Golden Gate Wine Company uncorks a niche

Toby Marion saw a niche opportunity in Hong Kong and he decided to tackle it. After a quarter century in the energy industry, he and his wife decided to pursue a long-time interest in wine. “Wine is one of those things that’s history, culture, cuisine, art, charity, agriculture, a lot of things come together. I thought it would be a fun business and a good way to travel. So we decided to go into it,” says the U.S. expat, who is now based in Hong Kong. “It would be a fun business.”

Thus Golden Gate Wine Company was born. The first thing Marion did was hire a local wine consultant, Simon Tam, to help him structure a business. “We did a feasibility study back in ’04,” Marion says, “and nailed down one unique selling proposition — it could be the American niche.”

Marion knew that American wines were popular in Hong Kong but that the industry’s export record was erratic. French wines command the leading position with 50% of the market in Hong Kong and China, followed by Australian wines. Chile and the American duke it out for about 14%. But the United States had a reputation for being high-priced with unstable delivery.

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“About 90% or 95% of U.S. wine is consumed in the U.S.,” he says. “During recessions the wineries want to sell abroad. Various hotels and restaurants would get used to U.S. wines and like them. Suddenly, there’s a boom in U.S. wine exports, then when the recession is over it dries up. And this would be frustrating to hotels and restaurants in Tokyo and Hong Kong because their customers liked a product and all of a sudden it’s out of stock.”

Marion wanted to bring some dependability to American wines in Hong Kong and to showcase smaller wineries in Oregon, California and Washington. The Hong Kong market is a sophisticated one and Bordeaux do particularly well. There are several well-known large Chinese restaurants he’s built a relationship with, including the famous Yung Kee in Central and Food Lam Yoon in Wanchai.

Then, in 2008, the Hong Kong government made a move that, while welcome, immediately complicated Marion’s job. It removed all duties on wine, greatly reducing its price but spawning a proliferation of wine merchants. Since then the number of wine dealers has tripled to approximately 3,000 firms and individuals, all importing wine. Competition at the top is stiff: premium companies are all chasing the same 500 or so hotel-and-restaurant accounts.

Marion does half his business “on trade,” selling to restaurants and hotels; another 25% “off trade,” that is to private individuals and the rest to resellers or partners in the nearby Chinese city of Macau.

“Off trade is the most challenging,” he says. It difficult to reach the retail trade because in Hong Kong it is controlled by a duopoly of supermarkets: Park N Shop and Wellcome. Marion only sells a small amount of wine through the chains.

Rents are a problem: Marion has just 800 square feet in the centrally located district of Wanchai on Hong Kong island, which costs him US$4,000 a month. And while duties have come off wines, consumers have little respite from high prices if they want to drink wines in hotels and restaurants, Marion says. “This goes back to rents. The CFOs control the cost limit for wines. Sommeliers simply have to listen.”

Hong Kong a global wine trading center

The removal of wine duties in 2008 has seen Hong Kong become a major center not just for consumption of wine, but in trading it. Local consumption zoomed from US$367 million in 2008 to US$517 million the following year. Hong Kong collectors own 15% of the world’s rare and fine wines. The city has also emerged as an Asian wine-trading center, especially for the mainland. Wine auctions in Hong Kong reached US$64 million in 2009, meaning Hong Kong has passed London as a wine-auction center and is now second only to New York. Euromonitor has forecast that wine consumption in China will rise 183%, from RMB93 billion (US$14 billion) in 2010 to RMB265 billion (US$40 billion) in 2015.

Hong Kong has an agreement with the mainland to ease customs measures, including wine duties valuations (which are applicable on the mainland) prior to shipments arriving at the Shenzhen boundary with Hong Kong as well as expedited customs clearance.