MBA Thesis Presentation: Wine Auction and Brand Equity


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Explaining the Phenomenon of Wine Auctions in Asia by Luxury Brand Concept: Identify the Potential and Risk on Brand Equity of Fine Wine Merchants

Keywords: fine wines, Bordeaux top growth, wine auctions, Asian market, luxury brand, wine merchants, French wines, German Wine Auction

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MBA Thesis Presentation: Wine Auction and Brand Equity

  1. 1. Business name: MillesimaWork placement tutor: Gerard SpataforaDissertation tutor: Paul Dawson
  2. 2.  Section 1. Methodology Section 2. Fine Wines as Luxury Products Section 3. Wine Auction – An Specialized Distribution Channel on Wine Selling Section 4: Chinese market- the emerging interest in Auctions Section 5. Brand equity: Why it is important for fine wine merchants & Chateaux? Section 6: Wine Auction in Hong Kong - a Luxury Branding Tool for Fine Wine Merchants? Section 7: Understanding The Risk on Wine Auctioning Conclusion
  3. 3.  Explaining the Phenomenon of Wine Auctions in Asia by Luxury Brand Concept: Identify the Potential and Risk on Brand Equity of Fine Wine Merchants Keywords: fine wines, Bordeaux top growth, wine auctions, Asian market, luxury brand, wine merchants, French wines, German Wine Auction
  4. 4.  both primary and secondary research. primary research: interviews with wine expertise and wine merchants in London. Germany’s long history on wine auctions: field study in Rheingau and Rheinhessen interview with the Germany wine makers, vineyard owners and Wine Auctioneers VDP personnel, who are actively participants in each year’s auction
  5. 5.  Mr. Richard Sutton, London Fine Wine Merchants- Armit Mr. Richard Brierly, London Wine Merchant Vanquish, the Ex- Wine Auction expert Mr. Richard Bampfield MW, professional wine expertise specializes in wine appreciation and commercial consultancy on wine trade Mr. Phillip Wittmann, Weingut Wittmann, Westhofen Mr. Bengel, the wine maker of Staatsweingüter Kloster Eberbach in bei Kloster Eberbach Export Sales Manager, Jochen Becker-Köhn of Weingut Robert Weil, Rheingau Mr and Mrs. Diel, Schlossgut Diel, Rümmelsheim Hilke Nagel, Press and Communication from VDP Germany
  6. 6.  Limited production Scarcity Complexity HeritageWine Investment The prestige image Return on investment- low co-relation to other investment tools Tangible Asset Portfolio diversification Pleasure experience
  7. 7. Case Study: German Wine Auctioneer VDP. Die Prädikatsweinguter Founded in 1897 Demand of German wines was high, some dishonest merchant houses start to blend their wines by adding sweetening products To address this problem and to provide the quality producers, leading growers in the major German wine regions are grouped together and committed themselves to some industry
  8. 8.  Produce only Naturrein wines, which are produced without chaptalization In general, only special casks of the finest wines are brought to the auction. Most of these wines are not sold via traditional sales channels. Bottle the wines at the Estate with an original estate cork to provide the traceability of the product. Unlike other wine auction in the commercial market, it is not VDP’s main concern to achieve the highest prices in the auction.
  9. 9.  "The essence of any luxury brand lies in the historical values it embodies. These values need to be continuously nurtured in order to retain their aspirational appeal across all cultural boundaries."  – Initiative of Twenty-first Century Deluxe Report 2009
  10. 10.  The favorite brands of the business people surveyed have been announced. There is trend that Chinese luxury buyers has shifted from mindlessly chasing fashion to making far more informed choices - and even beginning to set international trends. In the long-run, the move to a more mature and knowledge- based consumption pattern in the luxury sector will add to its vitality andsustainability to the luxury markets.
  11. 11.  Online luxury journal Jing Daily: Chinese bidders nowadays only buying the antiques to resell The rising inflation at China. buying artwork/ antiques is actually safer than putting that moment into the stock market or real estate. According to the record from Sotheby’s and Christie’s, Chinese bidders have raised strong interest in modern and contemporary Chinese and Asian art. Blue-chip artists, such as like Liu Ye, Zhang Xiaogang and Zeng Fanzhi.
  12. 12.  New Market China & India: no red wine culture, wine drinking highly based on brand names That’s why consumers usually look for brand names & wines with good review. Eg. Robert Parker Branding is important for Wine merchants: as all the wine merchants are selling the wines on behalf of Chateaux
  13. 13.  Fine wines are with limited quantity, once they are drunk, the vintage can never be produced again The unique selling mechanism in France, especially in Bordeaux, makes wine merchants very difficult to differentiate themselves from each other. The trend is changing, before: courtier, negociants and wine merchants to handle the marketing and distribution Nowadays, Chateaux owners are getting more involvement on brand building, and on marketing as well.
  14. 14.  As such, the brands of fine wines are attached to the Chateaux and their histories, heritage, and quality.  It is less likely for the fine wine merchants to take over the marketing process. Buyers can actually buy from any wine merchants if there is no special linkage or preference with the wine merchants.
  15. 15.  For fine wines, it is the most appropriate to show the specialize image that links with art. As such, no rival in the market can copy the strategy, as the luxury brand image is attached to the creator- the expertise of the finewine merchants.
  16. 16. House Brand and Corporate Brand Auction is always for small group of people. Instead of a big and traditional corporate brand, auction houses can always create a house brand with exclusivity. This certain can help the fine wine merchants to link with the luxurious status, as they are always treated as special strategic partners if they are cooperated with those famous auction houses.
  17. 17.  It is a very crucial issue to point out, if fine wine merchants plan to sell the fine and rare wines through auctions, the provenance of the fine wines is absolutely important. Otherwise, if the wines are not with good provenance nor storing in quality condition, there is no reason to sell wines through wine auctions. The provenance of the fine wines has to be the core of the whole auction campaign, and to be emphasized on planning the marketing theme, catalogue and mediacommunications.
  18. 18.  The history of the fine wine merchants, the owner information, the storage facilities, the location, e.g. Bordeaux for Millesima. Most importantly, fine wine merchants serve the major role to select the fine wines,for drinking, investment, export or to keep. Fine wine merchants’ fine wine selections have to be the core ingredients throughout the whole planning and communication. By emphasizing the experise on fine wine selection, this is the only way to establish the brand personality and build the personal link with the consumers.
  19. 19.  Everything branded must add value to the star brand. For fine wine merchants, having the inventory of the top fine wines definitely add value to the brands. Renowned auction houses can also add value to the overall branding. Therefore, wine auctions can serve as a luxury branding tool, given that the reputable auction housesand, the best selection of fine wines are chosen.
  20. 20.  Lack of transparency (prices, quantity, quality) Low liquidity Storage and insurance Highly dependent on Auctioneers’ expertise Currency exchange rate variations Different Importers Potential Risk on brand equity
  21. 21.  During June 2010, a business plan presentation was developed for Millesima to advise on their business development in Hong Kong. Due to the strong their interest on the selling wines through wine auctions, and the booming of wine auction in Asia, this dissertation further studies the opportunity and risk on selling fine wines through wine auctions in Hong Kong, and examine how wine auctions can help to develop the luxury status for fine wine merchants like Millesima.
  22. 22.  Wine auction is a channel to link up consumers & the rare fine wines. Without demand, wine auction can never succeed. It is not surprised that high auction prices are reached in wine auction in Asia- this can be seen as a phenomenon that reflects the high demand on fine & rare wines in Asia market, just like consumers chase behind the luxury brand name products. Instead of just focusing on short term wine trading, wine merchants have to oversee what’s behind of this phenomenon, build up the brand loyalty along with the wine auction events, and decided their strategy in advanced.
  23. 23. Millesima Hong KongBusiness Plan 2010-2012„Hong Kong- the Fine Wine Capital in Asia‟HK Business Proposal, market research& HK Vinexpo 2010 Feedback By Shelley LAM- Business Development Manager- HK, Millesima June 2010 © Shelley Chi Wah LAM. All Rights Reserved. For internal use only, information strictly confidencial.
  24. 24. Executive Summary To share the understanding of the HK wine market, and the potential of developing HK market, which leads to expansion to Asia ultimately (China, Singapore, Malaysia specially) Analysis on market situation, competitors, identifies the gap and provides recommendations for Millesima on market positioning & luxury branding aspect Investigation on other business options such as cellar management, fine wine retail stores, wine auction, etc Development Implication- what will be the essential elements for Millesima to grow, and to be successful in Asia © Shelley Chi Wah LAM. All Rights Reserved. For internal use only, information strictly confidencial.
  25. 25. Outline Market Situation: HK & China 1. Wine growth in HK & Asia 2. Why Luxury Goods are important to Chinese Culture? 3. Fine Wine: Really hard to access in China Consumer Behaviour 1. Something Big really matter 2. History is important Cellar Management 1. Cellar Business in HK 2. HKQAA & Qualified Cellars 3. Strategic Partnership with Cellars Competitor Environment 1. Who are the competitors in HK 2. What are they doing 3. Positioning: Gap in between 4. Wine Store: is it necessary? 5. Wine Auction- what you have to know about the market Development Implication 1. A role of Market Development for Asia 2. Bridging culture & language in between 3. Communication aspect © Shelley Chi Wah LAM. All Rights Reserved. For internal use only, information strictly confidencial.
  26. 26. Market Situation- HK & China Trend & Demand for Asia 2013:  Asia is only 4% world wine consumption , its worth US$7 billion in 2009  expected to be US$9 billion by 2013. (IWSR/Vinexpo study)  Opportunity of luxury wines & Asian market emerges Logistics to China: Agreement signed between HK & CN (Shenzhen)  to facilitate the wine logistics, customs & taxation issues  wines in HK are now easier to be delivered to CN consumers. Re-export or Local Consumption? Hong Kong re-exported 19% by value of its wine imports and retained 81% for local consumption (Refer to Appendix A) Implication: Who is storing the wine? By what way? Flexitank: Imported inferior wine from Argentina & Chile to China, repackage into bottles and stick with Grands Crus labels.  High demand for Grands Crus fine wines, however, no accessibility © Shelley Chi Wah LAM. All Rights Reserved. For internal use only, information strictly confidencial.
  27. 27. Hong Kong - The Growing Market for Wine Industry Hong Kong Wine Imports (Value) in $US Million  From World Trade Atlas data 600 2010, since Hong Kong 500 abolishes wine taxes in Feb 2008, between 2008-2009:$US Million 400 World 300 Gross Imports 200 France  World Gross Import 100 Gross Imports increased 44% in HK 0 2005 2006 2007 2008 2009  French Wine Gross Import Year increased 55%  75% of the Imported French Wine Re-Export vs. Retained Imports French Wine are RetainedValue (in US$ Import- Keep in HK, not for Million) 300 250 resell 200  Local consumption is very 150 significant 100 50 0 Retained (Appendix A for details) 2005 2006 2007 2008 2009 Imports Year Re-exports
  28. 28. Tourism & Hong Kong 60% Tourists from CN: Mainland China continued to be the largest visitor source with 17.96 million arrivals (+6.5%), accounting for 60.7% of HK total arrivals. Of these, 8.29 million (46.2%) were same-day visitors, up by 10.8% year-on-year. (2009 statistics, Tourism Board HK) Russia & India: Yet, emerging markets such as Russia (+15.7%), India (+4.6%) and the Middle East (+2.0%) performed well. In particular, visitor arrivals from Russia surged by 54.2% after the implementation of visa-free entry on July 1, 2009.(source: China Daily- Apr 2010 Opportunity for Millesima: By opening a Fine Wine Store in HK, Millesima is not only able to reach the HK market, but also get Millesima name to China, Russia & India. © Shelley Chi Wah LAM. All Rights Reserved. For internal use only, information strictly confidencial.
  29. 29. Characteristic of Chinese Market Highly relationship based: need time & effort to build the long term relationship Something big really matter: when Chinese choose the products, usually rely on the big brand names, size of the corporation Wine industry- highly rely on REPUTATION and REFERRAL Media coverage: HK is a very small city, and luxury brands highly rely on the media & celebrities. VIP & membership scheme: like private clubs, being the member shows the privilege & prestiage status Investment mindset built-in when youngOpportunity for Fine Wine Companies: En Primeur wines could be one of the strong aspect of Millesima, in mature market like Europe However in HK  bringing the Millesima name out is the first thing to do No doubt, Millesima Store must build in HK Who first present in the market, who are the experts… © Shelley Chi Wah LAM. All Rights Reserved. For internal use only, information strictly confidencial.
  30. 30. The Hidden Story:- Chinese & Luxury Gift Culture Why Lafite is being sold to China, almost for all the quantity in the market? Why Chinese buy1st Growth even they have ever tasted them? Why Chinese are willing to spend enormous amount on luxury goods?Chinese Luxury Gift Culture Chinese is a highly relationship based nation. Luxury gifts are very important for all sort of relationship, especially Love, friendship and most important- Business Relationship (B2B, government, school! Etc.) All the gift must be top luxury- to reflect the status & show respect to the business partners To access these customers, first thing is- TO BE THERE, and TO BE KNOWN.
  31. 31. Consumer Behaviour- HK Market2 Types of wine customers in HK: 1. Wine Consoisseurs : substantial wine knowledge, look for specific Grands Crus, Specific vintage 2. Customers who want / start to know about wines, willing to pay, but very conscious on the value they pay forSituation: How many of them in HK? Type 1. (< 5%) very rare in HK market, Millesima cannot only rely on them to get the justified Return on investment Type 2. Emerging, age from 25+ (high disposible income, young professionals, age up to 55+) Highly rely on referral, reputation, media, however, they are:  Price Oriented: Understand for wine lovers, some vintages are priceless (no accessible at all!). However, over the market, Type 2 consumers dominate the market.  They are the shoppers- they are willing to spend, but spend smart!  Price comparison is very common- Chinese are good at numbers…  time spend on price search all the timeIn long run, the successful players are only those who SHOW THEIR PRESENCE in the market, take time to build the loyalty & build up trust © Shelley Chi Wah LAM. All Rights Reserved. For internal use only, information strictly confidencial.
  32. 32. Cellar Business in HK“A lot of the wines flowing into Hong Kong are not for consumption.And strange as that may sound, that is a good thing.They are coming in for wine storage, for wine cellaring,and that has meant a much greater need for an expansion of the industry.The wine has to be kept somewhere,and you have to then support that industry…” Gregory De’eb, General Manager of Crown Wine Cellars, Hong Kong’s first wine storage facility.
  33. 33. Cellar Management  HK Climate is not suitable for wine storage- too hot in summer (up to 33 degree) and high humidity  End 2009, HKQAA set up Wine Storage Management Systems Certification Scheme – to ensure wine storage in good condition  Fine wines cellars must get this certificate to qualified for insurance CommercialHKQAA Wine Storage Certificate (9 cellars in HK) Fine Wine WineCrown Wine Cellars Ltd, XWatson’s Wine Cellar, XDHL Global Forwarding (Hong Kong) Limited, XChina Merchants Godown Wharf & Transportation Co. Ltd, XATL Logistics Centre Hong Kong Ltd, XPacific Wine Chambers, XSupply Chain Solutions (Asia) Ltd, X XJebsen Logistics Ltd X XWinner Godown Ltd (Wine Station) X X © Shelley Chi Wah LAM. All Rights Reserved. For internal use only, information strictly confidencial.