Supply chain concerns rival wine fraud

Supply chain failings are not only exacerbating China’s counterfeit wine problem, but threatening the quality of authentic products across the region.

Representatives from across the region’s wine industry took part in a logistics conference at this week’s HKTDC International Wine & Spirits Fair to discuss the scale and nature of the problem before debating the most efficient, commercially viable solutions.

Describing China’s counterfeiting as “a critical issue”, Bryan Peng, general manager of manufacturing and service business for the Hong Kong Quality Assurance Agency suggested that as many as “nine out of 10 bottles” of Lafite currently being sold in China are fake.

Indeed, just this week the country’s police seized 10,000 suspected fake bottles of the Bordeaux first growth.

However, efforts by Chinese consumers to avoid counterfeit wines have brought the entire supply chain under increasing levels of scrutiny and highlighted concerns which affect all wines, not just the top end labels which are most susceptible to fraud.

Stressing the growing interest in this area, Peng claimed: “88% of wine collectors are willing to pay more for better provenance.” This concern has been reflected recently both in auction performances and steps within the wine investment sector to impose a self-regulatory charter.

Indicating that provenance had become as much of a concern for the trade as consumers, Toby Marion, director of Golden Gate Wine, Hong Kong’s largest specialist US wine importer, remarked: “Look at the five star hotels: they’re less interested in another 2% off the price than they are in the provenance.”

While counterfeiting is a bigger issue for mainland China than Hong Kong, supply chain weaknesses in the administrative region, the most important wine distribution hub in Asia and a particularly popular source of wine for Chinese buyers, is contributing to provenance concerns.

“Around 25% of exports to Hong Kong somehow disappear,” claimed Marion.

Even where wines are re-exported legitimately from Hong Kong to mainland China, delays in clearing customs can prove not only inconvenient, but damaging to wine if it is left for a long time in conditions without temperature control.

As a result of these concerns, Hans Mahncke, managing director of Rhenus Logistics Asia Pacific, called on the Chinese government to help Hong Kong and mainland customs officials work more closely together. In particular he pointed to the database of wine prices kept by Hong Kong before it removed wine duty in 2008.

“They must still have that information,” argued Mahncke, explaining: “Much of the delay happens because Chinese officials are suspicious of the value of the declared wine, so a database would help.”

In addition to his company’s vigilant approach towards counterfeit wines, Jacopo Pandolfini, Asia Pacific export manager for Marchesi Antinori, highlighted the company’s own concern about supply chain weaknesses.

With around 100,000 Chinese immigrants from Wengzhou having established a strong presence in Prato, close to the Tuscan capital of Florence, Pandolfini pointed to the growing numbers who decide to ship back local wine to China.

“There are about 1,000 importers of Tuscan wine, but they are not wine specialists,” he complained. “It’s a big problem for us in making sure our product arrives in proper condition.”

In an effort to address this problem, last year saw Antinori participate in a pilot scheme by GS1, a “neutral, not for profit association”, which works to improve supply chain standards in more the 100 countries.

As part of this mission, GS1 is pushing for the wine industry to adopt the Radio Frequent Identification (RFID) tagging scheme. Results from the 2011 trial included the elimination of human error in identifying wines, as well as tracking the precise movements of stock and its exposure to temperature fluctuation.

Describing these findings as “music to our ears,” Pandolfini added: “We are trying to enhance control and this is just the first step.”

Looking to the future, Pierluigi Montanari, GS1’s business development area manager for Italy, outlined an ambition to extend this data facility beyond the supply chain so that consumers can also view full details of their wine’s history.

This step would require producers and importers to incorporate systems such as GTIN (Global Trade Item Number) and GS1 Data Matrix bar codes, as well as QR (Quick Response) Codes on labels.

“The good thing about smart phones is that everyone has a tracking system,” remarked Montanari, who emphasised the value of the RFID system as a means of tackling counterfeiting and grey market issues.

Despite evidence for the effectiveness of these systems however, Marion argued that it would only prove commercially viable for the very top end of the market.

“The cost is two-fold,” he observed, “the RFID tag on the bottle and then managing the process. The expense is out of proportion with the value of the wine – if it’s US$5 or even $50, it’s not justified.”

Although conceding that “technological systems could be of value down the line”, Marion argued instead for the industry to pay closer attention to its supply chain partners. “It’s important to use a full service logistics provider so you can control the process all the way through,” he insisted.

In order to strengthen the administrative region’s internal supply chain efficiency, GS1 Hong Kong’s COO Raymond Ng added a proposal to set up a wine industry consortium.

This would provide a platform for importers, retailers and shipping firms to share knowledge and work together in adopting the latest technical requirements. “The main reason for the consortium is to share voices,” Ng summed up.