Hong Kong. Wine Market. Feb 2014 Feb. 27, 2014
Hong Kong was the 5th largest market for U.S. wine exports, after Canada, U.K., Germany and Japan. In terms of Hong Kong wine imports, the U.S. remained the 4th largest wine exporter to Hong Kong behind France, the U.K. (mainly auction sales) and Australia. In addition to being a vibrant local market, Hong Kong also serves as a gateway to wine markets in the region because of its prime geographical location, superior logistical infrastructure and sound legal and financial system. Trade statistics indicated that Hong Kong traders re-exported 20% of wine imports from around the world and retained 80% for local consumption.
SECTION I. MARKET OVERVIEW
• Hong Kong wine imports have soared since the Hong Kong Government’s (HKG) elimination of its import duty on wine in February 2008, making Hong Kong one of the few tax free markets for wine in the world. Hong Kong wine imports volume grew from 32.4 million liters in 2009 to 47.3 million liters in 2013. On the other hand, Hong Kong wine imports value grew from $491 million in 2009 to reach a record high at $1.2 billion in 2011 and dropped to $966 million in 2013.
• Comparing the figures at record year 2011 and 2013, world wine imports volume into Hong Kong still grew from 45.5 million liters to 47.3 million liters. However, wine imports value dropped from US$1.2 billion US$966 million over the same period, a drop of nearly 20%. According to local wine importers and distributors, the drop was partly due to keen competition which encouraged local wine buyers to source and sell wine at lower price range. In addition, as markets in the region such as China began to import more wine directly, Hong Kong’s role as a wine trading hub diminished.
• French wine imports volume went from 18.85 million liters in 2011 to 17.08 million liters in 2013, a drop of 9.4% whereas import value went down more significantly from US$748 million to US$551 million over the same period, a drop of 26%.
• U.S. wine imports were less affected. The U.S. maintained its position as the 4th largest wine supplying country to Hong Kong after France, the UK (mainly auction sales) and Australia. U.S. gross wine imports into Hong Kong were 5.65 million liters and US$65 million in 2013, an increase of 22% and a drop of 7% respectively compared with 2011.
• Outlook for 2014: Hong Kong is the world's largest wine auction center. Its vibrant local market and prime geographic location serve as a platform for growing wine trade in other Asian markets. Hong Kong re-exported 20% by value of its wine imports and retained 80% for local consumption. To help the industry better grasp the business opportunities in the Mainland, the Hong Kong Government (HKG) has signed an agreement with the General Administration of Customs to facilitate exports of wines from Hong Kong to Mainland China.
• Growth of U.S. wine imports was 15% in 2010, increased to 52% in 2011, dropped 9% in 2012 and stayed at the same level in 2013. The variation was due to the economic fluctuation and also keen competition among wine exporting countries. In particular, French and Australian interests maintained heavy promotions of their wines throughout the year. Although the market shows sign of consolidation, a equilibrium has not been reached. Wine buyers and consumers are not adhered to old world wines or wines from a particular country. Conducting more promotions to increase consumers’ knowledge and interest on U.S. wines will help gain more market shares in Hong Kong.
• U.S. wine is well known in Hong Kong for being a quality product, but at an affordable price. This is partly attributed to the depreciation of the U.S. dollar in the past few years and aggressive promotional efforts by the U.S. Agricultural Trade Office, the U.S. Wine Institute and U.S. wine distributors in the market. Opportunities to increase awareness and sales of U.S. wines are bountiful at the retail and food service level. Wine promotions at leading retail outlets, wine seminars, tastings, food pairings and trade shows are effective means to promote U.S. wines.
SECTION II. COMPETITION
• French wine still dominates the market, accounting for 29% of total retained wine imports volume and 57% of import value in 2013. However, New World wines, including those from the U.S. continue to gain popularity and growth in the market.
• The growth of New World wines is attributed to the boom of the wine appreciation culture and consumers beginning to realize that they can buy high quality New World wine at competitive prices.
• It should be noted that wine represents a much larger portion of France’s overall food and beverage exports (~70%) to Hong Kong when compared to the U.S. (slightly over 1%). Thus French wines may continue to enjoy substantial marketing resources to maintain and grow market share given the relative importance of the wine industry to its overall food and beverage trade.
SECTION III. MARKET SECTOR OPPORTUNITIES AND THREATS
Consumption Patterns Driving the Market
• Trade statistics revealed that Hong Kong consumers prefer red wine to white wine. In 2013, gross imports of red wine were US$920 million, accounted for 95% of total wine imports into Hong Kong. In contrast, gross imports of white wine were only US$43 million (5% of total wine imports). Wine traders and retailers pointed out that it is because they like the flavor of the wine, the color of the wine and more perceived health benefits associated with drinking red wine.
• Cabernet Sauvignon, Merlot and Shiraz are the three most popular grape varieties for red wine in Hong Kong. Together they account for around 80% of total volume sales. Of these, Cabernet Sauvignon is the most popular, accounting for around 50% of total red wine sales.
• For white wine, Chardonnay remains the most popular grape type, accounting for over 60% of total white wine sales.
• Hong Kong’s retail markets, such as supermarkets, specialty stores and convenience stores, account for approximately 60% of the wine sales in terms of volume, and 40% in value terms. The reminder is sold through the restaurants and bars. Generally, wine mark-ups are high in the food service market, resulting in prices being three to four times higher than in the retail market.
• Supermarkets account for the greatest share of wine volume sales among retailers, accounting for 50% of all retail sales. The two largest supermarket chains – Wellcome Supermarkets and ParknShop (each has over 250 outlets), because of their large turnovers, usually import wine directly from overseas suppliers to reduce middlemen’s mark-ups. Therefore they can price their wines more competitively to their customers, who are generally more price-conscious and rank wine quality, country-of-origin and age as secondary for importance in selection.
• Wine specialty stores account for 35% of wine retail sales. Watson’s Wine Cellar is largest wine specialist in Hong Kong with 22 outlets. Specialty stores serve a consumer group who pay more attention to wine quality, country of origin, and age, rather than just price. Wine specialty stores offer greater opportunities for moderate and high price point U.S. wine. Other high-end retailers such as Oliver’s, Three-Sixty, Taste, Market Place by Jasons…etc that also carry higher priced wines, but at a much smaller scale due to their fewer number of outlets.
Restaurant and Bar
• Price points of wine sold in restaurants and bars vary according to the overall price point of the outlet. A glass of low-end wine normally costs below US$10, whereas a medium-end one costs US$10-20 and a high-end one costs above US$20. As is the case almost anywhere, the higher-end the restaurant, the more premium the wine it will serve and vice versa.
• Restaurants in Hong Kong normally charge a high mark-up on wine consumption. Restaurants that allow customers to bring their own wine charge high corkage fees around US$25-40 per bottle.
• Since the abolishment of the wine tax in February 2008, many restaurants and hotels have launched more wine-tasting classes and special promotions. These activities have supplemented sales promotions at the retail market in an effort to spread the wine appreciation culture and increase the demand for more fine wines. U.S. suppliers of high price point wines should expect more opportunities and target this market segment.
SECTION IV. PRICING
Retail Price Segments
• The abolition of its wine tax has created intense competition in the Hong Kong wine market, placing downward pressure on retail prices of wines. A study of the wines available at the two largest local supermarket chains revealed that majority of their wines were at the mid to low-price range (US$10-20 and below US$10)
SECTION V. MARKET ACCESS
• There is no import duty on wine.
• Wines, fruit wines and other drinks with an alcoholic strength by volume of 10 percent or more are exempted from labeling regulations. For alcoholic drinks with an alcoholic strength by volume of more than 1.2 per cent but less than 10 per cent, the durability period will need to be labeled on the drinks. Apart from this, they will be exempted from all other labeling requirements.
• The HKG released a Code of Practice regarding the Labeling of Alcoholic Drinks. This labeling guideline is provided to the trade for them to follow on a voluntary basis. (Under the Dutiable Commodities Regulation, every container containing liquor for local consumption is required to be labeled with the alcoholic strength.).
• Starting June 6, 2008, under the amended Dutiable Commodities Ordinance, Cap. 109, Hong Kong wine/liquor traders will no longer be required to apply for any licenses or permits for the import or export, manufacture storage or movement of wine and liquor with an alcoholic strength of less than 30 percent by volume. No valuation of the alcoholic beverages concerned for duty purpose will be required. However, the existing licensing/permit control on liquors with an alcoholic strength of more than 30 percent by volume measured at a temperature of 20 degree Celsius remains unchanged. To facilitate the customs clearance on wine and alcoholic beverages, traders are encouraged to provide clear description in the freight/shipping documents on the type of liquor and the alcoholic strength of the respective consignment