Posted on | January 18, 2009 | No Comments
By Jim Boyce
In late November, I met Patricio de la Fuente Saez, managing director of Links Concept, which expanded its China presence by opening Shanghai and Beijing offices in 2008. I later interviewed him about how he got into the business, the strategy of moving into second-tier cities in China before entering Shanghai and Beijing, his take on a tumultuous 2008 and what is ahead in 2009, and more. I’ll run the second part of our interview – which covers his favorite tastings, including a few with nineteenth-century wines – on Friday.
How did Links Concept start and expand?
I started in the business in February 1998 with Dah Chong Hong (DCH), a subsidiary of CITIC, and was responsible for setting up the wine division with Man Lai, now my partner in Links Concept. We made our first trip to China, to Shanghai and Beijing, the next month for a Chilean wine fair.
It was a great trip. Shanghai was amazing, just starting up, with Pudong a construction site and everyone looking for wine. That was the good news. The bad news was that importing the wines into China was a nightmare. Even a company with a background like CITIC was unable to get an import license. We had meetings and tastings with many great potential customer but we were unable to get our wines in. We ended up importing through a local distributor in Shenzhen.
In June 2000, I left with my team from DCH and set up Links Concept. The suppliers and customers moved to us! All of our goods in China were imported through the same local distributor in Shenzhen and we moved our office there from Guangzhou in 2003. That same year, we set up Links China and expanded distribution to Guangzhou, Wuhan, Chengdu, Kunming, Harbin and Dalian. In 2005, we owned and operated 19 wine shops in Guangdong, and expansion followed in 2006 (shops in Chengdu, Wuhan, Kunming), 2007 (three shops in Beijing), and 2008 (offices in Shanghai and Beijing).
Many wine distributors enter the China market via Shanghai or Beijing. Why did Links enter those markets relatively late?
As mentioned, I made my first visit to Beijing and Shanghai in 1998 and have returned regularly ever since. From 2000, when we set up Links Concept, until 2004 our impression was that Shanghai and Beijing were controlled by three distributors who really didn’t like each other and competed intensely for a relatively small market. I felt we were not ready to compete in that way, so early on we decided to concentrate more on South China and the secondary cities. In 2006 and 2007, the business in Shanghai and Beijing really started to take off and we felt that we had to start preparing to open offices there. We were then spending a lot of time in Macau and so the project was delayed, but at the beginning of 2008 we started looking for good people, found them in the second half of the year, and now both offices are opened.
The China wine market is saturated with wine importers, according to many industry people with whom I’ve talked. What led Links to expand now?
I agree that there are a lot of new importers in the market, just like in Hong Kong 10 years ago. Even now, wine seems to be a business that many people want to get into. One of the reasons we delayed entering the market was because we were not able to find people that see the wine business as a lifestyle, not as a job. We finally found them and that is why the offices were opened last year.
I also think there is always a market for good wine and I believe that the brands we represent, such as Champagne Billecart Salmon, Dow’s Port, Paul Jaboulet Aine, Domaine Laroche, Casa la Joya, and Jose Cuervo Tequila, are ones that a lot of customers will enjoy. We are working with some of the top family-owned wineries.
How does Links distinguish itself from those many other wine importers and distributors in China?
First, unlike many distributors we have a full range of both wines and spirits. We did this because many bars and clubs are essentially spirits outlets. We found that if we are able to offer a full range of spirits, we are often also able to handle the wine lists for these outlets.
Second, we are a 100 percent family-owned company and, while there are exceptions, we tend to like working with family-owned wineries. They tend to place more emphasis on the actual products and their placement, and less on useless paper work, which is something that larger publicly listed wineries are very big on, though this is better for justifying salaries rather than for improving sales.
And as mentioned, our team sees the business as a lifestyle, unlike some companies that take our business way too seriously. We are selling a fun product, not something such as insurance.
The past year has been a tumultuous one for wine importers, with issues including the China Customs investigation, the dropping of the wine tax in Hong Kong, and economic concerns near the end of 2008. What do you see ahead in 2009?
I have always been an optimist and I believe that the wine and spirit business is more recession proof than other sectors. We always say that in good times people drink and in bad times they drink more. Obviously, during hard times sales of the more expensive wines will slow down but I think people will still drink.
I think we as suppliers have to be more flexible and try to assist our customers with better prices and slightly better credit terms. There are always ways to work together and we are all in this industry together. I also think China will see a smaller economic impact than the rest of the world. And with regard to the wine business, we all know that less than 5 percent of wines sold in China are imported wines, so I think there is only one way and that is up.
The elimination of the wine tax in Hong Kong and Macau was very positive for Hong Kong. It is now the first place in the world with no wine tax and no value-added tax. Prices dropped a lot. This is great for consumers and most food and beverage outlets immediately changed their wine lists. While they did not lower prices – mainly due to the high rents in Hong Kong – they decided to serve better wines. We have seen a big increase in sales in Hong Kong since the tax reduction.
And the China Customs investigation is nothing new. Such investigations have been done many times. The difference was that this time the international press picked up on it and soon the stories spread around the world.