Laithwaites set to shake up Taiwan22nd January, 2014 by Gabriel Savage
Laithwaites Wine has launched in Taiwan, marking the start of a new franchise deal between the multinational retailer and Hong Kong-based entrepreneur Simon Hsu.
The partnership sees Hsu take responsibility for developing Laithwaites’ business in both Taiwan and Hong Kong, where the company has been trading since 2009 with the help of Hsu’s e-commerce Logistics Group, known as ecL.
In addition to Hong Kong-based ecL, Hsu’s other wide ranging business interests include Sino Resources, one of the world’s biggest sapphire mining firms, Sheffield-based tool supplier Spear & Jackson and a number of insurance companies in Taiwan.
The move allows Laithwaites to channel attention towards its Australian, UK and US arms, which together account for the majority of its £350 million turnover. Despite this narrowing of focus, the retailer’s operations in Poland, Germany, India and Switzerland will continue to trade as normal.
In an interview with the drinks business, McMurtrie highlighted the mutual benefits of the franchise deal, saying: “Simon’s contacts can ensure we have the right potential customers we can talk to. You need to go in at a senior level.”
To balance this, he continued: “We have the right portfolio and the classic merchant skills. All our online content and back end systems are available to Simon and his team.”
McMurtrie recalled an early discussion with Hsu about this collaboration, which helped to convince both parties to proceed with the partnership. “He said: ‘Listen Simon, you’ve got the technical know-how; we’ve got the know-who.’”
What’s more, McMurtrie stressed: “We see this as a long term collaboration and we’re putting some of our best people in there to help Simon’s people.” Of the five-strong team now managing both the Taiwanese and Hong Kong businesses from Taipei, three have relocated from Laithwaites’ Sydney office.
For his part, Hsu is kickstarting the Taiwanese business, which will maintain the online and wine club model of its parent company, by setting up partnerships with three major firms. These include Taishin Bank, the country’s second largest bank; the business news resource CNYes, which Hsu described as “the Bloomberg of Taiwan”; and Payeasy, the country’s largest online cosmetics retailer.
Explaining the significance of the latter partnership, Hsu noted that many Taiwanese companies offer their employees a certain amount to spend on Payeasy products as part of their benefits package. He suggested that the total funds currently allocated in this way amount to around NT$800m (£16m).
Drawing a comparison with Hong Kong, which he described as “a lot more sophisticated than Taiwan,” Hsu remarked: “Taiwan is primitive. It’s only really the top 3% who drink fine wines; the bottom tier is mostly beer and whisky.”
With Hsu estimating that current annual wine consumption among Taiwan’s 22 million population is relatively low, “probably one bottle per person,” he identified a major barrier to raising this level.
“People love to drink wine but when it’s below about £50 they immediately say it must be terrible,” he remarked, highlighting the fear of embarrassment that continues to influence many Chinese consumers’ wine purchases. “The biggest challenge with Taiwan is in our pricing.”
It is precisely in this difficult mainstream price bracket that Hsu sees a big opportunity, not only for Laithwaites but for the Taiwanese wine industry as a whole. However, he stressed the particular suitability of Laithwaites’ business model for encouraging a shift in attitude.
“What we’re trying to do is say that good tasting wine doesn’t have to cost a fortune,” Hsu summed up. “Our model says ‘Here’s a case, here’s a card with some tasting notes and information and by the way this is the price.’”
Hsu also pointed to the appeal of Laithwaites’ focus on either producing its own wine or working directly with producers on exclusive offerings. “In Taiwan the big thing now is to have a wine that no one else has,” he told db. “You can’t compare our prices or our wines.”
Despite the current insecurity of many Taiwanese consumers about being seen to buy cheaper wines, Hsu suggested that they were surprisingly open-minded about country of origin, with Italian and Spanish wines proving popular. Nevertheless, he acknowledged, “If you’re given the choice, Bordeaux is still the thing and we’re starting with a Bordeaux offer.”
As part of this wider accessibility drive, the initial offer for the Taiwan operation is restricted to between 300 and 400 listings, compared to around 2,000 listings offered by Laithwaites’ UK business. “We’ve got to start out small,” Hsu insisted. “When people are not that sophisticated you don’t want to complicate things.”
As for the current wine retail scene in Taiwan, Hsu said: “There are a lot of wine shops but they’re so complicated it’s intimidating.” Among the more generalist multiple grocers he picked out the 7-11 chain of convenience stores and fellow US-owned Costco warehouses, which both have a presence in Taiwan, but argued that neither offered the expertise or service of Laithwaites.
“7-11 sells wine at US$10-15 but people don’t like to go there,” he remarked. Turning to Costco, which in Taiwan “is seen as a chic place and has a good wine collection,” Hsu continued: “The problem is that as a consumer who doesn’t know much about wine, where do you start?”
With the Taiwanese business trading under the name “Laithwaites Direct Wines”, Hsu acknowledged the challenge for Chinese customers of pronouncing this name. However, he revealed that the three characters used to represent a close equivalent to “Laithwaite” translate as “Happy Things Club”.
Armed with this combination of industry expertise and local contacts, Hsu set out an ambitious target for changing the shape of Taiwan’s wine industry. “My goal is to make sure that wine drinking per capita goes from one bottle to 1.5 to two bottles – then it’s not just us, everyone gets a piece of the pie.”
While Laithwaites’ Hong Kong operation has already built up a 10,000-strong customer base, Hsu maintained: “Hong Kong is a nice business but I do believe that in due course with our partnerships Taiwan could be much bigger.”
As for the competition from other UK and US wine merchants, several of whom already have operations in Hong Kong, McMurtrie commented: “They’re all fine wine merchants so none of them are completely in the same space as us in the Hong Kong market, talking to that aspirational consumer, and none of them are in Taiwan.”
Even if Taiwan lacks the strong English cultural heritage which has helped Hong Kong’s wine market, McMurtrie highlighted the potentially significant customer base on offer within the state’s own sizeable expatriate community as he estimated that there are “three quarters of a million to a million foreigners” in Taiwan.
Although insisting that his immediate focus remains on establishing the Taiwan operation and expanding the Hong Kong business, Hsu was happy to look ahead to future opportunities on the mainland.
“China would be the hardest place to tackle, but it also has the largest potential,” he observed, pointing out that ecL already offers an established network on the mainland.
McMurtrie echoed this restraint on any imminent expansion plans, saying: “We’re not going to rush into that; we need to get this step right first.”