Hong Kong a real star for the battered global wine industry – at least for now

Hong Kong has been awash in wine in recent weeks, but the city is an outlier as the wine industry deals with climate change’s effects and shifting tastes
Warmer weather is weighing on global production, and demand is slipping as Generation Z is increasingly averse to alcohol and other risky behaviours

David Dodwell

Published: 9:30am, 4 Nov 2023

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For many in Hong Kong, these past couple of weeks have been awash with wine – ranging from the massive waterfront Wine and Dine Festival and coupons to incentivise visitors to indulge in Hong Kong’s bars and restaurants to this weekend’s Hong Kong International Wine and Spirits Fair and Australian Prime Minister Anthony Albanese’s mission to Beijing to (among other things) restore Australian wine exports to China.

But behind this upbeat narrative is a more challenging story. In short, the US$330 billion global wine industry is battling powerful headwinds both in terms of climate change’s effects on production and faltering global demand for wine. Sales volume in 2022 fell 3 per cent, according to Wine Australia.

At the heart of this narrative is a debate over whether young people aged 28 and under – also known as Generation Z – are turning their backs on alcohol, and wine in particular. As a BBC article put it, “a youth culture that has de-normalised drinking is flourishing – and the change is being felt”. Not that you would have noticed it on Hong Kong’s Wan Chai waterfront during the Wine and Dine Festival last week.

The Gen Z challenge in the world’s biggest wine-consuming countries – including the United States, France, Italy, Germany and Britain – comes at a difficult moment for the world’s winemakers, now facing turbulence in both supply and demand.

Australia’s wine producers, under the influence of a third successive La Nina year in 2022, have wrestled with the wettest and coolest growing season since 2011, with the 2023 winegrape crush at its lowest since 2000.

Even with record-low production, a crash in global demand for their cheaper commercial wines has left winemakers with an estimated surplus of 2.8 billion bottles. That is enough to fill 859 Olympic-sized swimming pools.

01:55

Australian winemakers squeezed by Chinese tariffs leave tonnes of grapes to rot

Drought and heat have hit Spain’s Rioja wine region hard. Italian winemakers have been hit not just by drought but by the plasmopara viticola fungus, better known as downy mildew.

In France, despite a good harvest, a collapse in wine demand both at home and overseas has forced the French government to get EU approval for €200 million (US$212.6 million) in “crisis distillation aid” to distil unused wine into ethanol that can be used in perfumes or alcohol wipes. More than 1,000 Bordeaux farmers have applied to pull up 9,200 hectares of vines – about 8 per cent of the region’s total wine-growing area.

Italy, France, Spain, the US and Australia are the world’s leading winemakers and account for about 65 per cent of global production. They are no strangers to weather-damaged harvests, but analysts of the wine business say this time is different. As organisers of the World Bulk Wine Exhibition noted ahead of their annual conference: “The fact that the expected production shortfalls have failed to spark an uptick in activity across the bulk wine market are a telling indication of the headwinds facing the global wine industry.”

Winegrowers unload wine from a lorry during a road-blocking demonstration to protest against imports of Spanish wine, on the motorway at the toll booth of Le Boulou, close to the Spanish border, southern France, on October 19. The regional wine industry has gone through a trying vintage amid difficult climatic conditions. Photo: AFP

This is where we come back to Gen Z in the leading wine-consuming economies. An annual wine market study by Silicon Valley Bank – presumably its last as the report was published in January, not long before the bank collapsed on March 10 – explored how younger US consumers were fundamentally changing the alcohol market.

Not only were they picking more widely across spirits, beer, wine, non-alcoholic beverages or even abstinence, but a growing number were claiming to be “sober curious” – avoiding alcohol for personal or wellness reasons. Others were strongly influenced by anti-alcohol messaging on social media and anxiety that drunken behaviour recorded online might damage their personal reputations or even their careers.

‘Alcohol-free is a movement’: bars in US, Asia promote no-booze events

The BBC analysis suggested that apart from always keeping their online image in mind, Gen Z as a cohort have grown up significantly more risk-averse than their elders – not just about alcohol, but about drugs, cigarettes, unprotected sex, drink-driving and other risky behaviours.

The Covid-19 pandemic, which removed almost all face-to-face social activity for months on end, also fundamentally altered many people’s social and alcohol-consumption habits. Many people developed a habit of buying online and consuming at home rather than in bars or restaurants as part of normal socialising.

It is worth remembering that Gen Z are far from the only cohort lacking an affinity for alcohol. Hundreds of millions of Muslims live lives free from alcohol, as do many other people for a variety of health, religious and cultural reasons.

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Gen Z in Japan more likely to pick up a mocktail, instead of a cocktail

I am also reminded of the many East Asian people who lack the aldehyde dehydrogenase 2 enzyme that breaks down the toxins in alcohol and as a result suffer from what is know as the “Asian flush”.

I have always regarded this as a lucky “impediment” as often in my teenage life I wished for an early warning system to tell me that I had drunk too much and should stop.

But for a grape-growing world that is wringing its hands over wilting demand for wine amid Gen Z’s changing tastes, Hong Kong has in the past week provided one of the few bright spots. Since abolishing all duties on wine in 2008, we have become one of the world’s leading wine-trading hubs. While demand languishes elsewhere, Hong Kong’s trade is growing strongly. If Chief Executive John Lee Ka-chiu’s strategy of boosting our nighttime economy succeeds, that growth will continue beyond 2023.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades

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