Additional reporting from Jeannie Cho Lee in Hong Kong
The Hong Kong government abolished import duties on wine and beer on Feb. 27, leading to a frenzy of activity among retailers and importers, and two U.S. wine-auction houses announcing plans to conduct local sales. By eliminating import tariffs, local leaders hope to make the Chinese city a premier wine market. Hong Kong was a major player on the auction circuit until the East Asian currency crisis crippled financial markets in 1997. But over the past 15 months, it has gone from a city with one of the highest wine duties in the world to duty-free—from 80 percent in early 2007, to 40 percent by March 2007 and now to zero.
By abolishing import duties, Hong Kong has positioned itself to become the world hub of fine- and rare-wine sales. "This could prove to be the most significant event in the history of wine as a commodity, as the entire wine-drinking population in the East can now participate in an unfettered manner," said Frank Martell, international director of fine and rare wines at San Francisco-based Bonhams & Butterfields. The house plans to conduct an auction in Hong Kong on an as-yet-unspecified date in April. "Historically, a large portion of wines purchased by Hong Kong collectors was kept overseas. Now they may be brought back to Hong Kong without penalty."
Hong Kong's local government decided to repeal the duties for two reasons: The territory is currently enjoying a record budget surplus, and leaders hope the repeal will bring in more business. Announcing the move, financial secretary John Tsang estimated it could increase Hong Kong's total business volume in trading, storage and auction of wine by $514 million a year. In terms of volume, Hong Kong and China together command more than 60 percent of the Asian wine market.
Within an hour of Tsang's announcement, local wine merchants were e-mailing their revised price lists. Wholesaler Farr Vintners' Hong Kong slashed its prices by 15 to 30 percent for all its fine Bordeaux. The Hong Kong outpost of British retailer Berry Brothers & Rudd cut its prices by 15 percent across the board, as did local retail shop Ponti, which is offering discounts up to 45 percent until March 31. Supermarkets such as Park N Shop announced across-the-board price cuts by an average of 28 percent, effective immediately.
The Bonhams April auction will focus on the very top tier of the finest wines on the market, including Château Lafite Rothschild 1982, DRC La Tâche 1985 and an extremely rare magnum of Screaming Eagle 1992, the winery's first vintage.
John Kapon, wine director at New York auction house Acker Merrall & Condit, said his firm will hold a wine auction at the Island Shangri-La hotel on May 31. "We have already procured consignments from two of Europe's and six of America's finest collections. The quality of wine for this sale is staggering—estimated at $3 million-plus [$20 million in Hong Kong dollars]," he said. "It should prove to be the largest wine auction ever conducted in all of Asia."
Research conducted by the Hong Kong Wine & Spirits Industry Coalition showed that Hong Kong- and China-based collectors make up approximately 40 percent of their business, spending an estimated US$1.2 billion annually. If Hong Kong can position itself as a world wine hub, the coalition believes, the revenue generated would benefit the city in other sectors, such as retail, transportation, logistics, conferences, restaurants, exhibitions and hotels.
But not everyone was supporting the move. "This will not be good for the wine-retail business. Everyone will be going online and buying direct from all over the world and having it shipped to their homes," said Eric Desgouttes, fine wine manager for the largest wine-retail group in Hong Kong, Watson's Wine Cellar. "Our retail wine selection may dwindle to cheap, everyday wines instead of our current selection of fine wines."
Cedric Bilien, head sommelier at the Four Seasons Hotel, said, "This is going to be a problem for us. I can see more people wanting to bring their own wine. We currently have a corkage of HK$500 (US$65) per bottle but we will have to review this policy to either eliminate corkage and not allow people to bring their own wine, or raise the corkage price even more to discourage people. We have a lot of stock that we already paid for and customers are going to complain about our pricing."
In the short term, there will be some painful adjustments for retailers and restaurants alike. Franz Donhauser, general manager of the Island Shangri-La hotel, has mixed feelings about the impact of the lifting of the wine duty. "In the long run, this is good for Hong Kong and good for the Hong Kong people. For us, we will probably lose revenue from wine sales."
But Hong Kong wine lovers have wasted no time cheering, and celebrating, the announcement. Doug Rumsam, managing director of Bordeaux Index's Hong Kong office, told local media that he expects to bring in between US$500,000 to US$1 million worth of stock from London to Hong Kong immediately. And Gregory De'eb, general manager of Crown Wine Cellars, said his phone has been ringing incessantly since the announcement, with clients wanting to reserve space in their cellars for wines being brought to Hong Kong from all over the world.
And wine lovers had their checkbooks ready immediately: More than US$1 million was raised at a charity wine auction held at the Shangri-La hotel on Feb. 28, the day after the announcement that the duties had been lifted.