The Challenges of Starting an Urban Winery

Forget rain or bugs. Lysanne Tusar, who makes wine in Hong Kong, has landlord issues.

Colleen DeBaise By Colleen DeBaise

Ask most winemakers about the pitfalls of harvest, and they talk about excessive rain or pesky bugs. Lysanne Tusar, owner of the 8th Estate Winery, has a more unusual problem: the rising cost of rent in the city.

Far from the rolling hills of Napa Valley, Tusar makes her wine on the third floor of a warehouse building in Ap Lei Chau, an industrial district on Hong Kong’s Southern side. Tusar buys flash-frozen grapes from the world’s most fertile regions — Australia, France and America’s West Coast — and turns them into oak-aged wine off the urban streets of this densely populated city. Marketing her wine as Hong Kong’s first-ever vintage is a competitive advantage over imports, she said: “It hasn’t had the heartbreak of being bounced all over the globe.”

But now Tusar faces a real estate problem. Seven years ago, she spent about $3 million she had raised from family and a few investors to set up her unusual winery in an 8,000-square-foot rental space with rooms for wine-making equipment, barrel storage and offices, plus a wide terrace for events. The venue, actually two connected spaces, is controlled by two landlords. One of them decided in March to raise the rent by 200 percent. “He was getting dollar signs in his eye,” she said.

Given only 30 days to decide, Tusar opted not to renew the lease, and gave up half the space. She was forced to cancel this year’s vintage. Typically, she produces 40,000 to 60,000 bottles of wine a year, which she sells to local restaurants and bars, as well as to corporate and individual clients. “We just physically couldn’t do it,” she said. She also closed the winery’s events business, which had contributed about a third of the company’s revenue, and laid off a couple of employees (she still has one employee, a facilities manager, who has been with the winery from the start).

While Tusar has an inventory of 50,000 bottles, she needs to find new space — or change her company’s direction, perhaps by franchising or licensing the model outside of Hong Kong, which potential partners in Beijing have suggested. She is still thinking through her plans: “Do we replicate the same thing? Or do we modify based on what the market is demanding? There are a hundred questions now being thrown at me.”

Seven years ago, Tusar, who is from Vancouver, began the business to tap into Asia’s growing fondness for wine. Despite its lack of vineyards, Hong Kong is the continent’s wine hub, with annual consumption now hovering at about 3.5 million 9-litre cases, about 42 million bottles — and expected to grow another 17 percent by 2017, according to a survey commissioned by the French trade group Vinexpo.

Tusar had heard about the process of flash-fleezing grapes when wineries in Canada were dealing with gluts of fruit about 10 years ago. “A grape can be frozen solid in six minutes,” she said. “Once something is frozen, transportation is fairly easy.” Discussing the matter with friends and family one night over dinner, she said, “Well, shoot. If you could in theory have a winery anywhere in the world, where would you go?”

Tusar, who had worked in beverage marketing, immediately thought of Asia, specifically Hong Kong: “a great city for many reasons, from languages to international perspectives to a great logistics center with a port.” Not being able to shake the idea, she headed there to assess the viability of an urban winery and decided to give it a shot. (See the related video, produced in 2011, about how 8th Estate got its start.)

The challenges have been plenty, starting with patience, which is a necessity in the wine business. “I can’t really think of another product that you have to sit on for two years before you can sell it,” she said. It’s also been difficult to sell people — especially connoisseurs — on the concept, although 8th Estate wines have won accolades, including silver and bronze awards in the 2012 Shanghai International Wine Challenge. And while Hong Kong dropped its wine tax in 2008, cementing the city’s reputation as a wine hub, the move also brought increased competition from imports.

Tusar declined to disclose her revenue but said “we were right on the threshold of turning a profit” — until she lost half her space: “I am having an absolute heart attack right now with the stress.”

The silver lining, she said, is that it’s “sort of forcing me to look at this, and evaluate if we should start multiplying and broadening our horizons.” While she could simply find a new space — her equipment is mobile — she wonders whether it would be better to spend her resources trying to tap new markets, such as mainland China or beyond Asia. She has considered trying something similar to a franchise model.

More than anything, Tusar would like a partner. “I don’t want to do this alone anymore,” she said. “It’s definitely not a source of pride. I really need help.” She has been talking to individuals who have backgrounds in food or manufacturing, but finding the right partner has not been easy, in part, she said, because “there is no one out there who has done exactly this.”

Since losing the space, Tusar said, it has crossed her mind a few times to walk away from the business. “There are days when you feel so threadbare and down,” she said, but so far she’s sticking with it: “I still adamantly and wholeheartedly believe in the concept.”

Do you have any suggestions for Tusar?

Posted: June 15, 2014

Colleen DeBaiseThe Challenges of Starting an Urban Winery