 80 per cent to 40 per cent in 2007 and scrapped it altogether in 2008. Hong Kong wine importers and consumers no longer need to pay any tax on wine. The mainland still imposes a 40 per cent duty and markets such as Britain, the US and Japan have tax ranging from 5 to 20 per cent.
Yuen is chairman of A&A Retail Management, which sells cameras in Hong Kong and Macau and which last year set up a wine distribution arm called Perfect Vintage.
Perfect Vintage, which distributes French wines such as Chateau Paul Mas and Chene Bleu, is just one of 850 wine-related companies that was set up in the two years following the abolition of wine duty. There are now 3,550 such companies in the city.
New wine shops or wine-related companies hired more than 5,000 full-time staff in that two-year period, bringing total employees in the industry to about 40,000 by the end of 2009, according to the latest statistics available from the government.
Yuen said he always loved good food and wine and finds his new venture a good combination of business and pleasure. He distributes the wine via his own shops in Hong Kong and Macau, as well as directly to restaurants, hotels and clubs. 'I visited different vineyards in France in March and tried more than 400 types of wine over the month as I negotiated with vintage owners for distribution rights in Hong Kong and Macau. I never imagined I could drink a glass of Lafite at breakfast time,'' Yuen said.
As well as being fun, the business is also a money-spinner.
'Selling wine has a higher profit margin than cameras and it has a more promising future,' Yuen said. 'Chinese executives and young people consider drinking wine to be part of a fashionable lifestyle. Mainlanders prefer to buy wine in Hong Kong because Hong Kong has better quality control.'
Government statistics show mainland purchases of wine in Hong Kong surged 80 per cent to HK$558 million in 2009, up from HK$308 million in 2007.
Yuen also said the wine distribution business does not need much initial capital so was suitable for small and medium-sized enterprises.
The real challenge was recruitment, he added. 'We do not have a big pool of talent who know much about wine. We have to recruit staff and then provide them with training so this has added to operation costs,'' Yuen said.
Jason Wong, who founded Delightful Wine two years ago, is another entrepreneur in the burgeoning industry.
His company focuses on selling wine for wedding banquets and accepts bookings via the internet and wedding planners. 'The business is good as we can provide a wider choice than the supermarkets,' Wong said. 'We can compete on service, quality and can tailor customer requests for the wedding banquets.''
Like other small businesses in the city, Wong said high rent was a real challenge. 'The competition is keen as we have seen more and more new wine shops open in the past two years,' Wong said.
Besides the wave of small wine shops opening in Hong Kong, the removal of wine duty has also attracted the large auctioneers to the city. Wine auctions are now held every few weeks by the likes of Bonhams, Christie's and Sotheby's.
Sotheby's last year sold HK$410.42 million worth of wine in Hong Kong, 60 per cent of all wine sold through the auction house. That beat the HK$163.6 million sold through Sotheby's in London and the HK$114.49 million in New York.
Serious wine people are increasingly making the city their home. Robert Sleigh, senior director and head of Sotheby's wine department in Asia, was relocated to Hong Kong from New York last September.
Sleigh, 41, quit business school to join the wine business 20 years ago, starting working at a wine merchant in London. 'I was supposed to study a four-year business course but I dropped out after finishing year one. I did not find it interesting.
'Rather, I found the wine business, which is a people's business, was what I wanted to do,' Sleigh said. Four years later, he spent three years in France learning winemaking and marketing skills before joining Sotheby's in 1996.
Like other auction houses, Sotheby's has stepped up expansion into the wine auction business, on top of its traditional auctions of painting, furniture and jewellery
'Working at Sotheby's has allowed me to get access to the top 1 per cent of the best wine collections and work for the top wine collectors. This is amazing,' Sleigh said.
Sleigh said his relocation was sensible given the pace at which the wine market was growing in Asia. Before Sotheby's held its first wine auction in Hong Kong in 2009, 60 per cent of buyers at its New York auctions came from Asia in 2007 and 2008.
'It makes sense for us to have somebody here to get close to the world's fastest-growing market, particularly China,' Sleigh said. 'The removal of the wine duty in 2008 in Hong Kong was also part of the reason Sotheby's expanded the wine auction business here.'
He added that at auctions in Hong Kong, wine sold for about US$10,000 per case of 12 bottles, compared with US$2,000 to US$3,000 per case in auctions in New York, and US$1,000 to US$2,000 per case in London.
'Hong Kong wine auctions are focused only on high-priced wine. In New York and London, the buyers buy a wider range of wines from low to high-priced ones,' Sleigh said.
Some Hong Kong investors like to invest in wine, betting it will outperform the stock market. The Liv-ex Fine Wine 50 Index, a benchmark comprising high-end wines, rose by 57 per cent last year, outstripping gold which gained 29 per cent, and the Hang Seng Index with its meagre 5 per cent advance.
China last year overtook Britain and Germany to become the largest market for Bordeaux wines.
Rising demand on the mainland has helped offset the reduced buying power of investors in the US and Europe following the global financial crisis, but Sleigh warned supply was finite when it came to wine.
'There are limitations on how much wine can be produced by each vintage every year,' he said.
'Bad weather and a bad harvest would limit the supply further. And there is no way for us to produce any more old vintage wine. The mismatch between the supply and demand is the real challenge of the wine business.''
The tax on wine before 2007, when it was cut to 40 per cent before being abolished
- The mainland tax on wine is 40 per cent