The Wine Collector

WinePrices.com's wine price indexes continued to rise strongly in October based on 14 auctions worldwide, three of which were in Hong Kong. Of US$25.8 million in proceeds from these auctions, US$13.2 million or 51% was spent in Hong Kong.

The top three most actively traded fine wine indexes were up 8%-14% in October after increasing 9%-12% in September.  These indexes are up a stunning 44%-64% year to date.  Wine investors with the stomach to have invested when the economic outlook was bleak are now being amply rewarded.

See below for a table of key stats on all of the indexes and the full summary results page for trading metrics information (and archives from prior months).  Note: each index equaled 100 as of January 2005.

Observations

• Investment grade Bordeaux, which continues to experience high demand from Asia, is leading the pack in terms of returns.
• Positive year-on-year growth - The majority of indexes are now in positive territory when measured on a year-on-year basis.
• The California 100 index has shown little appreciation over the past five years (in last place based on its index value) and it's been the worst performing index year to date.  I suspect major contributing factors are the weak U.S. economy and relatively tepid international demand for the wines which comprise the California 100 index. Historically, virtually all of these wines were sold to oversubscribed mailing lists comprised largely of U.S. wine collectors and enthusiasts.  Now that wine auction demand is shifting towards Asia, the relative lack of exposure and access to California's top brands among Asian wine collectors is hurting these brands' secondary market price performance.  U.S. wines, in general, are relatively hard to find in Asia and most brands seem to be ignoring the opportunity (if the U.S.'s very minor presence at the recent Hong Kong International Wine Fair is an indication of interest).
• Vinfolio's Asian experience confirms these trends.  The first of five offers drawn from a US$3+ million cellar that we began offering yesterday through our U.S. and Hong Kong offices is already 75% sold out in 24 hours with the majority of the spending derived from Asia.

P.S. Stay tuned for November results from 17 worldwide auctions (results will be compiled by mid December although individual auction results appear on WinePrices.com as they are added).

At the opening ceremony of the Hong Kong International Wine Fair today, John Tsang, Financial Secretary (on right in photo), announced an important step towards streamlining access to the Mainland Chinese wine market:

"I am pleased to tell you that we have just reached agreement with the Mainland Customs to provide customs facilitation measures for wine exported from Hong Kong to the Mainland. We are also discussing with their food safety department, the Administration of Supervision, Inspection and Quarantine, to see if we can introduce even further measures."

At a later session, another government official said they expected to announce more details in "the next 1-2 weeks."

What it means

Currently, mainland China has roughly a 50% duty on imported wine plus inspection/sampling laws which permit bottles to be "tested" (and destroyed in the process).  If this announcement signals a potential removal of those barriers for wine flowing through Hong Kong (but not from elsewhere), it will help Hong Kong further its ambition (already well on its way to being realized) to become the wine trading hub for Asia.  For wine collectors, even higher demand for fine wine from China (if essentially duties are removed via passing through Hong Kong) translates into continued upward price pressure on fine wine prices globally.

P.S. For the full text of John Tsang's speech, click here.

Are you already paying higher prices for fine wine in the U.S because of demand from Hong Kong and mainland China?  Absolutely.  And if you're a first growth Bordeaux drinker, don't expect relief any time soon.

Consider the following:

• Virtually all major auction houses have gone from zero Hong Kong auctions (as of March 2008) to having a high percentage of their global sales being achieved in Hong Kong since then (when the import duty was cut to zero).  In total, by the end of this month, there will have been 19 wine auctions held in Hong Kong since the duty cut.
• Almost all of the wine sold in Hong Kong is coming from the U.S. and Europe and would have otherwise been sold in those locations (with lower Asian buyer participation).
• Last week, I was in the UK and met with several major fine wine players who told me from 40%-60% (!) of their total sales is now generated from Asia.
• We're launching our own Hong Kong ecommerce site next month (see earlier post) and I just received an email today that Acker Merrill just launched their first Hong Kong Internet-only auction (both in HK$).
• The Hong Kong International Wine & Spirits Fair is coming up November 4-6, and the exhibitor list is more than double that of last year's event.
• Chateau Margaux is making its first ever visit to Asia next month for a wine dinner anyone can attend for about US$550.  There are more producers than you might think who are at a very early stage of developing their brands in Asia.
• According to a story in yesterday's Wall Street Journal titled China's Taste for Luxury, "robust Asian demand almost entirely offset falling sales [elsewhere] of brandy, champagne, jewelry and watches."
• Three days ago, the WSJ's Wealth Report blog had a post titled Only China Can Save Luxury Sales in which it mentions that Bain & Co. estimates luxury-goods sales in mainland China will jump 12% this year whereas the U.S. will be down 16%, Japan will be down 10%, and Europe will be down 8%.
• The same Wealth Report blog had an interesting post on October 13 titled Chinese are the New Kings of Bling.  The post notes that China is the world's second largest luxury goods market (after Japan) per a Goldman Sachs report.

Bottom line: The Chinese wine collector is already making an impact on global fine wine prices and I fully expect that they will capture an increasing share of the high end of the fine wine market, driving up prices for others in the process.  The good news is that savvy collectors have plenty of alternatives to the most well known producers.  Or, you can read these "tea leaves" and conclude fine wine is an interesting investment class to pursue, even if only for financing your drinking.

Now that our financing is completed and the Vinfolio Marketplace is launched, we're finally in a position to resume our focus on expanding our existing Hong Kong operation.

Vinfolio Hong Kong ecommerce site launching in November 2009

Our immediate next step in Hong Kong is to convert our Vinfolio Hong Kong web site (www.vinfolio.hk) into an ecommerce site (see image - click it to enlarge). Here's what you can expect:

• Access to virtually all 2,000+ items listed in our online U.S. store plus Hong Kong site exclusives.
• Pricing in HK$ for pick-up/delivery in Hong Kong (within 1-2 weeks in most cases)
• Separate email offers of items from the HK online store(email HKoffers@vinfolio.hk to request to be added)

In short, Vinfolio Hong Kong will essentially become a local wine store to Hong Kong/Macau residents.  No overseas shipping need be arranged and no minimum purchase quantity will apply.  We will list all available items in a new "Vinfolio Hong Kong" listing on Winesearcher, WinePrices.com, and Global Wine Stocks.

Of course, our U.S. online wine store will continue to be available to Hong Kong customers if they prefer and the Vinfolio Marketplace will continue to be there exclusively.  Just keep in mind that those prices are in U.S. dollars for pick-up/delivery in San Francisco so onward shipping costs to Hong Kong are extra (whereas this is already included in HK site pricing).  U.S. purchases come with six months free storage in one of our climate-controlled facilities. Initially, we will not ship to other countries from Hong Kong so customers in other Asian countries will need to continue to order from the U.S. site or make their own arrangements from Hong Kong

Hong Kong wine storage facility targeted for 2nd Quarter 2010

We remain committed to opening a world-class wine storage facility in Hong Kong.  The tough economy and higher-than-expected capital expenditure requirements caused us to defer our original plans to open a Hong Kong wine storage facility in the Fall of 2008.  We've recently decided to pursue an approach in Hong Kong that we followed with our 20,000 sq. ft. Napa Valley facility that we opened in October 2008.  In that case, we simply became a tenant of a facility developed for wine-related businesses that required a climate-controlled environment.

The problem, however, is that these ready-to-occupy facilities simply don't exist in Hong Kong (at least, I'm not aware of them).  There are "air-conditioned" facilities and cold storage facilities but none designed for a constant 55 degree (F) (or 12-13 degree C) temperature and humidity-controlled environment.

Therefore, we've set out to find a financial/real estate partner (corporate or individual) to finance the development of a world-class, Hong Kong-based, wine storage facility that Vinfolio could lease and operate as a tenant.  We're willing to completely manage the design process as we essentially already completed one in 2008 before we put the project on hold.  Any interested parties should contact Anthony Mak, Managing Director, in our Hong Kong office at (852) 3748-3833 or anthony@vinfolio.hk and he would be glad to provide a more detailed description of what we're seeking in a partner on this project.

Hong Kong International Wine Fair November 4-6

Vinfolio Hong Kong will have a booth the International Wine Fair next month.  Please stop by and meet our Hong Kong team in person.  I will also be in Hong Kong from Nov. 3-6 as will our Vice President of Marketing, Jay Moore.

Sotheby's Wine department excellent results for the 1st half of 2009 provide further evidence of Asian buying power (read the press release).  The tables below provide more details but here are a few points to highlight:

• With only a single debut sale in Hong Kong in the first half (out of nine auctions), Hong Kong already surpassed the five sales in London in the same period and almost beat New York.
• Over 56% of buyers at all nine auctions (measured by value) were Asian.
• Among the top 100 lots by region, an astounding 88% were purchased by Asians.

WinePrices.com's most actively traded fine wine indexes were up from between 10%-17% in May 2009 based on global auction results (the Dow Jones Average was up 4.1%).  See full summary results page for all nine indexes.

What's going on?

As noted in my prior post, Asian wine buying influence continues unabated, I'm sure these prices reflect the impact of higher auction prices being paid in Hong Kong.  Of the 11 auctions held in May worldwide that we tracked, four were in Hong Kong and about 25% of the price data points derived from these auctions.  I'll be doing a separate analysis soon to try to quantify the "Hong Kong effect" although Asian buyers continue to be active in New York and London auctions.  Note that these results exclude the first mainland Chinese wine auction for reasons I will address in a separate post (the results would have been skewed upwards further).

The sharp upturn in The Conference Board's Consumer Confidence Survey during May (see press release) also seems to correlate with these May auction results.

California fine wine prices performing particularly poorly

The California 100 index has turned in the worst performance of the nine indexes since January 2005 (101.11 index versus 100.00 in January 2005).  The 2009 price recovery which has positively impacted all other indexes has largely skipped the California 100 with only a 1.2% increase YTD to May.  The lowest other index for the same YTD period is +9.1% for the Italy 25 and +31.3% is the highest for the Bordeaux First-Growth 100.

If anyone doubts that fine wine prices aren't set based on global demand and supply, read the following two stories:

• Asia dominates Sotheby's sale - This was a NYC auction but also held live on the Internet.  "The top five most-expensive lots were bought from Asia.  Nine of the top 10 revenue-grossing lots were claimed by Asians."
  
• Counting China's millionaires - A few key points: 825,000 mainland Chinese - or one in 1,700 - have a personal net worth of at least US$1 million.  "82% of China's richest have not made any lifestyle changes since the financial crisis hit.  The underlying reason is that their confidence remains high." 
  

Bottom line: It seems that fine wine prices have a serious underpinning of demand that will only grow over time with Chinese economic growth.

Decanter.com's recent story titled "Christie's closes South Kensington wine department" was mistitled.  It should have been headlined "Christie's new wine strategy will focus on Asia."  Among other points made in the article:

• Hong Kong remains a profit center and is sustaining the economic crisis better than elsewhere (based on recent auction results)
• More staff will be recruited to the wine department in Hong Kong

Christie's is making a smart move.  While even Hong Kong is not immune to the global slowdown, our Hong Kong office quietly launched on November 1 and we can attest that fine wine sales have been growing nicely.  Customers currently buy from our U.S. inventory, either online at our U.S. site or by speaking with or visiting Mabel Ho, Executive Wine Specialist (call (852) 3748-3834 for assistance).  Our Hong Kong wine storage facility is proceeding (after some delays) but plans are in place to launch it within the next couple of months. Please see the Vinfolio Hong Kong website (www.vinfolio.hk) for more information.

P.S. The closing of Christie's South Kensington location after 30 years was long overdue.  The South Kensington auctions served as an outlet for a "grab bag" of merely average wines not worthy of being sold by a reputable firm such as Christie's.  Closing it will remove this blemish on their highly regarded brand.

Sotheby's Wine department has produced their U.S. Market Review for 2007-2008 in a nice printed newsletter which I received a few days ago.  To me, the most interesting page was one devoted to Asian buying activity titled "Duty Free Asian buyers multiply."  I've reproduced below a short table from the article which caught my attention:

Whether this increased activity is driven by the elimination of Hong Kong and Macau duties, booming Asian economies, a weak U.S. dollar, or a combination of all of the above, it's no surprise that most major auction houses have already launched, or will launch, Hong Kong auctions.

Decanter broke the story on Friday that Macau, the world's largest gambling center, has eliminated its 15% import duty on wine (see "Macau scraps wine tax") effective August 26, 2008.  Such a move seemed inevitable after Hong Kong's identical decision earlier in the year for several reasons:

• Very little Macau tax revenue is lost as its 15% rate was already relatively low and the market is smaller than Hong Kong's.
• Strategically, Macau's gaming and hospitality business is far more important to its economic future than wine tax revenue and this move further supports that growth.
• Macau's alcohol-related businesses had been negatively impacted (down 30%) by Hong Kong's move (see story). 

Implications for Hong Kong

I don't think Hong Kong officials will see Macau's decision as a bid to compete with their own initiatives to be the leading fine wine hub in the region.  On the contrary, it makes Hong Kong even more attractive.  Here's why:

• The Macau gaming and hospitality industry is close enough to Hong Kong that it can be adequately serviced from Hong Kong (now without any obstacles in the way).
• The larger "tax-free" market opportunity increases attention on the region's potential as a fine wine hub which ultimately benefits Hong Kong over Macau as it's more established as an international business center.

Will China follow?

How long will it be before mainland China's wine import duties are reformed?  Don't hold your breath but the stark difference (0% vs. about 50%) can only help create pressure to bring duties lower (even if only for higher-priced fine wine while perhaps leaving existing duties in place on other wine to protect the development of the domestic Chinese wine industry).

I'm pleased to announce that we have reached two important milestones in our Hong Kong roll-out: the launch of our Hong Kong site, www.vinfolio.hk, plus pricing and pre-opening offers for full-service wine storage at our new climate-controlled facility being built out now.  We'll even help you move your wine from the UK at low cost.  Read details in our press release and on the site.

Note that our storage facility is open to both individual and trade customers, and there is no requirement that wine be purchased from Vinfolio to use our storage services.

I'm off to the airport to catch my flight to Hong Kong but I would be pleased to speak with any interested parties at the Hong Kong International Wine Fair.

The first annual Hong Kong International Wine Fair is next week from August 14-16 and Vinfolio Hong Kong will be exhibiting.  I will be attending along with our Vice President of Marketing, Rachel Blatt.  Please stop by booth 5D11 to introduce yourself.  The first two days of the show are limited to trade only, but Saturday, August 16, is also open to the public for HK$200 per visitor.

Please stay tuned for some further news on our Hong Kong expansion on Monday. 

The news of Cos d'Estournel's purchase of Chateau Montelena is hard to miss, even from my current vacation in Italy.  While some will attribute this purchase to the cheap dollar, as a former M&A banker, no purchase of this nature is made without solid strategic reasons.  In this case, I think the quotes referenced in Tom Wark's Fermentation blog are correct, that this purchase is ultimately about a recognition of the quality of Calfifornia wine.

Will the Asian wine collector now pay more attention to California wine?

Now that a top Bordeaux chateau has provided a very public endorsement of California wine, my thoughts shift to another place in the world, i.e., Asia, where top California wine has not received sufficient recognition.  It's common knowledge that the Chinese have a strong preference for Bordeaux, and are highly brand conscious.  Will a top Bordeaux producer's endorsement of California wine cause Asian wine collectors to consider diversifying their collections away from Bordeaux? 

In addition, wine investment drives purchases by Asian collectors.  The combination of the current weak dollar and the likelihood of greater quality recognition in the future both auger well for further value appreciation.

I've been in Hong Kong all week and was pleased to see a front page story in yesterday's Wall Street Journal Asia titled "Can Hong Kong uncork trading of wine in China?"  My answer is an unequivocal "yes" which is why Vinfolio is launching our own operations here (see earlier post). 

Barriers to creating cost-effective wine storage facilities in Hong Kong

But, there is at least one significant obstacle to overcome in realizing Hong Kong's potential.  Proper warehousing facilities for fine wine don't really exist.  Moreover, the nature of the real estate market is structurally biased against creating them on a cost effective basis.  Here's why:

• Given the high cost of land, almost all warehouses are in high-rise buildings.
• The floor loading capacity of these buildings is low relative to the weight of wine which limits efficiencies on using the space (i.e., how high you can stack cases).
• Virtually no warehouses are readily available with appropriate temperature and humidity conditions.   This necessitates a capital investment to install equipment (and insulation).
• However, the market's standard lease term is only 2-3 years which reduces amortization periods on your investment (effectively making it more expensive for a given length of time).
• Moreover, the fast-moving real estate market results in industrial spaces being subject to redevelopment into office buildings and residential towers that are more lucrative for landlords.  This means any market-rate renewal option you might negotiate could result in dramatic rent increases or, even worse, the landlord can trigger a "sales and redevelopment" clause and force you out of the space in 6 months (i.e., before your already-short lease term is completed).
• Finally, there is little new supply of warehouse space being built which could help moderate rental rates.

One suggestion to support market development

Hong Kong landlords should consider developing specialized "turnkey" facilities for wine storage and just charge higher monthly rents to recover investment costs (although this potentially limits their prospective tenant universe).

P.S.    The photo on the upper right is a typical Hong Kong warehouse building. 

The Financial Times' annual Wine Investment Report was published today.  Jancis' Robinson's lead article, Asia gives the market a new flavour (or see this link to read a longer version on her site), provides a superb overview of global market changes.

As noted in my quote in the article, I firmly believe that being in the fine wine business requires a presence in major economic markets -- that now means Asia.

Tangible evidence that markets are constantly changing

Consider this quote from Jancis' article: "Last year, more than $233 million worth of fine wine went under the hammer in the U.S., as opposed to not much more than $35 million in the UK."  There was a time when these relative percentages were reversed.

Why did UK fine wine traders (other than auction houses) never expand into the U.S.?

While the U.S. is a large fine wine market, the state-based regulatory environment and direct shipping laws likely seem daunting.  While many UK players serve the U.S. market remotely, only Bordeaux Wine Investment (through its sister company, Bordeaux Wine Locators) has U.S. operations.

Why aren't more U.S. companies expanding into Asia now?

Other than Vinfolio and Acker Merrall, I'm not aware of other U.S. fine wine companies launching operations in Asia.  A few reasons come to mind:

1. The U.S. is a huge market in its own right.  Most firms have not exploited the opportunities on their doorstep, partly due to antiquated direct shipping laws that limit interstate sales.
2. Many U.S. firms are family-run and under-capitalized.  Most started as bricks-and-mortar businesses serving a fairly local community of customers.  Their next big step is moving online to at least address a national marketplace before going international.
3. Running a global business is more complicated, and therefore, harder to do successfully.
   

How will fine wine retailing in Asia evolve?

The market (including in Hong Kong) is still in an early stage of evolution and is fundamentally "up for grabs."  The keys to success are:

1. Having access to the right supply of fine wine at competitive prices.
   
2. Ensuring that the quality of the wine is preserved through appropriate shipping, handling, and storage.
3. Providing a high level of service (hence our own guiding principle, "Fine wine. Finer service").

Why will many Asian consumers storing their fine wine in London (or the U.S.) prefer Hong Kong?

1. Having your wine closer to where you live is comforting to many wine collectors who often feel emotionally attached to wine which they may have painstakingly acquired.
2. Proximity also means quicker access when you want your wine.  Air freight is expensive and not as safe a means of transferring wine from the UK/U.S. as refrigerated containers (by boat).
3. For Hong Kong-based wine collectors, even the modest risk that wine duties could be reinstated in the future argues for bringing wine back to Hong Kong while the duty is zero.
4. Climate-controlled, secure storage environments are replicable almost anywhere.
5. Future sales of investment-grade wines will increasingly be made within Asia (just as they have already shifted to the U.S. from London).

Vinfolio's Hong Kong storage facility

As noted before, we are actively engaged in taking steps to open a Hong Kong-based wine storage facility, both for local storage of our own retail inventory as well as to provide full-service wine storage to others.  If you're interested in registering your interest in our Hong Kong storage, please email us at service@vinfolio.com (make sure to mention your estimated quantity of cases to store).  I also be in Hong Kong for the week of May 26th and would be glad to meet interested parties subject to my schedule.

Asian wine buyers sometimes ask if European fine wine being sold in the U.S. bears U.S. import labels based on some concern that such wine has been handled more often and is at greater risk of being damaged than wine sourced directly from Europe.

This rationale fails on several counts:

1. Unless the wine is from a newly released vintage, it will likely have been handled by multiple parties already, whether American or European.
2. The seller of the wine (the retailer or auction house) has a reputation to maintain for selling wine of sound provenance.  In Vinfolio's case, in addition to questioning the seller on purchase sources and storage conditions, all wine is inspected according to our inspection guidelines before purchase.
3. Rare wine is simply not abundant enough for buyers to refuse to source wine from the entire U.S. market.  Note that all wine imported into the U.S. must comply with federal wine labeling regulations.  Either the wine's official U.S. importer creates a U.S.-specific label which is applied overseas before importing (see Petrus photo) or the wine is sourced directly in Europe through trade channels and supplemental "strip labels" are added to the European label to satisfy the U.S. requirements (a common practice).

An upcoming test in Hong Kong 

As I have been paying close attention to the Hong Kong market given our decision to launch operations there, I noted that Acker Merrall's upcoming May 31 wine auction, the largest ever in Asia, is sourced from six American collections and two European ones.  Does anyone really think bidders will pass on the American-sourced wine?  I don't.

Vinfolio is taking immediate steps to launch its first international operations in Hong Kong by Fall 2008.  See today's press release.  Here are a few factors which drove the decision:

• The demand for fine wine has been growing steadily in the region and we expect it to continue.
• The recent elimination of wine duties in Hong Kong provided a further catalyst and, over time, will create pressure for other countries to cut duties, too.
  
• Hong Kong offers an attractive business environment and excellent location from which to serve neighboring geographies, especially mainland China.
• The weak U.S. dollar is stimulating more Asian buyers to focus on the U.S. market to buy their fine wine.
  
• Additional wine storage services are needed to support the arrival of wine historically stored outside Hong Kong.  Vinfolio's experience in running a full-service storage facility in San Francisco combined with our VinCellar online cellar management software create competitive differentiation for our services.

Next steps

I will be in Hong Kong again from April 8-11 to begin exploring warehouse and office locations.  In addition, we'll start searching for a Managing Director/General Manager hire.

Bottom line: The fine wine business is global and Vinfolio's operations need to mirror the market to maximize our opportunities.  This is no doubt only the first step in the globalization of our business.

The Hong Kong government just dropped duties on all alcoholic beverages, effective immediately (see story).  The duty on wine had been 40% after having been cut from 80% the prior year.  Financial Secretary, John Tsang, is betting on the behavior of free markets to turn this into an economic win for Hong Kong. 

Hong Kong destined to be Asian trading hub for wine? 

By forgoing approximately US$72 million a year in duties on all alcoholic beverages, Tsang commented that he expects wine-related trading activity may increase by as much as US$500 million.  In particular, the historic status of Hong Kong as a trading hub has been reinforced and this move places Hong Kong in a position to capitalize on its current lead as the center of wine in Asia.  Meanwhile, neighboring Macau, the new center of global gambling, has a 15% wine duty and mainland China's wine duty remains at around 50% (plus bottles are at risk of being "sampled" -- which effectively kills importing small quantities of rare wines).

Other Implications

1. More foreign wine business will open offices and expand activity in Hong Kong.  As previously noted, I'm traveling to Hong Kong on a previously scheduled trip this weekend to explore business opportunities.  Acker Merrall & Condit just announced a few days ago that it is launching wine auctions in Hong Kong in May.  The London International Vintners Exchange (Livex) has indicated its intentions to open an office if duties were dropped.
2. Further upward pressure on fine wine prices - In April of last year, I wrote a post titled "Global factors affecting trend for higher fine wine prices."  In it, I noted that the lowering of duties will drive more demand, which in a relatively fixed supply market for fine wine, supports longer term price rises.  While Hong Kong's economy is relatively small, it could easily become the "funnel" for wine purchases from wine collectors in nearby high duty countries.
3. Hong Kong wine storage facilities will boom - Hong Kong has limited local storage facilities for wine collectors. In fact, many local wine collectors are known to store their wine in London.  Expect much of this wine to return to Hong Kong for storage where it will be more easily accessible by its owners.  Hong Kong should also become the logical wine storage depot for wine collectors in nearby countries for the same reason.

What else do you think will happen?  Please add a comment to this post.

I'll be visiting Hong Kong for the entire week of March 3rd and Shanghai on March 10th to explore how Vinfolio can develop additional customers based in Hong Kong, Macau, and mainland China and better serve those we already have.  Some issues that I am hoping to gain insights about include:

1. How should we market Vinfolio in various regions to build awareness?  Are there logical partners to team up with?
2. What are the practical issues in selling wine to customers located in these markets without a retail storefront (in addition to duties and customs)?
3. Is there an opportunity to act as a wholesaler to other retailers, especially for older vintages of collectible wine?
4. How are other international wine retailers/wholesalers approaching the market?  What are they doing right and wrong?
5. Would it make sense for Vinfolio to consider opening an office in Hong Kong (or elsewhere in the region) to better serve customers?  Or is having a salesperson based in San Francisco making regular trips a viable approach too?

Overall, I am interested in learning as much as I can about how the market operates so that we can make informed decisions about how to best serve the market opportunity.

Setting up a meeting

If you're in the trade or a wine collector and would like to meet me during my trip, please feel free to contact me directly via my office or at steve@vinfolio.com.

It's simple.  Just make an effort -- the latent demand is there.  Decanter.com's recent story, "Bordeaux properties on major China, India tour," contained several factoids that got my attention:

1. The 120 Indian and 150 Chinese buyers and importers materially outnumber the visiting Bordeaux contingent of 80 professionals.
2. Only 20% of the Indian wine market is foreign-sourced.  This is unnatural and caused simply by ridiculously high import duties. 
3. The Chinese market for imported wine is growing 40% a year!

The demand for collectible wine, at least from China, is already surging and over the long term, both China and India will help ensure prices stay high.

P.S.    See my prior post, China's long-term impact on the fine wine market. 

China's growing thirst for wine is likely to drive fine wine prices higher over the next few decades. 

The March 5, 2007 Newsweek (International edition) contains an article titled "Bordeaux meets Beijing" and the February 28, 2007 edition of the Wall Street Journal weighs in with its own story on the Chinese wine market titled "'People I know still put ice and juice in wine'" (WSJ online subscription required).

Here are some items drawn from these articles which grabbed my attention:

1. Chinese per capita wine consumption doubled in the past 5 years but is still only 0.7 liters per person (equivalent to 1 bottle).  In comparison, the U.S. is third in per capita consumption with 14.5 bottles per year (see my post: 92% of wine consumed by "core drinkers") while France and Italy are about the same with 63-64 bottles per capita consumption each.
2. In 2005, China became one of the top 10 wine consuming nations (in absolute terms).
3. Chinese wine imports in 2006 (2.2 million cases) doubled 2005's level (1.15 million cases).  Since 2001, wine imports have grown from $32 million to $133 million.  The WSJ story also states that "wine experts think that one day, the high end of China's wine market for imports could match America's, valued at over $2 billion."
4. The Chinese government is actively encouraging wine consumption for health reasons over grain alcohols.
5. Taxes on many wine imports fell from 120% in 2001 to 48% today.
   
6. Wealthy Chinese buy the most recognized wine names (at very high prices) as a bit of a status symbol more than for the taste.  Sounds like an opportunity for Robert Parker to publish a Chinese language edition of The Wine Advocate and encourage more experimentation!

Alder Yarrow of Vinography has an interesting post today called “Now THAT’s cultivating a market” about an effort to cultivate wine drinking in China among 100,000 middle class families. This is part of a broader trend aimed at satisfying expected growth in Chinese consumer demand to tap into a “luxury lifestyle” that includes wine.

An article from Business Week’s February 6, 2006 issue titled “In China, to get rich is glorious” paints an amazing picture of how wealth creation is driving demand for luxury goods. Ernst & Young estimates that the Chinese luxury market currently generates more than $2 billion in sales annually and is growing at 20% annually. By 2010, China is expected to have 250 million consumers who can afford luxury products, more than 17 times the current number. The impact of Chinese buying will increasingly affect worldwide auction prices for fine wine and other items considered to be luxury goods.

China is already on the radar of some forward-thinking British wine retailers such as Berry Brothers & Rudd who have been marketing Bordeaux futures to the rapidly growing number of affluent Chinese (300,000+ millionaires is a commonly quoted statistic). Vinfolio is about to launch its own initiative in partnership with Winespring and its local partners to sell collectible wine directly in China (it’s almost easier than dealing with interstate shipping regulations). We already sell wine to consumers in Japan, Singapore, and Hong Kong and expect this to be a growing part of our business.