The onslaught of Hong Kong’s worst outbreak has soured Hong Kong’s once buoyant wine market, leaving merchants in limbo without detailed government timeline amid rising restaurant closures and retail slump.
The current outbreak that first started in January has already cost substantial damage to the city’s wine market, and with Hong Kong’s now protracted war against worsening Covid, the city’s wine market is taking hits from all sides.
Merchants and sommeliers now have to manage costs during prolonged covid restrictions, supply chain snag, rising logistic costs, staff shortage and diminished appetite for home consumption.
BURNED ON BOTH ENDS
With the city’s daily cases peaking at nearly 60,000 a day, the government further tightened restrictions until April 20 when it finishes testing all 7.4 million people. Currently, 16 types of premises are temporarily shut down under social-distancing measures which were expected to be lifted on April 21 after mass testing was completed.
But the timeline was thrown in doubt after Hong Kong government u-turned and postponed the testing indefinitely, causing fears of waves of bankruptcies, business closures and job losses that would reverse all the gains made in 2021.
“The latest wave definitely shook the entire wine market. We have never seen such a slump in the economy,” exclaims Bojan Radulovic, Deputy General Manager of Greater China’s leading wine company Links Concept.
Indeed, the city’s retail sales grew at its slowest pace in January amid rising cases and its GDP this year would contract and grow 1-2% at best, according to economists.
On-trade sector, the lifeline for many of the city’s 1,300 strong wine importers and retailers, has been suffering since January 7 when the city banned restaurant dine-in after 6pm and bar and nightclub operation, and with no end in sight, the city’s hospitality and service sector is gasping for life.
According to Hong Kong’s restaurant association, roughly 7,000 out of the city’s 16,000 restaurants have suspended their business during the outbreak to cut operational costs. About 2500 restaurants have permanently closed in the past two years, and another 1500 are expected to fold business next month.
For Jacky Luk, Chief Sommelier at three-Michelin starred restaurant Forum, the impacts of the dine-in ban and covid restrictions are immediate and far-reaching.
“With only lunch services, the dinner dine-in ban has hit wine sales hard, down by roughly 90%,” the sommelier admits. The restaurant is currently suspending business for the entire month of March to ensure safety for its staff and customers.
With lessened on-trade sales, in past outbreaks the city’s wine merchants could count on strong home consumption to be the saving grace, but Radulovic relented, “The fourth wave left off-trade market still strong, but this time people are very afraid, and even off-trade market is facing difficulties.”
Additionally, Jeremy Stockman, Managing Director of Hong Kong’s biggest wine retailer Watson’s Wine, lamented that consumers who enjoy drinking wine at restaurants did not necessarily carry on drinking at home.
“Our experience has been that wine consumers that have enjoyed wine in restaurants have not transferred to home consumption. I feel that if they cannot share then less bottles are opened and there is a lot of limitation on gathering,” he explains.
The sentiment is shared by Nick Chan, Director of wine retailer Enoteca Hong Kong. “Yes, for sure,” says Chan admitting personal consumption sales growth, but he’s quick to add, “at the same time Hong Kong’s overall alcohol consumption is down, I believe.” Owned by Japanese drinks giant Asahi, Enoteca Hong Kong operates eight wine shops across the city.
What compounds the problem is that mass purchasing from merchants encouraged by last Quarter’s buoyant growth could now face files of unsold wines in storage.
“After benefiting from positive sales during Q4 2021, many importers ordered excessive stock, and some have been discounting that stock deeply to clear it during the current restrictions,” says Daniel Leung, Senior Wine Buyer at Hong Kong’s upscale supermarket chain city’super. “Even so, we think that the most important thing is customers’ desire to buy. If the restrictions continue, some importers and wine retailers may face financial difficulties.”
According to Links Concept’s Radulovic, the mass exodus of expats who are often a steady customer base for wine sales is another factor that dampens home consumption. “Many expats are leaving Hong Kong and relocating to other cities where restrictions are more flexible, and this will also make an impact on personal wine consumption,” he says.
The exodus is expedited when in February Hong Kong government announced plans for an ambitious plan to mass test 7.4 million of its population accompanied by a lockdown.
Consequently, the ranks of people leaving the Asian financial hub is shooting up. A net 71,000 people left Hong Kong in February, the highest since the pandemic began more than two years ago.
EXTENT UNKNOWN
But so far, with Hong Kong government coy about mass testing and lockdown details, merchants are struggling to grapple with the extent of damages that the prolonged restrictions will have on local wine market.
“It is difficult to have a clear vision on what the next few months will be like. However, we can expect struggles in the on-trade leading to more closures of outlets and rise of unemployment in this sector of the industry. It will also affect the suppliers who will also have to adjust their business,” says Thibaut Mathieu, Managing Director of Asia at Corney & Barrow, one of UK’s oldest wine merchants.
Daniel of city’super predicts that even in post-Covid wine market in Hong Kong, consumer habits formed during the pandemic will persist. “During the two years of Covid, we have observed a ‘new normal’ for wine consumption, with people tending to drink at home and in private spaces like party rooms or on staycations. As they’ve now enjoyed lower wine prices compared to bars and restaurants, this new model will continue post-Covid.
While wine companies have to face financial losses from prolonged restrictions, they are also squeezed by supply snag, increased global shipping and local logistics costs.
Merchants interviewed for the article agree that only the big wine operators in the city will likely survive the city’s protracted covid restrictions, as it will likely heighten some wine merchants’ cash liquidity and stock problems, and eventually push some smaller sized companies out of business.
“Overall business is affected on both sides: on and off trade. Another issue that we are facing is shipping delays, which brings additional difficulties for business,” says Radulovic of Links Concept.
Chan from Enoteca also warns of increased costs and inevitable price hikes. “Cost is getting up: shipment cost, local logistics cost, product increase etc. However, everyone has to increase their price because there’s no room in between, especially for retail,” he explains.
Like many of the city’s business owners, he admits left merchants unprepared to cope an outbreak of this scale. “Not much we can do. Plan more frequent and ad-hoc promotion for e-Business, private sales and approach more different off trade, dealer….etc.,” he confesses.
At Watson’s Wine, Stockman says the company will follow government pandemic guidelines to fight the surging wave. “We will follow all guidelines but this will mean a great impact,” he admits. In March, the wine retailer has adjusted and shortened operation hours for its 22 stores across Hong Kong.
Mathieu of Corney & Barrow is counting on strengthening its e-commerce platform and adding diversity to boost its online wine sales, which had proved effective in the past 18 months.
“And in general, we stay even more in touch with our local market, promoting the producers that we represent in Hong Kong. We have held online tutorials with producers in the past and we will continue to do so. There are always some opportunities in these difficult times,” he consoles.
As for Links Concept, Radulovic looks back to wine’s universal conviviality in good and trying times for some solace.
“There will always be demand, as wine survived many centuries of difficult times. When the economy is good, people drink to celebrate; when the economy is bad, people drink to feel better or dull the pain, albeit a little less expensive wine.”
