Ep. 492 COVID's Impact on Chinese Fine Wine Consumers Sarah Heller MW and Jeannie Cho Lee MW | wine2wine Business Forum 2020

Italian wine podcast. Chinchin with Italian wine people. Italian wine podcast as wine to wine twenty twenty media partner is proud to present a series of sessions chosen to highlight key themes and ideas and recorded during the two day event held on November twenty third and twenty fourth twenty twenty. One to wine twenty twenty represented the first ever fully digital edition of the business to business forum. Visit wine to wine dot net and make sure to attend future editions of wine to wine business forum. Hello, and welcome everybody to this morning's session. I'm absolutely delighted to be back at wine to wine, back in Verona if only virtually. Those of you who, know myself and Jeanie know that we're based here in Hong Kong, and that Hong Kong as well as Mainland China are known for being fine wine house, and our collectors are known worldwide for the prodigiousness of their collections, and their interest in fine wine. Now I understand that over the course of this year. Jeanie, you've been working on some research to try to understand how the conditions in this rather unusual year for all of us have impacted fine wine collectors attitudes, to wine. So maybe if you would like to share some background on your research. Yes. So thank you, Sarah. And thank you, wine to wine for having me. I just wanted to give a little background on the research. It's not specifically about COVID or this particular situation. I've been working on this, PhD. It's a dissertation, for the past three years. It the subject is really about, Chinese fine wine consumers with wines. And, within that context, what I've looked at recently are how their relationship and their purchasing buying patterns change when there are challenges. So, for example, one would be this very unique COVID situation. The other would be, prevalence of, a lot of, proliferation of a lot of counterfeits of a specific wine brand, for example. So what are their reactions? And there have been I've got some preliminary conclusions at the moment because, the amount of data is so huge. I've I've interviewed, one on one about thirty two fine line collectors, all of them by either in person or by video, and, the conversation is, is being analyzed and transcribed word for word. And so that you know, hundreds and hundreds of hours of, of transcriptions that you need to analyze and study. So I do have some preliminary conclusions. Yeah. So if you can touch on some of the key findings that might be of interest for our audience outwinds one knowing that that many people will have an interest, particularly in Italian one. And we talked about this a little bit, but what whatever you're able to share at this point. Great. So right now from what I've been able to conclude with these interviews is that overall, I would say the consumer's relationships with, with the wines that they like to purchase, that they purchase regularly, whatever that may be is quite strong. And in fact, a lot of, challenges that you think might might, I don't know, dissuade a, let's say, a brand owner's purchase of Louis Vuitton because there are so many fakes in the market. Doesn't work in the same way with wine. So in fact, people are quite loyal. The relationship that they have with specific wines they enjoy, specific regions or styles is so strong that it takes multiple disappointing experiences for people to really say, okay, I'm cutting my ties or relationship with this wine and this or this region or this particular brand. So one of the things that I realized is that Once you have a wine lover who has committed to purchasing and and, you know, co building quite a seller. So one of the criteria for my research was that, they had a personal collection of at least one thousand five hundred bottles which is, you know, more than you would have if you were just a a casual collector, and you had to have been interested in wine for at least ten years. So, and a third of these were, women, a third of the interviews were also from mainland China, Beijing, and Shanghai specifically. So there there there there are representative, line levers from not just Hong Kong. So, having said that, I think a lot of how to understand or analyze how people might purchase or change their buying patterns has to do a lot with the social circumstances, whether there's strict quarantine or whether it's more lax as in mainland China over the last several months has been very open and people in Beijing have felt very safe going out, dining, socializing. It's almost back to normal. Whereas, as you know, Sarah, here in Hong Kong, we have our fourth wave, and it seems as though everything's now, you know, being constricted, and we don't know how long that's gonna last. So during these times, I think when you're buying wines for social occasions, it's very different for wines that you buy for personal consumption. So those are, sort of, two broad separations of, of purchasing. And I would say that, because the social element in cities like Hong Kong are being restricted. Most of the wines is for personal consumption, and the wines for personal consumption in general have a very different price point, very different purpose, because they fulfill different needs. So I I I would say that, in for Hong Kong, I think price points are coming down. In China at the moment, they have rem they've got they've been sort of buoyant there's a kind of, you know, post COVID quarantine giddiness about not having to be in quarantine anymore, and there is a lot of socializing, having to make up for the times when when people were really worried. So I'm sure we'll see that too once we get through the fourth wave. So A lot of it is very cyclical and it's it's very social, political, you know, virus and situational driven. So I guess the this revenge spending that we're all hoping for around the world is genuinely something that that we're seeing happen in China. Say? That's fair? Yeah. I I do think so. So you can see, that a lot of, brands, you know, I'm talking about more fashion brands now have reported really high sales, online sales, but also, through their retail shops. And that usually happens right after a certain quarantine wave because people are very happy to be out. They want to be out spending. They want to be buying. And they wanna be socializing. They've missing people. They missed dining out. So I think that we're gonna have to look at this as a very long term, a longer term period. So not just three months or six months, but a year or two, we can look back and say, oh, here was the average. Here were the patterns. And because we're right in the middle of it, we can only really see, kind of a short sighted view. But, in Hong Kong, what is very interesting is that, people who are vying for themselves because it's a different type of mind, they're more experimental. They're willing to take risks. Because in a social situation, I think, risk management is a really important role in what you choose because it it is about potentially giving face or honoring someone or respecting somebody or or, you know, meeting a certain theme, but if it's just for you, I think people are willing to experiment and try new things. Does that include looking at wines that are maybe of a lower price point? Because my experience and I'm sure you've found similar is that, maybe even more so in mainland China than here, there is an expectation that the wine that you bring to dinner is of a certain price point and bringing people a value for money wine. If it falls below that threshold, might even be perceived as offensive, right, and an insufficient sign of, of respect for the host. So are you finding that people's experimental tendencies when they're buying for themselves extends to maybe buying more value for money once? Absolutely, Sarah. I think you you you you got it. You hit it right on the head because I I you see now even in quarantine when we have for example, right now, we can only meet four people at a time, right, in in any, outside dining venue. And so, who you are going to expose yourself to are going to be what you call safe people that you whose travel history, you know who you, you know, you know, are vigilant and careful. And so with those, I'm assuming, are your good friends. And so they're more of an extension of what you would drink and and you would feel a little more comfortable saying, hey, you know, I found something that's, really good value. It's not that I'm disrespecting you. Let's just be open minded and adventurous. So people are trying, more regions, more styles, more price points. And in general, I think, from from my initial analysis, the wines that are for social occasions and social can be personal friends or it could be business. Right? But they tend to be more of their collectible, well known brands. You know, wines that people would recognize, brands, names that people would, appreciate and understand. Whereas, for themselves, they are happy to say, you know, if you are recommending a a new producer from Sicily or, you know, from, like, even a traditional region like Tuscany, but it's a, you know, new winemaker, new vineyard. You know, I think a lot of people would be open to it. I think the challenge now is how to reach those people and to to pique their interest because there are a lot of, a lot of people, I think sharing information online you know, this, conferences, one of them doing these virtual, very, you know, informative, educational, talks and seminars. So there's a plethora of information out there. And so how do you reach the people who really are genuinely interested. I think that is the real challenge. Definitely. And, I mean, I think it's, yeah, it's a double edged sword. On the one hand, it's easier for for producers to to maintain contact with particularly the people they already know. They're they're loyal consumers in different markets, but the competition is much fiercer because it's not, down to who is willing to make the trip. So Talking about price points just a little bit so that everybody in the room can understand. When we did did you find that there was any particular threshold above which people, felt more comfortable bringing the wines using them for social occasions versus what we were talking about, these sort of personal or safe people type gatherings. Yeah. I think there there were I wouldn't say everyone had the same price point, but the price point that was most repeated. And it seemed as though most people were using US dollars instead of euros, but around fifty dollars seemed a comfortable price point. So that would be about, what, forty, forty five euros or something per bottle. They felt comfortable taking risk, experimenting, trying new, producers or regions. And then for social occasions, a lot of it really depended on the circles because most of the, wine lovers I spoke to, they were involved in anywhere between five to twelve different wine circles. Mhmm. So all of those groups and circles had a slightly different focus. So there were quite a few that said there was one circle that only drank burgundy, for example, I think I think it really depends. It's a it's it's a complex kind of layered relationship, but, I think the the I felt it was very I felt very positive after having done all the interviews about the future of a fine wine because you realize that, in order to really be a collector that has more than a thousand bottles, right? First, you have to do inventory management you have to take the time to source them. And if the wines are above, let's say, you know, fifty or a hundred euros, you're actually doing some research. So probably you're learning along the way. So there's so much involvement in having a wine collection, so to speak, that once you're in, you're really in it for life. There wasn't one person who didn't think that wine was a a a really long term relation that they would only part with if there was some health issue or some very serious personal issue involved. So I think I think that, you know, unlike a lot of hobbies where, I don't know, wakeboarding or or something in Hong Kong that's really popular at the moment. They come in, waves and trends, and we see that in spirits as well. You see that with, at one point, with vodka and gin and you know, rum and tequila, and they kinda come in ebontide, you know, that flow, but it seems like with the with the wine collectors, there's just so much time involvement that you you've invested and you've put in that it, you know, it really pulls you in and you become wine becomes a part of your life. In fact, the the adjective I heard most often is that wine is is my friend companion when you're in quarantine. It's a friend when I'm doing work. It's a friend when I wanna relax. And, one female, wine, wine lover said to me, these wines are my boyfriends, and it doesn't talk back. It does. And I can choose between different ones every night. So very, a very deep, a deep, and lasting relationship. I mean, I guess there there's a slight, obviously, in the in the group that you're interviewing, right, because they're people who've reached that fifteen hundred bottle threshold at least. These are people who really dedicated themselves. Lately, I've found, for So as as wine editor for Asia Toutler, I'm I'm often talking to an audience who are luxury consumers, but not necessarily wine collectors. And I think there's a little bit of interest now among people who like the finer things in life in general in starting to become wine collectors, but it's very intimidating. I think because you see these people with these fifteen hundred bottle collections. Did did you talk much to your collectors about how they first got started? Yes. That was actually the very first question. And even though most of them have been involved in wine, for at least ten years, I would say the average age in mainland China of the of the nine that I interviewed was younger, more in the late forties and early fifties, you know, versus Hong Kong. Well, and and that's, you know, that's been the figure for, for a a lot of wine surveys. And, I think that a lot of it has to do with where you are in your wine experience cycle. So, for those who are still exploring, and they find, you know, magical wines when they when they try their very first, you know, let's say an incredible barlow that they've never had before suddenly their eyes open up. That sort of you know, aha moments are still happening, whereas those who've been buying and collect your wines for, let's say, forty, fifty years, it happens seldom because they've had that already. And once you have that, you can't, it's, you know, you you can't exactly replicate that first time experience and the impact of that experience. But, I I did think that there was, quite a quite a difference between, you know, people who were, I would say, more adventurous, experimental, open minded, and that had to do not with not so much with even the location of where you are, but, more to do with, what stage you're in in that that wine cycle. And there were a handful, but not many who were constantly exploring. Like, you know, someone who's been buying and drinking wines for forty years, and they're still looking for new regions, new wines, you know, what's the next big thing? But that was actually, rare. That was not the norm. The norm was to go into cycles and explore different regions and then come back to what you loved before and then rediscover them all over again. And and, you know, that I think the relationship had to do with where you are on that on that wine cycle. Mhmm. That's that that makes a lot of sense. You mentioned when we spoke before that there were not that many people who were seriously collecting Italian wine. And I I know I know you were a little bit reluctant to draw any conclusions given that it was a fairly small number, but, maybe just anecdotally, were there any, there any indication you got of how it was that they had started, collect Italian wine specifically? Well, I I was trying to analyze each person's motives for buying wines and for consuming wines. And, of course, motivations are really complex. It's just not one or two. But if you can broadly categorize them as personal, like your own personal happiness, joy, satisfaction, and the other being social. Right? So for for others, for, for your social circle groups or communities, business or what have you. Right? I would say that most people in China were vying for social occasions. And more and more people who've been collecting longer are buying for themselves and limiting their social circles. So, it's actually in sync with with their own personal palettes. So when you're buying four social circles, especially in China, I think that, you know, we we all know that the French wines, especially at the collector's level, have dominated the marketplace. And for a long time, I think the the Chinese really mainland Chinese wine lovers equated fine wine with bordeaux, for example. And of course, now Champagne Burgundy and lots of other regions have come into the sure. But and and, of course, and among the thirty two, I would say there were at least half a dozen who were really serious, seriously, a a fan of Italian wines. But they don't think they don't buy that much because you need a social occasion to share them. So they don't pay enough for them to enjoy themselves, but they don't buy it for the social occasions because if you break down the majority of people and when they drink, Right? The context, the environment and, what that wine they've purchased is being used for. The majority, the vast majority is some even up to eighty, ninety percent. Use the wines they have in their collection for social occasion. And a lot of them say, especially the ones who are becoming a a little bit more. A little bit older are saying that they want to reduce wine consumption. And dining out, on average for whether you were living in Shanghai or Hong Kong was three to four times a night, three to four nights per week, which is more than right? The I I think it's it's that means that majority of nights and dinners you're going out. And most of those times, it's with wine. So at home, they're trying to discipline themselves and be health be healthier by not drinking wine. I think it's it really has more to do with the context than with the Italian wines themselves. Fair enough. What what about from an investment perspective? Right? Cause you sort of talked about how people are using wine in terms of consuming it. But there's definitely an at least in my sort of experience, obviously, I haven't done this the formal research that you have, but the the kind of wine circles that I'm around, there's definitely an interest in wine as a financial asset. Interestingly. I mean, if you look at the LiveX performance of Kimolce recently, it's been up there with burgundy. So is that something that people are thinking about or it's just it's still not really on the radar even from that perspective? Yeah. Well, I think you know, we, Asians, and especially Chinese, are looking for value. And I I would say that very few people in, you know, among the people I spoke to really looked at wine as purely an investment If it happens to be an investment, and they would like it to be, of course, because it always feels good to have wines that they bought for, let's say, a hundred euros, suddenly go up to three or four hundred euros. So it's the feel good factor more than Oh, I'm gonna make a business out of it. I'm I can quit my day job and and just trade wines for a living. It there's no such, illusion in their minds. So wine is the investment factor. Maybe it's an important for funds. Maybe it's important for, certain companies, I think, that try to lure or attract people, to buy, you know, usually blue chip, borders and, and, and, you know, have them traded and so forth. But you know, clearly with the amount of the quantity, that you produce from, you know, whether it's, Piedmont or burgundy or any of these regions is really not enough to make a business, and it's not enough for any of them to say. I'm gonna justify you know, my, time spent on looking at all these wines and tasting them, so that I can make money from it. So I think it's really that, Chinese, and especially the wealthy. They they want to buy smart They want to feel good that they bought this at a certain price, and now it's worth so much. And, you know, and and, oh, how smart am I have to have bought it when it was so inexpensive and and unknown. So I I didn't meet one person who thought that this, one collection was gonna be there even a a minor source of income at all. And if they said, oh, if they end up selling it. Yes. I probably have too much because purchasing and buying and collecting is almost a compulsion, and it can become addictive even if you already have ten thousand bottles. And a lot of these, collectors did. But they still love to buy because they wanted to follow the wines. And it was much more a matter of buying smart and not overpaying and not feeling like a full because, you bought the the two thousand tens on Premier from Bordeaux, and now, in bottle, there, you could have bought them so much cheaper. Right? Cause then you would look stupid. So I think it's not so much, the investment wasn't really the the draw or the big factor from what I could see. So I I don't think using that as an argument to say, oh, look at Italian wines or look at Spanish wines. Haven't they gone up so much in Bordeaux index? I don't think it's strong enough argument for real wine lovers. And the collectors who are really having long term relationships with these wines to say, oh, yeah, buy that wine just for that reason. So switching gears just quickly to take. We have a couple of questions from the audience. So one is around, what are the most sought after wines and who is influencing these trends? Oh, that's that's a very good question. So the sought after wines, and nearly everyone I spoke to was Bergen day as a region as a category that we can see from just, you know, auction results. For example, all the auction auction houses are saying they're the their numbers are are and profits are are being, held up by burgen this demand for burgundy. And who is influencing them? It's very interesting now because I'm not sure there is one burgundy critic, like there was, you know, for Bordeaux with Parker. That had a huge influence. I think the market almost knows its own value. A lot of it has to do with, demand and supply. So, obviously, the smaller the supply, the smaller, the vineyard, all the ground crews that you can imagine from Burgundy, are just, I mean, they're minuscule. So of course, and if if everyone is, searching for those wines, then yes, the prices are inevitably going to be going up. I think the major influence are auction houses. And also the domains themselves who are now selling directly to auction or releasing them directly to importers either aged or, you know, like, like Lawa has been doing for many years, only releasing the new vintages and tiny portions, and then taking their time to release, the wines that they think are ready. So, I think it's less critics and even, you know, wine, wine publications and ratings anymore as it is kind of the efficiency of the market and the demand by both, collect really by collectors. I think it's collector driven. And also, with the mechanism of online with systems and and, availability and pricing with options and select importers. Yeah. That links links in nicely with one of the questions we've gotten from the audience about online auction and how what role does it say during the pandemic. The collectors you spoke to, were they comfortable? Would this shift to online with options, or were they still still carrying sort of the in person presence? No. I think the in person presence with the pandemic and they and the, risks factor risk factors involved. They're far more and more comfortable buying and going online, both for options, but even for If you if if I were a wine importer, I would invest all my money on, creating a a platform where you can easily search and buy wines with just one click. Right? Because, that's totally an investment, I think, worth making. And, it's not I don't and I don't think it's it's going to be just during this pandemic. I think it's going to be lingering and lasting. And if you're trying to bring in the next generation, whether it's the millennials or the gen z. Right? They're even more comfortable buying everything and anything online. So I think we're gonna have to move toward that platform and, the the auctions, frankly, in Hong Kong over the last several years, have been this this huge bacchus and, kind of, you know, a social occasion and event. And if those are in a longer safe, then, of course, if you know what you wanna buy, it makes it makes sense that these online sales and, and auctions are are gonna continue to do well. Absolutely. I couldn't agree more. My, So I I did my research paper for the MW on online wine consumption in China and it was a growth, you know, my research was mainly done sort of twenty sixteen. Mhmm. And it was growing then, and I I think this is only accelerated. That that trend, definitely. Just a final one before we wrap up, I guess. Personal one for Eugenie. What university are you doing your PhD? Well, the only one that has a great F and B and wine department, which is the Hong Kong polytechnic University. They have the number one school, in Asia, called the School of Hotel and Torres Management. And Sarah, you very kindly taught there as well, and We have a, the very popular program master's degree program called International Wine Management, which, is now, you know, doing, very well and into its fifth year. So, yeah, I'm, I'm teaching at the university. I'm also doing my PhD there as well. Fantastic. Alright. Thanks. I think we are, are out of time. Yeah. Give me my Korean DNA. Yes. We did that. We're proud to have opened the session today. Fantastic. Alright. Thank you, Jeanie. I think that that's all we have time for today, and thank you everyone for your attention. Have a wonderful rest of the day. I wonder why. Yeah. Thank you very much. Thanks, Sarah. Listen to the Italian one podcast wherever you get your podcasts. We're on Sun Cloud, Apple Podcasts, Himalay at them, and more. 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