Granthill Winery Case Study

Asian Focus
Justin Campbell, CEO and founder of Granthill Winery sat back in his
office chair. It was the end of another long day of work in British
Columbias Okanagan Valley (link1, link2), and he had just finished a
Skype meeting with a potential wine distributor in Hong Kong. Justin
scratched his head and stared thoughtfully over the rolling hills of grape
vines towards picturesque Lake Okanagan (link1, link2). Six months ago,
Justin and his business partners decided to expand their wine business by
tapping into Chinas mammoth US$33 billion/year wine market
(source: link). Their idea was to focus on Hong Kong as a hub
(link1, link2) to export Granthill wines into Mainland China. Professionals
in the Canadian wine industry were enthusiastic about this focus on Asia,
especially since the Hong Kong Government had announced that it would
be dropping all wine import tariffs in 2008, making it one of the few taxfree wine markets in the world. Since 2008, the citys tax free status had
successfully lured high-caliber wine sellers and distributors, and
developed its reputation as a one of the worlds largest wine hubs. Due to
itsprime geographical location (link1, link2), excellent logistical
infrastructure and famed legal (link1, link2)and financial system (link),
many foreign businesses approached Hong Kong as the preferred foothold
into the Chinese market. Wine sellers and distributors from around the
world followed suit, informed by the Hong Kong Trade and Development
Council that over 37% of all wine imported into the city was re-exported
to China (source: link), making Hong Kong a true stepping stone into the
massive Chinese wine market.
Unfortunately for Granthill Winery, all this had not resulted in instant
success in exporting their wines through Hong Kong into Mainland China.
Still, Justin was not about to give up without a fight; he knew there was
great potential for Granthill Winery to thrive in Asias wine market if he
could just figure out how to break into this market.
Asian Challenge

Before moving forward with his plan to try to break into Asias wine
market, Justin had researched the potential of the Asian wine market,
specifically focusing on Mainland China. What he discovered appeared to
be quite positive for Granthill Winery. Since Chinas entry into the WTO in
2001 and Hong Kongs decision to eliminate taxes on wines imported into
the city, tariffs had decreased to the point where wine was becoming
affordable to the average urban consumer. Though there was still a
marked difference between the drinking habits of rural and urban Chinese
consumers, with traditional rice wine (link1, link2) being preferred in rural
areas and still accounting for more than 50% of the total volume of wine
purchased in the country, young urban consumers were increasingly open
to purchasing grape wine (Source: July 2013, Passport: Wine in China,
Euromonitor International). Justin also learned that red wines were
recording the greatest growth in sales (link). Ever increasing numbers of
Chinese wine consumers were attracted to the claimed health benefits of
red wine (Source: German, J. and Walzem, R. 2000, The Health Benefits
of Wine, Annual Review of Nutrition, 20) as well as its auspicious red color
(link1, link2). However, due to the lack of an historical wine culture in the
country, many consumers were choosing their wines based on things like
sophisticated packaging, older vintages, and whether or not the wine had
been imported (Source: July 2013, Passport: Wine in China, Euromonitor
International), preferably from vineyards with a story attached to them
such as those from medieval chateaux in famous wine growing areas in
France. Justin also researched the drinking habits of Chinese red wine
consumers. He found that these drinkers preferred less acidic, sweeter
fruit flavors in their red wines, with Cabernet Sauvignon and Merlot being
the two dominant varietals of still red wine consumed in China (Source:
July 2013, Passport: Wine in China, Euromonitor International). In light of
all this seemingly positive information, Justin was feeling somewhat
hopeful that Granthills recent surprise win for Worlds Best Pinot Noir in
the under $30 category at the Decanter World Wine Awards would result
in more attention and appreciation by the Asian and international wine
market.
Reaching Out to Hong Kong

A few months ago, Justin contacted a serial entrepreneur in Hong Kong

named David Lau to a pitch the idea that Granthill Winery could begin
exporting all of its excess production of red wines to Hong Kong, with the
hope that these would then be picked up by a distributor to the Mainland
Chinese market. At first, David Lau, who fancied himself a wine
connoisseur, expressed disbelief that anything beyond the sweet ice wine
(link1, link2) being sold by duty-free stores in airports across Asia was
being grown in Canada. However, over the course of a few dinner
meetings in Vancouver, Justin was able to introduce David to a few bottles
of Granthills red wines. The quality of the red wines produced by Granthill
Winery (link) easily convinced David to return to Hong Kong with the goal
of setting up a wine distribution company focusing on Granthill wines in
particular, and possibly expanding to distribute other quality Canadian red
and white wines. That had been two months ago. Since then, a significant
amount of Granthills money and manpower had been directed towards
the lucrative Asian wine market to attract some of this burgeoning market
to the excellent red wines being produced in the Okanagan Valley.
Perceptions, Logistics and Cultural Differences: Hong Kong
Challenges
Despite the wine distribution website David Lau had set up in Hong Kong
to promote Canadian wines, and the many hours David had spent trying
to persuade local and Mainland shops to sell Granthills wines, there was
little interest from either market. Both David and Justin were coming to
realize that Canadian wine makers were facing an uphill battle in terms
of popular perception (link), lack of Canadian governmental support and
high associated costs (link1, link2, link3, link4 ), as well as the limitations
that Canadas short growing season put on the quantity of grapes that
could be produced annually (link)(Source: Germain Bergeron, Personal
communication, Muwin Estate Wines, Nova Scotia, Canada).
Justin was also realizing that perhaps there were some cultural
differences in the business relationship he was pursuing with David Lau
that he had not at first understood. It seemed that while he, as a
Canadian, was focused on creating their wine distribution venture from a

more distanced, business perspective, David had recently explained that

he came from a background of traders in Hong Kong (link) whose trading
relationships required more personal involvement from both parties.
David had repeatedly asked Justin to visit Hong Kong to really understand
the market and see where his wines could be stored and based on this
decide how to market the wines for the local and Mainland Chinese
markets. So far, Justin had felt that this type of trip was unneeded,
though he tried to establish more connections with David by offering to
meet on Skype more frequently to discuss the progress of their business.
Meanwhile, Justins business partners were beginning to question whether
the focus on the Chinese market was realistic due to all these challenges
and the seeming lack of interest from overseas distributors.
Back in his office in the present day, Justin scratched his head again
thoughtfully. There must be a way he had not thought of to break into the
Hong Kong and Mainland Chinese wine market. He just was not sure what
it was.