The case of Hong Kong

Hong Kong was one of the earliest metropolitan cities to be affected by the pandemic. Debra Meiburg MW looks at what happened to the wine trade.

Photo by Joshua J. Cotten on Unsplash
Photo by Joshua J. Cotten on Unsplash

In January, if somebody had told us that this would be as good as it gets in the first half of 2020, we might have baulked. At the time, Hong Kong was ready to close the door on our 2019 political strife and do what we do best: push up our sleeves and get back to business. Instead, we were among the first to face down the Covid-19 threat.  

Hong Kong’s health system has fared reasonably well; community transmission has been low and — at the time of writing — the fatality rate stands at only four people. People responded to the threat immediately and began self-protecting with face masks and hand sanitizer, acceptance of which are high due to our SARS experience in 2003 when we witnessed first-hand just how fast a new disease can spread through a dense population. 

Our economy and wine scene, however, did not get off so lightly. The Hong Kong government, eager to prevent widespread outbreaks in districts such as Lan Kwai Fong, closed all bars in late March. The closures, due to end in late April, were extended until 8 May. Public gatherings of more than four people were banned and restaurant tables restricted to 1.5m apart.

The social-distancing measures had a shattering effect. Already reeling after the unrest in 2019, the restaurant and bar sector was now on its knees. In early April, a wine industry survey by Meiburg Wine Media (MWM) gauged the mood: “For an iconic Asian hub like Hong Kong, this is both frustrating and sad. The way things are going, by the time the pandemic is over, there will be no businesses left to attract visitors to Hong Kong,” said one respondent. 

Hong Kong has faced difficult times in the past: the Sino-British Joint Declaration (1984); the aftershock of Tiananmen Square (1989); the Chinese handover (1997); the Asian financial crisis (1998); SARS (2003); and the Global Financial Crisis (2007), but Hong Kong always rebounded at an astonishing pace, even rallying to record-breaking economic booms.

This time, we have a much tougher hill to climb. In 2019, many small businesses began running out of financial reserves due to the volatile protest environment and they now face economic devastation. 

Measuring the cost

The one constant throughout this period of turmoil is Hong Kong’s consistently high rents. Some landlords have offered a month of free rent or a reduction of 15 percent, but in a city that vies for the title of highest rents in the world, these reductions are insufficient to aid the most fragile of our sectors to weather the downturn. 

The calamity has caused casualties. MWM’s survey revealed that 61 percent of wine businesses have made staffing changes, ranging from redundancies (43 percent), unpaid leave (43 percent), salary reductions, cancelled commissions and bonuses, reduced working hours and forced leave. Many respondents (60 percent) were fearful they would need to lay off staff within 30 days if the situation did not change.

Fortunately, in early April the Hong Kong government launched measures to assist retailers and encourage affordable, quickly accessible lending packages. It also began dipping into its deep reserves to offer salary support to SMEs (small and medium-sized businesses). The HK$137.5 ($17.7bn) second-round anti-epidemic fund includes an allowance for wage subsidies for around 16,000 licensed catering outlets and their employees — about HK$9.5bn. The relief, while a little late to the party, was welcomed, but businesses are also calling for city or sector-wide rent reductions and tax relief. 

“Our top three costs are: rent, salary and logistics,” said a wine industry insider. “Any relief would help us survive while people are discouraged to dine out.”

People are still drinking wine, certainly, but drinking occasions and behaviour have changed considerably and this is impacting wine suppliers and importers in different ways. In Hong Kong, importers operate across all three segments: food and beverage (on-trade); retail; and direct to consumer (DtC), or private client business. 

Importers heavily weighted toward food and beverage are suffering — 42 percent saw on-trade sales drop 25 percent to 50 percent in Q1 and a quarter fell 50 percent to 75 percent. The outlook for Q2 is just as ominous. Hong Kong has always been a community of social drinkers, celebrating friendships and achievements with trophy bottles at posh restaurants. Now, people are drinking at home. 

Consumer businesses are on safer ground, with Hong Kong’s wine-loving jet setters grounded. Fine wine merchant Goedhuis & Co reported a 25 percent to 30 percent sales increase in Q1 for wines that were immediately available for delivery and under HK$1,000 a bottle. Some auction houses also performed well. Acker Merrall & Condit recorded a 20 percent increase in sales year-on-year, achieving $30m globally in Q1, according to a press release. CEO Andrew Bigbee said Acker’s success in Hong Kong was the result of being able to move immediately to virtual auctions and tastings, while maintaining close contact with its individual clients.

In an effort to offset losses, some on-trade specialists have ramped up retail and online sales, adjusting their business models from solely on-trade focused to more retail, online and private client sales. Watson’s Wine, Hong Kong’s largest retailer, reports that while its shopfront sales are down — compounding the problem of Hong Kong’s sky-high rents — online sales are up. However, the new surge in digital deals is not enough to balance the sales from its 27 Hong Kong stores, meaning an overall decline in sales. Much of the rumoured increase in home consumption is by frazzled Gen Yers coping with the demands of home schooling: Hong Kong’s mothers are openly saying they need their evening glass of wine.

Shopfronts and DtC retailers are not completely immune, though, with one prominent retailer predicting a 75 percent to 100 percent downturn in sales at some of its outlets. Heavyweight wine collectors are not buying so much because they are drinking their way through existing collections, often uncorking bottles that might have turned to vinegar had they not had this downtime. Wine geeks are pulling the corks on oddities picked up on travels and bottles with shoulder levels too dodgy to bring to parties or dinners. Housebound millennials and the eldest Gen Zers — recently returned from the USA and UK, often from university — would have tipped home-consumption scales, but they are mostly sheltering with parents who may not approve of home drinking. 

Like much of the world, Hong Kong faces a long, tough road to recovery. Today’s wine scene stands in stark contrast to the halcyon days of the past decade. Twelve years ago, Hong Kong exploded on to the international stage with forward-thinking initiatives on tax and duty abolition. The government invested in the trade, pursued business opportunities and sold Hong Kong to the world as a wine destination. International trade and investment flourished and local wealth bolstered the wine market. 

Subsequent Hong Kong governments have been less invested in developing the wine industry. One survey respondent commented: “Twelve years ago, a progressive government saw the opportunities in making Hong Kong Asia’s wine hub. Now we are looking like losing it all due to government policy, opinion and inaction.”.

Sixty-five percent of wine businesses have reduced or stopped importing wine, and nearly 40 percent have seen their international customers and guests disappear. Cathay Pacific has cancelled all its purchase orders from vineyards as the carrier operates at only 4 per cent capacity. 

Those of us in Hong Kong are battle weary — tired of sheltering ourselves from both politics and Covid-19. Our recovery will require a concerted effort from all corners, including government, to regain ground lost to protests, pandemic and neglect. 

“We need to give visitors a reason to return to Hong Kong,” said Mandy Chan from Ginsberg+Chan. “A collective campaign that helps Hong Kongers celebrate their city and brings hope, happiness and positivity.” 

The challenge is immense, but the community — comprised of refugees of momentous upheaval in China — knows what it takes to rebuild. Hong Kong people are resilient, resourceful and above all focused on financial security. As pricey as a bottle of Domaine de la Romanée-Conti might be, it is still an affordable luxury in our city. At its heart, the local market is vibrant, our professionalism and infrastructure robust. 

Silver linings

Hong Kong’s dining scene has adapted, implementing measures such as taking temperatures at the door, requiring guests to sign declarations of good health and confirming they haven’t travelled outside Hong Kong for 14 days. “So long as there is demand, we are ready to run our restaurants like this for at least the rest of the year,” Syed Asim Hussain from Black Sheep, which operates Michelin-starred BELON, New Punjab Club and other venues, told the Financial Times.

A joint campaign by food media involving more than 100 venues, #UnitedWeDine, ran in March and April, and is now extended through May. The campaign rewarded diners’ loyalty and encouraged people to be creative in their support by seeking out delivery or pick-up services, tipping generously, posting positive reviews and even volunteering skills such as food photography. 

Wine suppliers have adapted too, coming up with creative ideas to keep drinkers engaged, such as online “e-tasting” workshops. Amid Covid-19, there is a strong sense of cooperation in what is usually a competitive industry. Importers have pledged to share contacts, shipping containers and brainstorm ideas. At a drinks industry crisis meeting in April, facilitated by MWM, key industry figures discussed potential rescue initiatives and vowed to work together.

When it does eventually arrive, Hong Kong’s return to normality will be an outburst of celebration and personal bonding with friends. Hong Kong is a highly social city that does business with treasured connections, cousins and valued associates. We’re a community that normally dines at home only a few nights a week. After more than three months of various forms of lockdown, we are gasping to reignite our social lives and work relationships. And in Hong Kong that will mean considerable opportunity, once again, for wine.  

Debra Meiburg MW

Debra Meiburg MW is the founding director of Meiburg Wine Media.

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This article first appeared in Issue 3, 2020 of Meininger's Wine Business International magazine, available online or in print by subscription.

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