Setting up a new wine business in Singapore. Is it viable?
-A new business owner’s perspective
Over the last decade, we have seen a mushrooming of wine companies in Singapore. An online search via wine-searcher last night produced 247 references for Singaporean wine stores.
Many of these are online companies who pride themselves for getting the best value for consumers by not having a brick–and-mortar outlet. But is this really the case?
Well, certainly by not having to pay rent or mortgage there is saving which can be passed on to the consumers. But a bottle of wine is unlike a concert ticket or a tour package. A wine lover of whatever pedigree would want to hold the bottle of wine in his hand before buying.
To be able to see the real stuff-the label, the bottle, the colour of the wine among other things is part of the buying pleasure. This, in itself, is a value.
Singapore is a country without any vineyard, most of us are descendants of Chinese immigrants. Unlike our European counterparts, we do not traditionally drink wine.
As we flourish as a country, so do consumption of wines and liquors among our population. Just a generation before mine, wine is put on some kind of a pedestal, a luxurious product i.e something that should only be indulged in when or if we have the means.
As such, the recent tax hike in alcohol and tobacco products is also known as the increase “tax on sin”. But this perception is changing.
There are institutions claiming to have thoroughly researched our wine-related demographics, buying trends, consumption, etc.
Others have correspondents based here doing surveys, scouting websites , emailing and calling wine companies for the purpose of gathering market information.
Due to the resources utilised, it is of no surprise that detailed information gathered by these companies is not available free.
But let us look at the statistics published by Singapore Customs from 2004 to 2013 and read into it ourselves.
Pay attention to the duty paid for the release of sparkling and still wine-the subject of this discussion.
In 2013, the total consumption of both still and sparkling wines in Singapore reached 1,172,442 9-litre cases . One research company gave a somewhat lower figure of 1.02 million cases.
The Compound Annual Growth Rate (CAGR) of wine consumption in Singapore from 2004 to 2013 is 7.95%.
However, for the last 5 years(2009 to 2013) the CAGR is 6.1% . This is lower in comparison to a CAGR of 8.9% for the first 5 years (2004 to 2008).
What does this tell us?
This tells us that while there is growth, there is a deceleration for the last five year compare to the first five. Does this indicate a mature or maturing market? Or is this the result of an economy slowdown? Or is this due to loss of consumer confidence?
Certainly, the first two propositions are more explicable.
We do not have a “wine scandal” like the milk scandal of China, there has been no loss of consumer confidence in wine for whatever reason so to speak.
The second proposition can be explained from the world economic meltdown that started in September 2008 and its ripple effects. A husband is not going to bring home a bottle of wine knowing he might lose his “rice bowl” the very next day.
To explain the first proposition, we must ask ourselves whether there is indeed market saturation i.e. a market with constrained growth and excess supply. Market saturation is an indication of a mature or maturing market.
However, it does not take a rocket scientist to know that the state of the economy (and its growth)does not just depend on supply. But SUPPLY and DEMAND.
This is somewhat similar to discussions on the bloom and gloom of our property sector.
On TV, we frequently see “talking heads” rattling off figures of land on reserved list, supply of HDB and private properties in the pipeline, no. of transaction done, latest transacted price , etc. This, in reality, does not tell us much.
There has been a lot of transparency in our government so if you are a company subscribing to the relevant data from the authority, this kind of information is readily available.
But of demand, much less is said. We need to know how many potential customers out there. Whether it is property or wine.
For this we need to know the latest numbers and the increment from last count:
The no. of new citizenship and PR granted, the no. of employment pass and work permit issued , our national mean salary, no. of tourist arrival, etc. Not just the total population number.
Why such details? Well, I believe an EP1(employment pass cat. 1) holder is more likely to buy a bottle wine compare to a WP(work permit) holder. You earn more, you are likely to spend more.
Our legal drinking age is 18 so how many out there reached this age last year? Do not underestimate the spending power of a 18 year old (or that of his/her parents’). They are the reason why K-POP is a multi-million dollar industry in Asia.
And how many fall into the group of the typical Singaporean wine drinker by a research company:
-a person between age 25 to 50 years,
-From the middle income to upper income group
-70% of which are male. Although I believe the percentage of female drinker is much higher now.
The bottom line is we need to know whether there is an expansion of the customer’s base. It is not how many condo units you built or how many cases of wine you imported, it is about how many people buying.
Our PM had said that we are still growing in numbers (of foreign workers) it is just not as big a number as before. As long as there is reasonable growth of the customer’s base, we are unlikely to reach saturation point. Not yet.
Based on our own projection, the total volume of wine imports (litres) into Singapore is slated to hit 11.19 million in 2014 and 11.88 million in 2015 based on a CAGR of 6.1% for the last 5 years.
Another research company forecasted we will cross the 12 million litres mark (in wine consumption) in 2016 which look set to be the case.
As of 2012, about 60% of the wine imported is from Australia and France. About 10% from Chile. The rest of the 30 % from Argentina, Italy and others (See pie chart).
As far as the size of the pie is concerned, we hit USD 189(SGD 236.4) million in 2013 (See bar chart). This represents a 3.43% CAGR from 2008. Australia and France again dominant by value in 2013.
Setting up the business
If you have a company in Singapore, you can import wine into the country (with the relevant licenses of course). Here is how you can do it fast and simple as a foreigner:
You get off a plane at Changi airport, get yourself a prepaid phone card, find yourself an apartment to stay, register a company with the minimum paid-up capital, set up a website with your home as the corresponding address , your new cell number as the contact number and you are ready to market wines from your apartment! Though you will need some time before you can get your importer license.
Sounds simple? If it is simple for a foreigner, it will be more so for the local.
We do not operate on a mandatory 3-tier system (producer, distributor and retailer) like that of the US. Any “on-trade” or “off-trade” entity can choose to deal directly with the winery.
Some wine lovers set up a company just to import their beloved wines either for investment or for their own consumption; restaurants and pubs having their own importer license is not uncommon.
If you are coming in, I welcome you to the fraternity. However, I strongly advise you to have a physical platform and not just an online one to showcase the wines you are importing.
You need not set up shop at the swankiest of place. Just somewhere easily accessible so that people can find you.
It will be nice to meet a potential customer at your wine shop rather than at the storage space you rent from one of our big self-storage companies though most of them provide temperature-controlled warehousing.
When it comes to approaching retailers, it will be very tough knocking on doors. Because of late- specialist wine shops, big or small usually have their own importer license. This is due mainly to the ease of obtaining one. The proprietor’s general education and wine knowledge also play a part in this trend.
Think about this. If an importer rents a place to display and sell the wines that he is importing, why should he use the precious space to display and sell the wines you have imported? Why should he help to build up your brands while there are thousands of good ones out there? That is the reason why you need a physical sales platform yourself.
Also, if you are going to sell just the famous and common labels then what value and diversity are you adding to the wine community as a whole? You will be serving as another “branch” for the “big boys” who have exclusive distributorships with the big names. Is this what you set out to be?
The fact is every importer has their own wine preferences shaped by a multitude of factors. This overrides whatever reason the other importer may give to sell his wines to him.
Furthermore, there is no lack of winemakers ready to make direct deal with an importer from Singapore. Too many of them to be exact!
When it comes to approaching supermarket chains and hotels, it is not just knowing the right person but also paying the right price that will get your labels listed.
But of course, you can buy over a wine company with a good balance sheet and track record. Your learning curve will then be less steep, but be ready to pay good money for it, that is, if you managed to find one.
Nevertheless when you are really here be prepared to work hard, real hard. Rejection, frustration and failure are part of the business.
With the wealth of information available these days, you will be well informed. However, I urge you not to be too cautious in decision-making. Being overly cautious stifles the entrepreneur’s spirit.
The “can-do” attitude is above all, the most important component for success.
For we do not need to be reminded that many companies have for over the years moved from renting a garage to listing on Wall Street because of this attitude.
With that I wish you all the best in your endeavours. Thank you!
Mr Benny Chia shared his views over a dinner with some private investors of diverse interests on 15th May 2014.
The above is an extract of his presentation. All views expressed here are solely those of the author /presenter in his private capacity.