How to Set Up a Wine Business in Hong Kong?

Bodegas Portia, picture taken during my 2019 trip to Spain

In 2022, I gave two talks at School of Hotel and Tourism Management of HK PolyU for their graduate course Wine Economics. I prepared two of my favourite topics about Hong Kong wine market: wine auction and wine business operations. Though wine may not strike you as an Asian alcoholic drink in the first glimpse, with a few favourable conditions, Hong Kong has manifested itself into one of the biggest wine markets in the world, joining the league of super wine marketplaces such as the U.S. and U.K. The city sees a vibrant wine scene and a growing appetite for the grape-fermented drinks.

In this post, I will talk about how you can set up a wine business in Hong Kong in 8 steps. Let's first have an overview of the current (2008 — 2022) Hong Kong wine market. Here are some statistics. Takeaways are:

• Total imports and re-exports overall see growth since 2008, when Hong Kong removed all its wine related tax.
• Covid has some impact but not too bad. 2020 hit the lowest point in recent decade but still performed better than 2008–2010 when the market just took off.
• Re-exporting to other areas, such as Macao, Mainland China, Singapore, Taiwan, USA and etc, matters a lot to Hong Kong wine market.

Source: Commerce and Economic Development Bureau, HK

link: https://www.wine.gov.hk/en/statistics.html

Simple R code for the figure:

library(ggplot2)
library(ggrepel)

winedata <-read.csv("wine statistic.csv")
ggplot(winedata, aes(Year,Value..in.HK..million., color = Category, 
label = Value..in.HK..million.))+ geom_line() + geom_label_repel() + 
scale_x_continuous(breaks=seq(2008,2022,1)) + 
ggtitle("Hong Kong Wine Total Imports and Re-exports Statistics") + 
xlab("Year") + ylab("Imports/Re-exports Values (in HK$ million)")

In my opinion, there are four major advantages of Hong Kong as a wine trading hub:

• 0 wine tax. Huge reduction in trading cost. Increase liquidity.
• Full range of wine trading activities. Re-exporting, investment, B2B, B2C, C2C, auctions. Many overseas collectors, who may never see or touch the actual bottles of their wines, sell and trade to somebody/some companies, whom they also never meet, in a snap of figures via a number of trading platforms, e.g. auction houses (Sotheby’s, Christie’s, Zachys…), online trading (Liv-ex, BBX…) and various traders (local merchants, F&B outlets, overseas negociantes, individual brokers).
• Widely — available storage service. Given its subtropical climate, Hong Kong has seen a rapid increase of professional temperature controlled, full-service (say, 24-hour access, tailor-made cellar, wine butler service) and fair-priced storage facilities. These storage facilities are the backbone of wine trading, where wine condition is of paramount importance.
• Door to Mainland China market (cross-border trade) and other Asian market (e.g. Taiwan, Thailand, Singapore). The location of Hong Kong and its current economic policy have fostered a healthy re-exporting business, where affluent collectors and wine traders in nearby areas leverage a nice selection of public and private transportation means to generate regional wine flow.

Here are the 8 steps to help you set up a wine business in Hong Kong:

Step 1. Company registration

Head to Companies Registry to set up your company online and get your Certificate of Incorporation. All procedures including, choosing the type and name of company, registering address, listing company’s shareholders, directors, company secretary and etc, can be set up online. Simple and easy.

Then head to Business Registration Office of the Inland Revenue Department for a Business Registration Certificate (BRC).

Step 2. Open a corporate bank account

Once you receive your certificates, bring them to your bank of choice and set up a corporate bank account. The first two are standard business set-up procedures.

Step 3. Get licenses

Food importer license

Legally, wine companies in Hong Kong need to register as a food importer. Part 2 of the Food Safety Ordinance requires any person who carries on a food importation or food distribution business to register with the Director of Food and Environmental Hygiene (DFEH).

“Food” includes –

(a) drink;

(b) ice;

(c ) chewing gum and other products of a similar nature and use;

(d) smokeless tobacco products; and

(e) articles and substances used as ingredients in the preparation of food

Liquor license

Depending on your business nature, you may need a liquor license if you are serving and selling wine in your store. If you are just selling wines by bottles, implying that there is no consumption on premises, you do not need a liquor license. Although for wine retailers who occasionally offer free tastings, this is a grey area.

(1) In accordance with the laws of Hong Kong, any person who intends to sell liquor at any premises for consumption on the premises must obtain a liquor licence before commencement of such business.

(2) If the supply of liquor is intended at any premises used by a club for the purpose of the club, a club liquor licence is required.

Ref: Food and Environmental Hygiene Department

Step 4. Set up storage

sBodegas Muga, picture taken during my 2019 trip to Spain

Storage is crucial in Hong Kong where temperature is rather warm throughout the year with scorching summers and high humidity. A professional storage is key to your brand image as wine quality is directly related to its storage condition. There are three ways to store your wines:

1. Use existing storage service providers such as, Crown Wine Cellar(CWC), Hong Kong Wine Vault, JAS and Kerry Logistics. Some provide both storage and local delivery/international shipping services such as CWC, JAS. Monthly service fees apply. Insurances are typically covered. International wine companies and wine chains tend to use this because as long as you pay, there is a team of logistics professionals to manage your inventory for you, especially helpful if you have a large stock and an active trading business. Less hassle in some sense.
2. Use industrial buildings. Rent a space in the city's many industrial buildings if you want flexibility and full control - build your own storage space, set up air-con facility and manage your own inventory. Many medium-scale retailers love to build their own for the experiences (e.g. lounges, tasting and dinner spaces) they wish to offer to clients. In the long term, this may be a cheaper option than using external service. However, the industrial buildings often locate at less convenient and less fancy neighbourhoods so there may be a branding concern. Although, some wine retailers manage to create a well-furnished and unique space that compensate for everything else. So there is a trade-off and this is an important decision for you.
3. Use your own home! This may sound like an odd choice but this is where many small wine retailers (typically a single trader) start off. If you have a nice client list and all your want to do is trade wine, meaning not holding stock but serving as a broker/middleman, you basically just need a temperature-controlled space to hold the wines for a few days. A 24-hour air-conditioning room in your home will typically do the job. Though you may need to think about insurance in case of breakage or damage.

Step 5. Set up delivery

Bodegas Roda, picture taken during my 2019 trip to Spain

Temperature-controlled delivery service is a must-have. There are 3 ways to handle:

1. Use storage provider’s service. They are your inventory managers so basically, you can pay to get the delivery service as well. Often you can supply them with your own branded delivery boxes or bags so clients will receive your branded goods for a coherent branding image. Oftentimes, such service is a bit costly, though you do not need to worry about insurance, breakage and all sorts of logistic details (e.g. designated delivery window). Again, money for less hassle.
2. Use Yamato, SF, DHL, FedEx or other local couriers with temperature-controlled service. This is very common among small to medium scale retailers. Most of the time, these couriers offer affordable and reliable delivery service, though it is not possible to align with your brand image and less flexibility in terms of delivery times.
3. Deliver on your own! Again, this is where many small wine retailers / brokers start off and continue to do so. In some sense, clients may feel special if the only owner of the business hand delivers to them. Downside is that you need to plan for insurance, breakage, temperature and other logistic details.

Step 6. Import/Export Declaration to Customs and Excise Department

You need to perform Import/Export Declaration every time you ship wine in and out of Hong Kong. Professional shippers such as Hillebrand and Connoisseur International, usually provide such service for a small fee. You can also do your own.

Step 7. Audit and Tax

Businesses must be audited every year by a certified public accountant in Hong Kong and all documents must report to Inland Revenue Department. Make sure your business is properly audited.

Hong Kong uses territorial basis of taxation. This means registered companies only pay the corporate tax on business conducted in Hong Kong. There is no withholding tax on dividends and interest nor sales tax on VAT. Corporation tax rate: 8.25% on assessable profits up to $2,000,000; and 16.5% on any part of assessable profits over $2,000,000. (Ref: GovHK)

Step 8. Set up website and social platforms

A website or e-commerce site is essential in the digital age that we live. Just like everything else, people shop wine online these days. Make sure you put up a legal drinking age declaration like below. This is legally required in Hong Kong.

Source: Sotheby's Wine

A well-functioned e-commerce site is where many retailers make the majority of their revenue. Make sure you have a clear idea of what you want to achieve with it — branding building? client engagement? main revenue generator? You then rank these goals and aline your site to them. For example, a revenue generator site focuses on functionality, i.e. minimal design, basically 0 social feeds, less content, often just listing wines with prices. Because of the simplicity of it, the site normally has less bugs and runs faster. This type of site is often used by retailers who mainly engage with clients offline and the site is just an order placing platform. A brand building site operates completely different. You will need to think about images, viewer experiences, search engines and all sort of digital marketing tools. Done well, your site could polish your brands and grow clients quickly. Some of the best sites I've known share these two features:

1. Aesthetically pleasing and easy to navigate across wine lists and events. This is one of the good ones in Hong Kong: https://www.finewineexperience.com/
2. Interesting and informative content. Among the best is US wine merchant Kermit Lynch: https://kermitlynch.com/ Slightly old-school in terms of design but content is the king here.

I think the cliche here is to really think about your uniqueness and show it in the site. Give a reason for people to revisit and engage.

Social platforms are helpful to connect with your clients as far as I know. I am a very low social platform user; therefore, I am not embarrassing myself to share my opinions.

That's it. Till next post.