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 *Full version can be provided on request.

1. Business name: Millesima
Work placement tutor: Gerard Spatafora
Dissertation tutor: Paul Dawson

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.  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.  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.  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.  Limited production
 Scarcity
 Complexity
 Heritage
Wine Investment
 The prestige image
 Return on investment- low co-relation to other
investment tools
 Tangible Asset
 Portfolio diversification
 Pleasure experience

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.  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.  "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.  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.  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.  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.  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.  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.  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. 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.  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.  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.  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.  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.  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.  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. Millesima Hong Kong
Business 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. 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. 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. Market Situation- HK & China
 Trend & Demand for Asia 2013:
 Asia is only 4% world wine consumption , it's 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. 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:
$US Million
400
World
300 Gross
Imports
200
France
 World Gross Import
100 Gross
Imports
increased 44% in HK
0
2005 2006 2007 2008 2009  French Wine Gross Import
Year increased 55%
 75% of the Imported
French Wine Re-Export vs. Retained Imports French Wine are Retained
Value (in US$ 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. 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 http://www.chinadaily.com.cn/hkedition/2010-04/28/content_9782316.htm)
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. 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 young
Opportunity 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. 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. Consumer Behaviour- HK Market
2 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 for
Situation: 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 time
In 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. 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. 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
Commercial
HKQAA Wine Storage Certificate (9 cellars in HK) Fine Wine Wine
Crown Wine Cellars Ltd, X
Watson’s Wine Cellar, X
DHL Global Forwarding (Hong Kong) Limited, X
China Merchants Godown Wharf & Transportation Co. Ltd, X
ATL Logistics Centre Hong Kong Ltd, X
Pacific Wine Chambers, X
Supply Chain Solutions (Asia) Ltd, X X
Jebsen Logistics Ltd X X
Winner Godown Ltd (Wine Station) X X
© Shelley Chi Wah LAM. All Rights Reserved. For internal use only, information strictly confidencial.