Wine lover Suzanne Miao scours the newly revised wine list at a popular Central watering hole and scowls. 'I don't see why I'm still paying HK$75 for a glass of paint-stripper in some poncy bar,' says the children's theatre director. 'As far as I can tell, bars and restaurants haven't passed on the tax break to consumers.' You might think the bar tab savings would be significant when this year's budget did away with the 40 per cent wine duty levied in 2007, already halved from the year before. Yet the benefits have been a mere trickle so far. The LKF Entertainment Group says prices at its outlets were reduced by 10 to 20 per cent within days of the announcement on February 27. Watson's Wine Cellar and sister supermarket chain ParknShop cut prices by an average 20 per cent. At Caprice, the French restaurant at the Four Seasons, most wines were also reduced by 10 per cent, although sommelier Cedric Bilien says the quality of his wine menu has improved. Such cuts seem paltry compared to the extent of tax relief. But although it's happening more slowly than they expected, professionals say wine lovers will enjoy savings from the zero tax regime eventually. 'Market forces will drive [prices] down,' says Nick Pegna, managing director of wine merchant Berry Bros & Rudd, attributing low reductions to 'systemic' factors such as stiff competition among bars and restaurants and fears that lower prices will spark undercutting by new entrants to the business. 'No one likes to drop his pants first, so to speak,' says J.C. Viens, a shipping company director planning to go into the wine trade. 'Most are too shy to lower their prices until they see what their competitors do.' Kevin Tang Kwok-kit, programme director at the Concord Institute of Wine and manager of local distributor Concord Fine Wines, reckons the market is getting more competitive but says food and beverage owners are 'forging a new gross profit margin'. Tang is more cautious about how the zero tax initiative will affect his drinks bill. 'Restaurants tend to apply a mechanical formula to pricing. Their markup is usually three to five times, which is understandable, given the high-rent strategy of the government. But because of this, the tax elimination is really only a 20 per cent reduction for them. I don't expect to see the full effect of the tax cut in my bill.' A food and beverage business insider says owners prefer to upgrade the quality of their wines rather than reduce the cost per glass. 'Privately, they are suffering substantial increases in other costs and can't afford to lower the price of wine yet,' he says. Publicly, however, wine retailers and restaurateurs often blame their suppliers. 'Our local suppliers have only passed on small savings,' says James Hepple, a spokesman for Watson's Wine Cellar. 'A high-profile example is the big champagne brands, which gave only a small reduction in our costs. We have no control over this.' At the Fringe Club's Roof Top Bar, a bartender says customers haven't been able to enjoy discounts because wine suppliers have reduced prices by 'only a few dollars. It's bizarre', she says. But importers claim the tax break is being offset by bigger economic forces. The effect of a weak US dollar coupled with the strong euro and Australian dollar has caused storage and insurance costs - already high - to rise almost 15 per cent in 12 months. And shipping charges are escalating as fuel prices soar. Paulo Pong Kin-yee of Altaya Wines, a boutique importer of quality wines from family-owned wineries, says he tried to keep prices stable for his most loyal customers but that he was feeling the pinch before the tax cut. 'Our margin was diminishing every month,' he says. 'I can't say the same for all importers and distributors, but we don't play games and we certainly did not use this opportunity to raise margins.' But distributors are also constantly revising quotes due to fluctuations in the global wine market, which 'has been ballistic for the past two years', says Pegna. For instance, a case of the reasonably priced Lafite 1996 has more than doubled in price, from HK$2,000 in 2006 to HK$5,000. 'There are a small number of fine wines that are in limited supply and are more like commodity items,' says Hepple. 'The world market price of these wines is rising faster than any reduction in wine tax.' Pong felt that cost pressure when his suppliers raised prices by between 5 per cent and 20 per cent in January, meaning that his 40 per cent tax break was, in effect, reduced to 27.5 per cent. 'We had no choice but to finally pass on the higher cost after missing my target margin for more than nine months,' he says. A less important but oft-cited reason for lingering high wine prices is the burden of unsold, duty-paid stock. 'Reducing prices was quite a painful thing to do and anyone with duty-paid stock was doing that at some expense,' Pegna says. 'Most of us run on slim margins, so the reduction pretty much wiped [the tax break] out.' Nevertheless, observers such as Viens say a price correction is under way. 'We will see many new players in the next 12 months who will come with aggressive prices and force established players to drop theirs according to the new balance of the market,' he says. The elimination of the duty is starting to pay dividends for the city's bid to become a regional fine wine hub. At the recent Vinexpo trade show, Chief Secretary Henry Tang Ying-yen, a wine connoisseur, noted that wine imports surged more than 120 per cent in the two months following the move. Wealthy investors also poured in to bid at two high-profile wine auctions held in Hong Kong by Bonhams and New York-based newcomer Acker Merall & Condit. The American auctioneer set a record price last month when a case of DRC Romanee-Conti 1990 sold for US$242,308 - 112 per cent above its estimated average price. Viens, who is studying for a diploma from the Wine and Spirits Education Trust, hopes wholesalers and experts will use the opportunity to nurture knowledgeable drinkers and establish a local wine culture. 'My hope is for more wine education and better quality products at the same price as is being charged now,' he says. 'Then consumers may begin to see themselves as builders of Hong Kong wine culture instead of opportunistic beneficiaries of it.' Nurturing a wine culture also requires better-informed service staff, he says. 'It'd be nice if the next time I go into a restaurant, they can really inform me about my wine choice. That'd be a very big step in improving wine culture here.' The tax-free initiative may also enrich the variety of wines available to ordinary consumers. 'The exemption has been good for us,' says Steve Kwong Chung-man, sales manager at Spanish wine importer, El Toro Group. 'It's made people more aware of what wines they choose. Most pick French or Australian because they are marketed heavily, but the exemption might encourage retailers to offer wines from different parts of the world.'