I’m no economist, but the idea of supply and demand is a fundamental economic principle that even we non-economists can understand. As far as fine wine is concerned, the demand is rising rapidly and the supply is not. My recent trip to Hong Kong and Vietnam demonstrated just how much demand is rising.
The broad Chinese market for fine wine is still in its infancy but it is poised to explode. And even Vietnam, with “only” a population of 90 million (compared to China’s 1.3 billion and India’s 1.2 billion), provides an insight into the future of wine consumption in Asia.
Reminiscent of New York
In Hong Kong, wine shops have sprung up like mushrooms after a rain since the government eliminated taxes on wine and dramatically loosened regulations. The wine market is as energetic as it is in New York. Though the emphasis remains on the top end–an advertisement for a Sotheby’s auction featuring wines from the Domaine Romanée Conti (a.k.a. DRC) is found in a corridor connecting the subway with an upscale shopping mall, and there are shops that specialize exclusively in Champagne and Cru Classé Bordeaux–the broader market is poised to take off. Wine accessories, such as electronic bottled openers, are sold in street markets where the predominant customer is Chinese, not Caucasian. On Hollywood Road, where trendy wine bars willing to pay higher rents have displaced longstanding antique shops, tables are filled with Chinese sipping glasses of wine after work. The point is this: While lots of reporting is devoted to the frequently ridiculous prices of trophy wines bought and sold at Hong Kong auctions, it’s the masses who will be driving the overall market in the near future.
Debra Meiburg, MW, the first Master of Wine in Asia, has lived in Hong Kong for twenty years and runs an extensive wine education media company there. She knows the Chinese wine market as well as anyone, and insightfully notes that wine drinking among the Chinese middle class “is a symbol that they’ve made it.” And with more and more Mainland Chinese “having made it,” expect the demand for that symbol to grow rapidly.
It’s no surprise to see a comprehensive wine list at a high-end restaurant, such as Tin Lung Heen, a Michelin two-star restaurant in the Ritz Carlton, which probably deserves three stars. Sitting on the 102nd floor of the International Commerce Center, Hong Kong’s tallest building, Tin Lung Heen, the restaurant offers everything from trophy wines at New York prices (1998 Joseph Drouhin Le Montrachet “Marquis de Laguiche” $1,000) to intriguing New Zealand Pinot Noir (2012 Ata Rangi Pinot Noir $90, which turns out to be a perfect match for their exquisite Peking duck). What is surprising is to see the number of Chinese drinking wine at lunch.
No doubt the enthusiasm for trophy wines in China will hold up, even though the conviction of Rudi Kurniawan for selling fake rare wine might put the brakes on that market for a while. But, as the market matures, Chinese consumers will no doubt learn how a broad range of wines enhances dining. In fact, it’s already started. The Maxim’s Group of restaurant in Hong Kong, which runs the ever-popular Peking Garden, a sprawling maze of rooms always packed with Chinese diners, has expanded their wine offerings. Over the years, more and more bottles of Australian red and New Zealand Pinot Noir appear on the table with the never-ending platters of Peking duck.
Vietnam: Insight into Asia
Despite the prohibitive taxes in Vietnam, wine drinking flourishes. Posters in elevators in upscale Hanoi hotels, borrowing the promotion that has been successful at New York City’s Apiary restaurant, advertise “No Corkage Mondays.” Obviously, wine consumption in Vietnam will never have the overall impact that it does in China because of a far smaller population, but it does gives an insight into the broader Asian market because the mentality is similar.
Kamals Munasinghe, Director of Operations for the upscale Renaissance Riverside Hotel, in Ho Chi Minh City, has a unique perspective because he was raised in Sri Lanka and has worked all over Asia in the hospitality industry. He echoes what Meiburg noted–wine drinking has become a symbol of “having arrived” among the middle class. And the middle class all over Asia is increasing. He recounts the experience of a Frenchman who opened a wine bar down the street from the hotel. Business was slow for the first six months, but then it boomed as the locals discovered it.
Munasinghe describes how the Vietnamese have embraced a promotion that hotels and wine importers devised, an all-you-can-eat and drink buffet, complete with wine and other beverages. The 120-member Harley Davidson group of Vietnam, all native Vietnamese and not exactly the group you’d expect to be drinking Cabernet, did just that one afternoon.
Judging from the throngs of Vietnamese populating the Starbucks-like Coffee Bean and Tea Leaf coffee shops, there are plenty of middle class Vietnamese who are candidates for the wine culture.
Can Supply Keep Up?
On the supply side, there’s excess in many areas, such as the ocean of wine labeled Southeastern Australia, established South American sources, such as Argentina and Chile, and new wine exporting countries such as Brazil and Uruguay. Wines from Australia and New Zealand are very popular in Asia, aided by their proximity and will likely moderate price increases overall. Similarly, there’s plenty of room to expand production of California Central Valley jug wine. The expanding Asian middle class may start out drinking wines in from these areas, but at least some of them–and the percentage doesn’t need to be very large considering the population numbers we are dealing with–will move on to regional or village Burgundies, Paso Robles or Napa Valley Cabernets, Oregon Pinot Noir and the like. And there’s not a lot of room for increasing supply in those areas.
Despite research by Silicon Valley Bank in a 2014 state-of-the-industry report that suggests a drop-off in consumption on the part of aging Baby Boomers may slow the growth of wine consumption in the U.S., the waves of emerging middle classes throughout Asia certainly will swamp any minor decrease in consumption in the West.
None of this means that wine prices are going up tomorrow–although they are in Burgundy, where four consecutive short harvests have pushed supply to record low levels. Indeed, many fine wine retailers, such as Schneider’s of Capitol Hill and New York’s Acker Merrall & Condit are currently holding “clearance” sales. But in ten years, we’re going to look back at 2014 prices of fine wines and fondly note that we never had so good.
E-mail me your thoughts on wine prices at Michael.Apstein1@gmail.com and follow me on Twitter @MichaelApstein
February 11, 2014