Vinfolio.com

by Phuong Ly
San Francisco Business Times
Friday, April 04, 2008

For some of the most passionate wine lovers, wine isn't just for drinking. It's for keeping.

Like art and jewelry, fine wine has increasingly become an item for collecting, investing in and showing off status. "There's a finite amount of wine of a given vintage," said Steve Bachmann, founder of Vinfolio, a San Francisco online retailer.

In catering to customers who may never get around to opening the bottles they buy, Vinfolio and competitor WineCommune LLC in Oakland have tapped into a growing market.

Vinfolio, started in 2003, raked in $14.3 million in revenue last year, a 155 percent increase from 2006. WineCommune, launched in 1999, doubled sales to $16.5 million.

Michael Stajer, CEO and co-founder of WineCommune, said that the amount of elite wines made in the Bourdeax or Burgundy regions of France hasn't increased, but prices have escalated. A 2005 vintage of Chauteax LaFite from France -- once called the "king's wine" -- that was sold for $700 when it was introduced can now command upwards of $1,700.

"There are more people willing to spend more money on these very select groups of wine," Stajer said. "It just creates this huge demand." Industry numbers show that even the average consumer is choosing higher-priced wines. Sales last year totaled $8 billion, an increase of 8.5 percent, according to statistics from the Nielsen Co., which tracks sales in stores. Meanwhile, the volume of wine sold rose just 3.5 percent.

Online, higher priced wine seems to dominate. Only 7 percent of wines sold in 2006 cost $19 or less a bottle, according to a report from the Inertia Beverage Group in Napa.

The average bottle sold through Vinfolio is $150. For WineCommune, it's $100 for retail, $50 on its auction site.

Industry analyst Eileen Fredrickson said the ability to buy coveted collections online has increased demand -- and prices. "In the old days, there were only a few select auctions, mostly in New York, and you had to have a surrogate there to bid for you," said Fredrikson, of Gomberg, Fredrikson & Associates, a wine consultancy in Woodside.

Fredrikson said competition for those sales is becoming fiercer. Online wine retailing has flourished since May 2005, when the U.S. Supreme Court ruled that states cannot prohibit their residents from buying wine from out-of-state wineries.

Moving into international market

Many wineries as well as boutique wine shops have set up web sites. To try to distinguish itself, Vinfolio is moving into the international market. The company will open an office and storage facility in Hong Kong in about six months, Bachmann said.

Hong Kong is projected to become a hub for wine sales since it recently abolished import duties for wine. The region also has a large new-money class with a blossoming interest in wine.

Last year, 10 percent of Vinfolio's sales were overseas, but the company hopes to expand its reach. Bachmann said that shipping bottles overseas is often easier than domestically because of complex state-by-state wine laws in the United States.

"With the sinking dollar and strong markets elsewhere, we want to hedge our bets," he said.

Managing collections

Besides selling wine, Vinfolio helps manage collections. The company offers on-site inventorying and storage as well as a few free options such as online cellar management software and tailored wine recommendations. Such services are a small fraction of business, but "it's a license to market to the customers," said Bachmann.

Although WineCommune is targeting a similar demographic, its product mix is wider. "The guy who's buying that Burgundy does need everyday stuff as well," said co-founder Shaun Bishop.

The company sells retail on its JJ Buckley web site and holds auctions on winecommune.com. A third web site, winezap.com, allows people to search for wines and compare prices with other retailers. To attract customer attention, WineCommune promotes videos of vineyards and the wine-making process as well as trips to France to meet winemakers.

With such a limited number of wines, the competition among upscale retailers isn't just for customers but for stock. The companies scour private collections and negotiate with winemakers to secure the rare wines. As with other collectables, once a winemaker finishes a vintage, it can never be made again, said Bachmann, and "the only way to get them is to buy them back from someone."