How A Hong Kong Conference From Hell Upended the World of Fine Wine
By Felicity Carter
There’s no greater hell than being trapped in a conference room, unable to leave. Greg De’Eb was stuck.
De’Eb was the South African envoy to Hong Kong and, as an honoured guest, had a seat reserved just for him. In the front row. He was trapped.
It was June 2000, and De’Eb remembers the conference was called “Can Hong Kong Be the Wine Trading Centre of Asia”? The idea was Donald Tsang’s, then Hong Kong’s Financial Secretary. “He really believed in the idea. He was really the driving force.”
There were initially 300 people in the room, but “as they started talking about the online future of wine, more people just left the hall and said this was absolutely ridiculous.”
Soon, there were only 100 people. Then, a “very grey, older gentleman who was about to retire, who worked for the Hong Kong Buildings Department,” got up to speak.
“He said: ‘I have been asked to come here and tell you’,” so you knew it wasn’t his idea,” says De’Eb.The grey gentleman launched into a tale of abandoned military facilities that could be used to store wines.
Another 70 to 80 people vanished. But De’Eb was riveted. He’d been wondering what to do after his diplomatic career ended. “My idea to stay in Hong Kong was to build a motorcar racing track, which I was very far down the road in achieving.” Still, he thought, a Plan B wouldn’t be a bad idea.
“I listened a bit more carefully than perhaps other people did, and I thought, ‘look, you’ve got 100% government support here. You’ve got zero competition, because everybody else obviously thought this was a hare-brained idea. Is there a business model?”
Indeed there was. What he’d been listening to was the sound of a world about to change.
A wine revolution begins
De’Eb was a diplomat during some of South Africa’s most tumultuous years. “I got to meet Mandela a few times,” he says. “I was working in the South African White House, the Union buildings. It was a very, very special time. As a reward for that, I was sent out to Hong Kong.”
But his career was drawing to a close, and the race track idea had tanked. Time to implement Plan B.
De’Eb called up the world’s biggest wine storage companies and asked them how much of what they had belonged to Hong Kong nationals. “The numbers that came back were astronomically high ― 17%” Given that Hong Kong’s population did not quite reach seven million, that made Hong Kongers the “most prolific collectors of fine and rare wine in the world.”
De’Eb decided to pursue the ‘storing wines in military bunkers’ idea. “I studied the best ways that wine should be transported, stored, what have you. I realised the only way that we would make a go of this and encourage people to bring their wines from Europe or the UK to Hong Kong was to do everything better than what the existing trade was doing.”
“I studied the best ways that wine should be transported, stored, what have you. I realised the only way that we would make a go of this and encourage people to bring their wines from Europe or the UK to Hong Kong was to do everything better than what the existing trade was doing.”
The first hurdle was money. The wine industry wasn’t interested in funding the project, because wine storage had never been done in Asia before. The banks refused to lend. De’Eb had no personal fortune of his own to draw on.
In August 2001, he had dinner with Jim and Sally Thompson. “Jim happens to own the largest privately owned record storage company in the world,” says De’Eb. After the other dinner guests had gone, De’Eb and his wife Cecilia kept talking. “About two or three in the morning, when we had drunk too much wine, Sally said to Jim: ‘Greg’s got this crazy idea. It’s about storage’.”
Thompson didn’t believe that the military bunkers actually existed, because he walked his dogs every day in the ‘Little Hong Kong’ area of Shouson Hill where Greg claimed they were. Greg laid a one-drink bet that the tunnels really existed ― and Thompson found them on his next dog walk.
The Crown Wine Cellars was born in 2002.
Despite the initial government enthusiasm for turning the tunnels into wine storage ― it was their idea, after all ― it took more than 13 months of negotiation before Crown signed the lease; the tunnels were in a green zone and part of a heritage preservation project. They also had no drainage, electricity or other infrastructure.
“The original Crown Wine Cellars site is a genuine underground cellar,” he says. “There were a total of six underground caverns that we inherited, already there since 1937.”
Turning tunnels into cellars
Over 13 months, De’Eb’s team measured the internal temperatures and humidity on a daily basis. Although there was 50 feet of soil between the tunnel and the surface, the three months of constant heat were enough to permeate the bunker and raise the temperature. In winter, the temperature fell dramatically.
The humidity was so bad it dripped down the walls. “We realised we had to seal this off,” and be proactive about climate control, De’Eb explains.
Most other wine warehouses, he says, are reactive. “They have a warehouse above the ground. They have a massive opening where trucks can drive in and out. As it heats up, you have these massive industrial air conditions that blow out ice cold air to cool things down.” Once the sun goes down, the air conditioners shut off to conserve energy. “The result is the temperature waves going up and down like this on a constant basis, all day long.”
Instead, Crown Wine Cellars was designed like a space shuttle, where “you can only open one door at a time and, as a net result, you create an airlock between those two doors.”
Only once the temperature and humidity is stabilised in the first chamber does the second door open. Inside, the wines aren’t stored in one open warehouse, but in a series of cells. “I call it wine Alcatraz. From a security point of view, it’s fantastic, and also for humidity and temperature balance.”
Four tunnels were turned into an inland bonded facility, which let people bring as many wines into Hong Kong as they wanted; tax wasn’t paid until the wine was drunk.
And some Hong Kongers began withdrawing their wines from other countries and sending them home. But this didn’t turn Hong Kong into the fine wine hub the government hoped, because the tax was so prohibitive ― a heart-pounding 80%.
A group of wine merchants, De-Eb included, began pushing the government to lower the tax. They argued that the revenue earned from wine tax during 2006 was a mere HK$369 million, at a time when Hong Kong was generating billions of dollars in revenue. “We said, ‘this is ridiculous. Why don’t you just consider dropping it?’”
The government listened. In 2007, they halved the tax.
Then, unexpectedly, in February 2008 they scrapped it.
The big bang of wine
In 2007, a wine-loving journalist called Jeannie Cho Lee added the finishing touches on her MW dissertation. “My subject was: ‘What is the potential of Hong Kong becoming a fine wine hub?’” She finished it just in time to see the duty dropped. “I had to go back and rewrite the entire thing, because the premise was wrong.”
But it was great news for the collectors with wines in Hong Kong, whose anticipated taxes vanished.
“It took everybody by surprise,” says Cho Lee MW, now a professor at the Hong Kong Polytechnic University, who consults to Singapore Airlines, among many other wine projects. “We never thought they would do it.”
The world’s auction houses hastily set up offices in Hong Kong. French châteaux issued press trip invitations. At the annual Hong Kong Trade Development Council Wine and Spirits fair that year, officials revealed all sorts of plans to support the wine market, including constructing a dedicated wine exhibition close to the harbour, where wineries could showcase their wines year round (it was never built).
Coincidentally, expats Debra Meiburg and Jeannie Cho Lee both qualified as MWs in 2008, adding even more lustre to the market, as well as a ready source of education and expertise. Cho Lee MW says that as the requests flooded in, she had “to hire people to help me politely say ‘no’ to a whole bunch of projects,” she says.
“That unbridled exuberance was everywhere,” says De’Eb, adding that a lot of people who knew nothing about wine decided to get into the trade, much to the consternation of existing fine wine merchants. “At one point, there was something like 3,000 wine merchants registered in Hong Kong.”
Not every change was instant. Retailers and restaurants still had to sell the wine stocks they’d bought when taxes were high, so it was a while before wine became affordable enough for everyday consumption. And there was still a huge amount of paperwork to move wines to China. “That was eventually resolved because there is an agreement among the Chinese and Hong Kong customs officials that if you are a Hong Kong registered entity, you can pre-register through a fast track process,” says Cho Lee MW.
The auction market
Jamie Ritchie, until recently, the Worldwide Chairman, Wine & Spirits at Sotheby’s in New York, launched Sotheby’s Hong Kong wine division in 2009.
“It was unreal,” says Ritchie. “Those days were exciting. Our first year in Hong Kong, I was going there eight or nine times a year from New York.”
Elsewhere, the fine wine market was in crisis. In late 2008, Lehman Brothers collapsed and the Global Financial Crisis was in full swing. Ritchie said the fine wine market fell around 40% between Lehmann brothers and January 2009.
Although Sotheby’s weren’t the first into the market, “we were early to the game and in our first year did $14 million”. One year later, “we did $55 million, which dwarfed what we were selling in New York at the time.”
The drop in duty had brought wealthy Chinese buyers into the market, for whom “money was no object,” he says. “There was a frenzy for buying. It was a small number of people buying extravagantly.” The excitement spread. “In New York, we had Mandarin-speaking colleagues with two phones connected to their ears for the whole sale. There was adrenaline.”
The auction houses rented containers, filled them with fine wines, and sent them to Hong Kong.
“Asian buyers immediately became the most important buyers in the world,” says Ritchie. “They were the reason the market bounced back so quickly.”
“Asian buyers immediately became the most important buyers in the world. They were the reason the market bounced back so quickly.”
De’Eb says the sudden, dramatic presence of southeast Asians turned the rarefied auction world inside out. “In Europe and the UK, wine had been trading on the reputation of the wine merchant.”
In Hong Kong, however, people would inspect their purchases and send them back if they saw a problem. “Initially the auction houses thought they were larger than the market and just said, ‘well that’s fine, but we are not accepting it back’.”
De’Eb says any Hong Konger who received that reply not only took their business elsewhere, but took their fine wine buying friends with them. With so much money involved, the houses quickly changed their ways.
“The auction catalogues became far more detailed than ever before,” says De’Eb. “The photography, the catalogues, the handling of the wine. I always get burned for this next statement: the merchants then had to catch up and they had to start inspecting every single case.”
Ritchie says it’s true that Asian buyers put a high value on flawless bottles. “Every nick and scratch had to be detailed, because otherwise you could get questions. So we went into another level of detail in our descriptions of the wines.”
Wine storage evolves
As more wine entered Hong Kong, storage and logistics became an issue; Crown Wine Cellars simply wasn’t big enough.
“A small group of us became the founding council of the Hong Kong Quality Assurance Association (HKQAA) Fine Wine Certification program,” says De’Eb. “We documented all the things that should be done to certify a wine storage company or wine logistics company.”
Cho Lee MW was also a member of the HKQAA, a government entity that checks retailers to make sure they’re not selling fake goods. “We had set standards for storage, temperature conditions, humidity, security and all,” she says. “That was launched in 2008. The government does random checking as well as annual checking of storage facilities.”
Cho Lee MW says she knows of no other country where the quality is assured by an official government body.
“This never happened in France, in the UK, in the US,” says De’Eb. “This was groundbreaking stuff.”
As the demand grew and collectors learned to trust the government, logistics and storage proliferated; Cho Lee says Hong Kong now has more than 50 storage services.
As Hong Kong raised the standards, companies elsewhere had to as well.
The Hong Kong fine wine consumer
According to Cho Lee MW, it took until 2007 for the fine wine market to recover from the currency crisis of 1997, which “basically paused the wine industry”. Even in 2008, wine was seen as a luxury good that had little presence outside the specialist retailers. “Wines were predominantly geared towards expats or Chinese who had been educated abroad,” she says.
When the duty was dropped, buying began in earnest. People didn’t just buy the wines to hold ― they drank them, at rates that made jaws elsewhere drop. De’Eb says it’s because people felt like the wines had just been discounted by 80%.
“There was this real mindset that this is a bargain and we’ve got to celebrate ― we don’t know if the tax is coming back again.”
As to who was drinking, De’Eb says that there was “this almost pronounced focus on bankers and lawyers” who would come to the Crown Wine Cellars clubhouse, opened in February 2004. Both De’Eb and Ritchie remember passionate collectors, who loved sharing their bottles.
“We had big dinners around the table, and you could drink half a million Hong Kong dollars worth of wine very easily, with nobody showing off,” says De’Eb. “This is not about labels, this is about Mr X loving this particular estate and wanting to share the bottles.”
Things are different today. The generous collectors of that period are now in their 70s and 80s. Realising they can’t drink everything in their cellar, they’re relinquishing their wines to the auction houses.
“In the earlier days, there was this almost pronounced focus on bakers and lawyers. Now the finance group is less strong,” says De’Eb. “There are a lot of entrepreneurs ― senior mainland people from the large tech, finance and property companies ― but there are also just so many regular people.”
De’Eb says he gets approached by groups of students who come in and tell him they want to make their first investment in wine. “And all four of them buy one case of a genuinely good First Growth and they pop that one case in with us, and that’s how it starts.”
Wine lovers from Hong Kong and China are also extremely well informed; they value knowledge and education, and are willing to study the subject. Like wine enthusiasts elsewhere, they’re also keen to be the first to spot a great wine. De’Eb says collectors will join WhatsApp groups and if one discovers a wonderful wine at some obscure winery, the others know about it immediately.
These searches are broadening the global secondary fine wine market, and increasing prices across the board. In general, De’Eb says demand for Bordeaux wines is back, and that “Champagne is going to be the next big thing”.
Hong Kong supermarkets and retailers now offer the big wine brands that can be found everywhere else, though Cho Lee MW says Hong Kong has an average bottle price that’s one of the highest in the world. “People still have a concept that wine is sophisticated. A luxury beverage that’s aspirational,” she says.
And, more than two decades after hundreds of people walked out of a conference in disgust at the mere thought, wines are available for sale online.
Proving that it always pays to listen.