Vinfolio.com

Do the wealthy think we're in a recession?  Yes (see yesterday's Wall Street Journal story, Wealthy See Recession, Poll Says).

Is it affecting their spending on fine wine? No (based on Vinfolio's growing sales volumes as well as those of some other fine wine importers I know).

Why not? Demand for fine wine is determined on a global basis and other parts of the world are still going strong enough to absorb finite supplies.  Moreover, "spending" really only occurs when you consume your wine.  Until then, you are merely converting cash into another asset class, which in this case is likely to grow in value.

Why is an out-of-state retailer treated any differently than an out-of-state winery that is selling wine into a particular state?  The nature of the purchase transaction is exactly the same.

Return of the Stone Age in Illinois

Yet that is exactly what is happening in Illinois.  After over a decade of out-of-state retailers being permitted to ship to Illinois consumers, a new law is set to take effect June 1, 2008 which bans such purchases while continuing to allow out-of-state wineries to ship into Illinois (read Illinois opens to direct shipping - i.e. for wineries only). 

When the world is moving to purchase more and more goods online, why is Illinois going back to the Stone Age?   Answer: political contributions/influence and in-state self-interests trump free market competition.

I found it particularly ironic that the above linked article ends with a quote from a representative of the Illinois Department of Revenue trying to justify the state's position when the state is losing tax revenues from such sales that it could capture if it permitted sales by out-of-state retailers to occur.

California at risk too

As Tom Wark over at Fermentation points out in his appropriately titled post, Fixing Stupid Laws, California is at risk of making the same mistake as Illinois.  Why would some major California winery trade associations and even groups claiming support of free trade principles like Free the Grapes support such a ban of out-of-state retailers selling to California consumers when even in-state retailers welcome it?

The best solution

It's time for a federal law setting standards for regulating wine shipping by any licensed party (wineries, retailers, and even wholesalers).  Anything short of that will continue the patchwork of 50 sets of state laws that change constantly based on acts of economic protectionism and local political self-interest.

Asian wine buyers sometimes ask if European fine wine being sold in the U.S. bears U.S. import labels based on some concern that such wine has been handled more often and is at greater risk of being damaged than wine sourced directly from Europe.

This rationale fails on several counts:

1. Unless the wine is from a newly released vintage, it will likely have been handled by multiple parties already, whether American or European.
2. The seller of the wine (the retailer or auction house) has a reputation to maintain for selling wine of sound provenance.  In Vinfolio's case, in addition to questioning the seller on purchase sources and storage conditions, all wine is inspected according to our inspection guidelines before purchase.
3. Rare wine is simply not abundant enough for buyers to refuse to source wine from the entire U.S. market.  Note that all wine imported into the U.S. must comply with federal wine labeling regulations.  Either the wine's official U.S. importer creates a U.S.-specific label which is applied overseas before importing (see Petrus photo) or the wine is sourced directly in Europe through trade channels and supplemental "strip labels" are added to the European label to satisfy the U.S. requirements (a common practice).

An upcoming test in Hong Kong 

As I have been paying close attention to the Hong Kong market given our decision to launch operations there, I noted that Acker Merrall's upcoming May 31 wine auction, the largest ever in Asia, is sourced from six American collections and two European ones.  Does anyone really think bidders will pass on the American-sourced wine?  I don't.

If you're a regular wine consumer, you can no doubt remember some occasions when you've had too much to drink.  While you shouldn't be drinking and driving at all, at least developing a self-awareness of your exact blood alcohol level by using a breath alcohol testing device can help modulate your consumption or stop you from driving drunk.

In the future, you might also encounter an alcohol breath testing service as you depart a corporate or private event.  Springwise, the global trend-spotting site, posted a brief story about Blow Me, a UK-based company offering such services.  With a name like that, it's hard to believe they haven't been in the news more often.

The World of Fine Wine magazine' s latest issue (#19) contains a must-read article called "Every one a critic: The future of wine writing."  Mike Steinberger provides a fascinating, state-of-the-market assessment of what he references as the "twilight era" of Parker.  He makes many valid observations about the inroads being made by what are essentially lower-cost (often free) substitutes for professional (fee-paid) wine criticism.  What's going on and how can the professionals respond?

The "good enough" effect enabled by the Internet

Several trends are at work to shrink the size of the "fee-paid" wine criticism market. There's no question that the Internet has provided a platform for talented amateurs via blogs, forums, and community review websites (Note: Vinfolio is introducing community reviews in our upcoming version of VinCellar).  Many of these reviews (although typically free) can be on a par to those of a professional critic's.  Pragmatically, free amateur reviews need only be "good enough" for the reader to substitute for a paid review.  Moreover, if an individual amateur reviewer is prolific enough and/or focuses his reviews on a particular category of wine, regular readers can calibrate their palates in the same way they do with professional reviewers.

What will happen to the fee-paid wine criticism market

Despite increased competition, there will always be a market for fee-paid wine criticism.  Quality in most areas of life is worth paying for and there's no question that the mainstream professional critics are highly talented.  Moreover, the cost of "paying" (typically $75-$125 annually) is relatively modest compared to the cost of a buying mistake.  However, the "business model" of the professional wine critic may need to evolve to maintain their income.

Advice for professional critics

The theme to my advice is to become more aggressive in disseminating one's professional content to combat the rising "noise" levels.  This can be done in a controlled manner while developing new sources of income to the critic.  Here are some ideas to consider:

1. License content to wine websites and online services -  Vinfolio pays annual fees to Steve Tanzer, Allen Meadows, Roy Hersh, and Richard Juhlin for licensing their wine reviews for specific uses within our free VinCellar cellar management software and within our ecommerce site.  Certain access to full text reviews requires a separate paid subscription to the reviewer's site so we can help drive new consumer subscriptions.  As we expand the utility (uses) of a paid subscription beyond the reviewer's own site, I'd argue that we also increase subscription renewal rates.
2. License content to retailers - If consumers are more reluctant to pay, maybe members of the trade who rely upon the reviews to help sell wine will not be.  Right now, the trade must manually cut-and-paste reviews from the professionals' websites (or otherwise enter data) for what may be thousands of items.  These reviews may need to be refreshed if a review is later updated.  If these reviews were available in an automated way via an electronic API, I believe many retailers would pay material annual fees just to obtain the labor savings.
3. Create foreign language editions - Asian markets are emerging as major wine buyers. Why not offer a Chinese language edition?
4. Generate advertising revenue - Sell online advertising to support access to selected free content.
5. Go "on tour" - Wine critics are analogous to rock stars.  Even if the music (content) is free, fans (readers) pay heavily to attend concerts (wine events).

I could go on but you get the idea.  What would you do if you were a professional critic in this situation?

VinCellar 3.0, our completely rewritten version of our free online cellar management software, was announced back in late December (see post for a summary of new features).  We have been making great progress and are entering alpha testing with internal users on Monday, April 7.  The public launch of VinCellar 3.0 is expected this summer. 

Designed for speed

In addition to functionality and ease of use, a fundamental aspect of the redesign was to focus on the performance of the application to deliver the best user experience.  Our Vice President of Engineering, Andres Camacho, recently posted this note in the Vinfolio forum on VinCellar.

What will the new VinCellar look like?

Your cellar screenshot:

Cellar Analysis screenshot:

Label View:

Wine Detail screenshot: 

Bottom line: You're going to love VinCellar 3.0.  Moreover, we have a steady stream of other functionality being added during the rest of 2008.

The 2008 American Wine Blog Award Winners were announced today and I'm pleased to report The Wine Collector won in the category of Best Wine Business Blog.  Thanks for your support.

When I started writing this blog in 2006 (see Launch of The Wine Collector), I did not foresee writing as much about wine business issues as I have done.  However, wine collecting is all about buying fine wine and the context in which one does that is fundamentally affected by a whole range of business factors affecting retailing trends, global demand, regulatory changes with shipping and foreign duties, wine authentication, investment trends, and more.

I look forward to continuing to write on issues facing wine collectors and the wine business.  The process of thinking through a blog topic is actually quite helpful to my "day job" running Vinfolio and one I thoroughly enjoy doing.   Should you have topics to suggest for The Wine Collector, please feel to email me at steve@vinfolio.com. 

While the basic economics of supply and demand affect pricing of any good, for items marketed globally such as fine wine, significant shifts in currency values in major markets will take their toll.

"Cannot take it any longer" 

Yesterday, Reuters ran a story titled Burgundy wine prices hiked in U.S. due to weak dollar (read it, it's short).  Prices are being raised 10%-20% in the U.S. (the second biggest Burgundy market after Britain) as "they cannot take it any longer."

Just how much as the dollar weakened?

The dollar has depreciated 19.6% against the Euro since the beginning of 2007 and 26.5% since January 2004.  Given that the dollar fell 10.7% against the Euro in 2007, its decline in Q1 2008 has accelerated. 

The broader impact of the weak dollar on wine prices

• Domestic wine will become better values relative to imported wine (although certain items used in making some domestic wines such as French oak barrels have increased dramatically in price).
• Domestic U.S. retailers will increase their efforts to sell wine abroad.  See my post from earlier this week, Vinfolio to open Hong Kong operations.
  
• Foreign buying in the U.S. will increase (including European wines being sold back into Europe).
• Foreign investment in the U.S. wine industry should rise.

Bottom line: Fine wine prices are set globally and are on an upward trend given that rising demand is outpacing new supply (see Why fine wine prices will keep rising).  Fundamental shifts in currency values will cause supply to shift to other markets as well as new opportunities for those paying attention and able to operate globally.

P.S.    Today is the last day to vote for this blog in the 2008 American Wine Blog Awards.  Read about it and vote. 

Vinfolio is taking immediate steps to launch its first international operations in Hong Kong by Fall 2008.  See today's press release.  Here are a few factors which drove the decision:

• The demand for fine wine has been growing steadily in the region and we expect it to continue.
• The recent elimination of wine duties in Hong Kong provided a further catalyst and, over time, will create pressure for other countries to cut duties, too.
  
• Hong Kong offers an attractive business environment and excellent location from which to serve neighboring geographies, especially mainland China.
• The weak U.S. dollar is stimulating more Asian buyers to focus on the U.S. market to buy their fine wine.
  
• Additional wine storage services are needed to support the arrival of wine historically stored outside Hong Kong.  Vinfolio's experience in running a full-service storage facility in San Francisco combined with our VinCellar online cellar management software create competitive differentiation for our services.

Next steps

I will be in Hong Kong again from April 8-11 to begin exploring warehouse and office locations.  In addition, we'll start searching for a Managing Director/General Manager hire.

Bottom line: The fine wine business is global and Vinfolio's operations need to mirror the market to maximize our opportunities.  This is no doubt only the first step in the globalization of our business.