Wine: Hong Kong vintage

29 Feb 2016 by Jeremy Tredinnick
In a leafy suburb of southern Hong Kong Island called Shouson Hill, down a winding road bordered by affluent residential tower blocks and jungled slopes, a piece of Hong Kong history lies hidden in the hillside. This is the site of a number of old underground WWII munitions bunkers built by the British army in the 1930s, and which were the last corner of the territory to hold out against the Japanese invaders in 1941. Left sealed and empty for more than 50 years, they were discovered in the 1990s by a South African former diplomat, Gregory de Eb, and the chairman and founder of Crown Worldwide, Jim Thompson. They saw the tunnels’ raw potential as perfect wine depositories and created Crown Wine Cellars (crownwinecellars.com) in 2002 – it has since gone on to become Hong Kong’s top fine wine cellar facility. “When we discussed the idea 15 years ago, we never imagined what would happen,” says de Eb. “The amount of business we estimated to turn over didn’t match what has happened now. Since the zero taxation policy, everything has exploded.” MARKET ERUPTION  Look back to the year 2008 and most will remember a financial meltdown marking the start of a global recession that affected one and all. However, amid the commercial chaos, in February of that year the Hong Kong government made a bold strategic move that heralded an astonishing transformation in the fortunes of the Hong Kong wine industry. Prior to 2008 the territory had been a healthy yet relatively small wine market, but with rumoured massive stocks of investment wine (owned by wealthy local collectors) stashed away in the UK and Europe that had been amassed over the previous four to five decades. It was a leader in Asia already because of its multicultural population of comparatively well-educated wine drinkers and wealthy collectors, its historical European connections, and its position as the gateway to mainland China. However, with the specific intention of turning the territory into “Asia’s wine hub”, in 2008 the government removed all tax levies – previous import tax for wine had been 40 per cent – thereby creating a platform for explosive development in the city’s wine trade. It’s doubtful, though, that the engineers of this initiative envisaged the scope of the commercial melee that would ensue... the tax concession changed the wine business landscape and triggered a surge in interest in fine wines from wealthy Chinese and other Asians, both for drinking purposes and investment portfolios. Over the following four years Hong Kong mushroomed into the region’s premier wine trading centre, with import-export wine trading companies launching in large numbers, and global attention focusing on auction houses bringing in and selling world-class collections of fine wine. And why wouldn’t they? With import taxes on wine at often ridiculously high levels in most Asian countries – China is currently 48 per cent, while Thailand and the Philippines are 390 per cent and 400 per cent respectively – the removal of all fees, not to mention the bureaucratic red tape, a freely convertible currency, superb logistics and a clean government, combined to make Hong Kong an irresistible destination for wine sellers and buyers of every description. The government’s Hong Kong Merchandise Trade Statistics (censtatd.gov.hk) show that total wine imports more than tripled from 2008 to 2011, from a total value of HK$2.86 billion (US$367 million) to HK$9.79 billion (US$1.26 billion). In November 2011, Acker Merrall & Condit (ackerwines.com) – the world’s largest wine auction house – achieved the highest total of any wine auction in the world that year, at HK$112.7 million (US$14.5 million), while a collection of Domaine de la Romanée-Conti (containing vintages from 1952 to 2007) fetched a staggering HK$6.3 million (US$813,000) in its December auction. “[That year] was an astonishing and by no means typical year when things got a bit crazy,” says Simon Tam, head of wine, China, for prestigious auction house Christie’s (christies.com). Debra Meiburg MW, an award-winning author, broadcaster and educator (debramasterofwine.com) who holds the top honour in the wine world – Master of Wine – agrees: “The important thing to remember about Hong Kong’s auction market during those years is that it was not operating on a rational basis,” she says. “The extravagant bidding was based largely on people’s speculation that the market would continue to rise, with everyone hoping not to be the fool left holding the bag.” The height of the boom came in 2012, when wine imports to Hong Kong topped US$1 billion. A SOBERING PERIOD Inevitably the bubble burst, and the years 2013-14 saw a relative lull in the market as mainland Chinese collectors and drinkers became more knowledgeable of the wine market. “Collectors started to get savvy and compare or challenge prices, as well as rejecting the en primeur programme [purchasing fine wine before it has been bottled] which was becoming unjustified and unsustainable,” says Crown Wine Cellars’ de Eb. Another factor was Chinese President Xi Jinping’s austerity drive, part of which was aimed at “stopping the abuses of ‘gift giving’ and the excesses of entertainment expenditure – all of which drew wine into the firing line,” de Eb adds. According to Hubert Li, director of the Hong Kong Wine Vault (winevault.com.hk), once the overinflated prices of French wines – primarily Bordeaux vintages – began to decline from 2012 on, “there was no longer an investment angle for fine wines, and therefore the market has become mostly driven by drinking demand rather than speculation”. Nevertheless, after two slow years things began to turn around. Hong Kong government figures show that in the first half of 2015 (up to August) imports were already HK$6.5 billion (US$835 million) and re-exports HK$2.8 billion (US$357 million) – more than 88 per cent of that to mainland China. According to data from the International Wine and Spirit Research company (IWSR, theiwsr.com), China’s wine consumption in 2014 was more than double that of the second-highest consumer, the US, demonstrating the strength of the market even during a supposed “slowdown”. It is clear that Hong Kong will remain Asia’s fine wine hub for quite some time. “The revenues [here] are much greater than other Asian countries like Japan and Singapore,” says Li. “However the demand is heavily weighted towards fine wines. Many mainland Chinese customers choose to buy fine wines in Hong Kong because they are much more confident that wines being sold here are genuine and properly handled.” “Hong Kong also remains a pan-Asian draw,” adds Meiburg. “It still boasts the highest value auction market in the world and is a trustworthy, reliable source for fine wine. It is a mature market, with a diverse array of products and consumers. Plus, Hong Kong remains a trendsetting city for China.” Christie’s Tam is in accord, but adds an important factor in the city’s ongoing success as the fine wine premier location: “Not only are we the leading fine wine auction centre in the world, but there are a growing number of world-class storage facilities, and a large choice of wine education and seminars.” BUNKER BUSINESS  Which brings us back to Crown Wine Cellars. De Eb thinks that the creation of Hong Kong’s first professional wine cellar may well have been the catalyst that facilitated the government’s drive to make Hong Kong the Asian regional wine centre. With a subtropical climate that sees high humidity for much of the year and ambient temperatures rarely dropping into the low teens Celsius – the sweet spot for wine storage – Hong Kong collectors traditionally kept their fine wines in facilities primarily in the UK. However, Crown’s climate-controlled and highly secure underground bunkers allowed them to ship their huge collections back home, and this may have put the kernel of an idea in the minds of local dignitaries such as financial secretary John Tsang. What is known for sure is that the astonishing success of the fine wine auction houses and high-end wine merchants after 2008, coupled with the fact that Chinese and other Asian buyers still need to pay high taxes if they move their purchases to their homeland, has resulted in a proliferation of wine storage centres around the territory. More than 40 wine repositories are now accredited by the Hong Kong Quality Assurance Agency under the Wine Storage Management Systems (WSMS) Certification Scheme (hkqaa.org/en), whereby temperature, light, vibration, hygiene, security and insurance all meet globally accepted standards. It is difficult to gauge how comparable these facilities are in terms of both hardware (using strict climate-controlled environments guarded by bank-level security) and software (such as service quality and wine knowledge), but de Eb, though admittedly partisan, says that from a professional viewpoint, “Less than a handful of companies provide all the necessary conditions (hardware, software, security, insurance and understanding) that top-end wines require and high-end customers should demand – and there is also a further difference in quality among those companies.” Li thinks along similar lines: “I believe at least half of these companies are aimed at private fine wine storage, although only a few players have achieved this with significant presence,” he says. An important factor in the success of some of these facilities is the innovative addition of stylishly decorated rooms attached to the storage areas, in which members can arrange tasting events or have dinner parties where they can drink and show off their collections. Hong Kong Wine Vault, which includes a 4,180 sqm storage set-up in Hong Kong Island’s Wong Chuk Hang district and other facilities in Tin Wan and To Kwa Wan, boasts a range of tasting rooms with fully fitted kitchens that allow tastings and dinner parties arranged with outside caterers. Crown Wine Cellars goes even further, with richly furnished underground bunker reception rooms and a 42 sqm greenhouse-style conservatory, surrounded by foliage, where lavish dining events can take place. According to John Kapon, CEO of Acker Merrall & Condit, these types of cellars and storage facilities are important for the Hong Kong market beyond their practical value for people needing secure storage for their wine. “They are also great venues for events and dinners, places where collectors come together and talk and either begin or renew friendships, which is a wonderful element of the business.” De Eb says that the dining and reception rooms provide extra appeal to wine collectors looking for a suitable place to store their collections. “The fact that this is the only genuine underground facility in Hong Kong, that it’s a UNESCO Asia Pacific Heritage site, and is staffed with people who live, breath and understand fine wines, makes it unique and very sought after,” he says. There is a much bandied story in fine wine circles that many mainland Chinese collectors store their top wines here to save themselves from crippling import taxes, and bring people to Hong Kong for tastings or lavish dinners before taking a couple of very expensive bottles home as “hand luggage” – one bottle of wine per person is perfectly legal, regardless of the bottle’s actual worth (which can reach many thousands of US dollars) – with Chinese customs officials none the wiser. However, with the increased sophistication of Asian wine lovers in recent years – as well as the general reluctance to be seen sipping expensive wine in China these days – it does not happen so much now. “[They] certainly do enjoy their dinners, often with superb and very interesting wines,” says de Eb. “I agree that many of our mainland (and Indonesian, Philippine, Thai, Malay, etc) members do keep their wines in Hong Kong to avoid tax, but this is only part of the story. Provenance is by far the biggest reason, coupled with keeping their wines in Asia’s wine capital, in a freely convertible currency. Bottles are certainly hand-carried over the border, but this is done quite legally.” Li agrees: “Yes, the very expensive wines are often hand-carried into China to save on taxes, as each person is allowed to carry one bottle at a time regardless of value. However, the biggest labels (especially Bordeaux) are quite easily recognised by China’s customs nowadays.” NEW OPPORTUNITIES  French wines are still the most popular choice for collectors, but other wines are beginning to be taken seriously. “France still dominates, and it is by far the most tradable wine on the secondary market,” says Master of Wine Meiburg. “That said, we are now also seeing significant interest in Italy, with Amarone, Barolo, Brunello and Super-Tuscans capturing attention. From Spain, only Vega Sicilia and Pesquera are drawing collectors, while iconic Australian labels like Penfolds Grange, Henschke and Leeuwin are making inroads. Chinese wine is really only poured as a novelty item, despite some significant leaps in quality over the past few years such as Grace Vineyards, Silver Heights and Helan Mountain.” “French wines still dominate not only because of their reputation but also because of ample available stocks of great older vintages,” adds de Eb. “US Napa Cabernet greats dating as far back as the 1950s and 60s are also in demand, as are the best of Barolo and some Spanish.” The move away from the Bordeaux status quo is happening at a time when projections of growth in global wine markets indicate that Asian markets will dominate global wine consumption, led by a surge in wine drinking in China. Wine industry researchers are predicting China’s net wine imports will rise by up to 790 million litres by 2018. “I’ve watched the Hong Kong market for the last 20 years, and what we are seeing is only the beginning,” enthuses Simon Tam of Christie’s. “Hong Kong is now the most significant wine trading centre in the world. If you look at the ‘diet’ of wine lovers, Bordeaux is a staple, but there are many regions in France such as Burgundy, Champagne, the Rhone and Loire valleys that haven’t really been fully explored yet – I believe we have barely scratched the surface… we’ve just started to explore the breadth of tastes and preferences of wine connoisseurs.” A new type of wine lover is emerging in Hong Kong (and elsewhere in the region), one who cannot afford the top end of the price scale but is affluent enough to spend decent money on bottles that are a cut above those to be had in high-street stores or supermarkets. A quick search on the internet reveals a host of fine wine merchants based here, all benefiting from the zero-tax policy, the ease of doing business, and the insatiable desire of Hong Kong’s increasingly knowledgeable wine drinkers. Among these, though, a few companies are taking a more refined approach to introducing high-quality wines to customers. Sarment (sarmentwine.com) is one such enterprise, a premium wine merchant with offices in London, Hong Kong, Singapore and four cities in China. “During 2012-13 the value of wines we imported decreased, but the volume increased, which says that people are looking for better value-for-money wines,” says Ali Nicol, Sarment’s marketing manager. “We want to offer wines that give you a little more drinking pleasure. We are not going down the road of lowest common denominator wines… we deal in boutique labels and artisanals making low production volume wines. Sarment sells to private clients in Hong Kong, in Singapore we sell to local buyers, in China the same. It’s about building relationships with our clients, and I think this is the direction in which the industry is moving.” For companies like Sarment the focus is taking their customers on a journey of discovery, opening their eyes – and palates – to a broader range of excellent vintages that are little known and therefore more reasonably priced. “After seven years of free access to Bordeaux there’s been a natural progression for wine drinkers to start off on Bordeaux wines and as their palates develop move towards Burgundy,” says Nicol. “You can find a very good bottle of Burgundy much cheaper than the pricey ‘brands’ of Bordeaux. The fantastic thing about the Hong Kong market is that most people haven’t started on the Latours, the Lafites, the Petruses, they’ve started on the low to average levels, and the potential for 25-35 year-olds drinking HK$200 bottles of wine to step up to HK$350 in the next few years is high.” Sarment’s aim is to showcase wines that are a great example of the region they come from. “Romanée-Conti is way too expensive, yet vineyards right next door produce superb wines,” says Nicol. With that in mind they started the Confidential Wine List, which has already kicked off in Hong Kong (with partner restaurants who share the same philosophy) as well as other cities in Asia. “Successful companies over the next five years will be built around relationship management – it’s not forcing people to buy things that you want to sell, it’s introducing them to new things that you think they’d like to buy – this is key with private companies,” he adds. “We have, as an estimate, a population of upwards of a million wine drinkers [in Hong Kong], and we have the potential to double or triple this over the next decade.” “Hong Kong will continue to be a global leader in fine wine consumption and storage,” concurs Master of Wine Meiburg. “China too, in spite of the recent hiccup, will continue to engage with fine wine. The austerity measures and spotlight on first-growth wines means that consumers are looking elsewhere for quality wine – which is innately positive for the industry as a whole.” What is almost certain is that in the coming years the wine market in Hong Kong will continue to develop as fast as anywhere in the world. It may well be that the next decade will be the Hong Kong wine industry’s vintage years.
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