Has Singapore given up competing with Hong Kong on alcohol?

Price is everything when it comes to wine but the recent Singapore budget increase on alcohol in the Republic has pushed up wine prices that were already sky high to stratospherically high. What are the reasons for targeting wine and beer drinkers for a relatively modest amount of money with yet higher taxes?

The recent budget increased the duty on wine and beer by an enormous 25%. As wine is already more expensive in Singapore than anywhere else in the world by comparison, this has led wine drinkers to gasp with horror and drink more.

The majority of wine drinkers in Singapore are European/American/Australian/Chinese (they are now the No.1 red wine drinkers in the world just pipping the US who remains the No.1 wine-consuming nation on earth) expats and are the ones hit hardest.

However more affluent and sophisticated Singaporeans, especially those that have studied or worked abroad are drinking wine in increasing numbers at the increasing range of fine dining establishments in the Lion City.

Also the budget increase targeted alcohol in general some of the older Singaporeans who like their Tiger Beer in local hawker centres/coffee shops also got a fright as the beer suddenly cost almost $1 more.

There was an outcry about this too as many venues took the budget increase as an opportunity to drive up the cost of drinking any alcohol by more than the budget rise.

As alcohol duties amount to less than 1% of the revenue generated for the Republic each year, it looked a strange decision that seemingly looked to penalise drinkers specifically.

Given the number of trendy wine bars and cocktail bars in Singapore that already charge $20+ for a drink, an extra $2-3 is not going to be noticed (especially after the first one takes the shock away). However the long-term effect on tourism could be quite serious as it could on Singapore being attractive to foreigners for long-term stays.

Alcohol is simply one of the most expensive things that you can buy in Singapore and was already before the increase.

The recent Economist survey that placed Singapore as the most expensive place for expats to live (and those locals who like an expat lifestyle which is a growing number) didn’t include this rise but did note that most expat goods and services were disproportionately expensive by comparison such as fine wine which while not only bought by expats is majority bought by expats.

Compared to similar countries like Hong Kong who have no alcohol duty and where wine and beer are both comparatively cheap, it appears to make little commercial sense. Hong Kong now looks like party central even more than it did when it abolished tax on wine in February 2008 and instantly gave their wine business a massive boost.

Hong Kong have always seen wine beyond merely being a consumer good and more like an opportunity to market Hong Kong itself. Hong Kong saw that wine could be traded between companies in Hong Kong and overseas with great benefits to Hong Kong.

They also saw the opportunity of attracting investors and visitors to wine events and exhibitions and how wine logistics could then be exploited.

Money then pours into Hong Kong from a wine trade which simply doesn’t exist in Singapore in the shape of visitors, hotels, restaurants, employment, exhibitions, taxis, etc. Singapore appears to just have a tax policy on wine and alcohol whereas Hong Kong has a holistic business policy towards it and is reaping the benefits.

To give you an idea of the cost difference between Singapore and Hong when it comes to alcohol, compare the average costs of goods bought in supermarkets and you will see why the tax on alcohol in Singapore has pushed price levels way beyond anything its Asian competitor charges:

Average bottle of wine: Singapore is 58% more expensive than Hong Kong

Imported beer: Singapore is 218% more expensive than Hong Kong

Local beer: Singapore is 133% more expensive than Hong Kong

This is before the latest rise which will only exacerbate these figures between the two competing Asian cities.

There are always ways around this new increase. It is now cheaper for example to go to New Zealand/Australia/South Africa, visit the vineyards yourself, taste the wines, buy the wine in bulk, have it shipped back, pay the duty, and have it delivered than it is to buy wine in Singapore.

Wine drinkers will undoubtedly do this more and find partners/collectives/form consortiums of like-minded wine drinkers to directly buy wine from producers in those countries and cut out wholesalers/offline retailers to try and make the wine more affordable. Social commerce or sCommerce as its known will find a way to deliver more affordable wines for those who want it.

Given how well connected Singapore is from a social point of view, I can see many residents forming groups on places like facebook and LinkedIn to connect passionate wine drinkers who don’t want to pay the higher prices.

These groups could then come to an agreement on what wines the group would like, put in a budget and approach wine producers who specialise in that wine e.g. Pinot Noir wine producers from Central Otago in New Zealand and arrange for wine to be shipped directly to the group for distribution.

They could also decide to have a trip to Hong Kong to do the same thing as a collective. Even with paying the duty, it would be considerably cheaper than buying the same wine in the Singapore retailer stores or bars and restaurants.

Price, favourite, and availability (PFA) has always dictated wine purchases and if these social groups can plan far enough in advance, then the price comes down as availability goes up and the producers themselves can manage the pipeline.

SCommerce will have a greater say on purchasing by socially savvy consumers in the future and price hikes like the recent budget increase on alcohol will only inspire socially savvy Singaporeans to work together with greater motivation and more efficiently than ever before.