The Wine Collector

Wine clubs, those subscription-oriented wine-buying programs offered by wineries and others to broaden your taste horizons are usually defined by the following basic characteristics:

1. Monthly or quarterly shipment frequency
   
2. Fixed price for a specific number of bottles, usually with a predetermined contractual commitment
   
3. A thematic element for each club which defines the type of wine you'll receive
4. All subscribers to a given club get the same wines (or drawn from the same limited subset of wines)
   

Flaws in the traditional wine club model

1. Targeted at more novice wine enthusiasts - To keep the price per shipment down, the vast majority of wine clubs select relatively inexpensive wine as subscribers tend to have less wine knowledge and are therefore more price sensitive.
2. Pricing structure is not transparent - There's an inherent conflict in the pricing structure because you sign up to pay a fixed price for some number of bottles.  The club operator, however, wants to minimize his costs so he can make a profit.  The component bottle prices in your shipment are never provided.
3. "One size fits all" - Other than generic criteria associated with what types of wine fall within the typically broad parameters of your selected wine club, you get the same wines as everyone else who signs up.  Buying the same wines in volume is how most operators make their money.  The need to have enough of the same wines often precludes smaller, boutique wines from being obtained.
4. Wine "dumping ground" - Wineries may package wine that isn't selling to move through the club as it's a "guaranteed" channel.
5. Inflexible - It's hard to skip a shipment without cancelling (which may not even be possible).
6. Weather conditions when shipping wine ignored - Extreme temperatures, hot or cold, can cook or freeze the wine in your shipment.  Operators should not blindly ship wine on the appointed schedule regardless of weather but most do.
   
7. Notice of forthcoming shipment not provided - Wine must be signed for by an adult.  If no adult is home, the wine shipment will sit for one or more days in a non-climate-controlled delivery truck or warehouse.
8. Customer service generates cancellations - Operators seem to believe that reminding subscribers of their forthcoming shipments or providing other notices just stimulates cancellations so they minimize such interactions.

Vinfolio's personal wine clubs

When Vinfolio decided to offer its version of wine clubs, we sought to address the flaws above.  Our fundamental premise is that a wine club is simply a more efficient means for many consumers to receive personalized advice on what to buy.  While our customers may call their Executive Wine Specialist (EWS) for individual recommendations at any time, they may be too busy to do so.  So capturing their detailed individual preferences for their EWS to use in hand-picking their wine, and pre-agreeing to a flexible schedule of shipments is simply more convenient and saves them time. 

In short, we view wine clubs as merely a customer's preferred or supplemental method of buying wine from our retail business where each and every order is tailored to an individual's preferences, where our entire inventory is available to select from, and where the shipping/delivery options are sensitive to weather conditions or the temporary inability to receive a shipment (for whatever reason).

Key elements of Vinfolio's personal wine clubs

1. Suitable for all knowledge levels - Our program is designed to serve all wine knowledge levels from novices to experts.
2. Complete customization - Customer's club choice is amplified by any specific preferences desired.  E.g., mix of red and white wine, price range per bottle, preferred (or disliked) producers, varietal preferences (or dislikes), etc.
3. Unique wines per customer from large inventory - Customer's assigned EWS hand-picks wine drawn from Vinfolio's complete retail wine inventory of almost 2,000 wines before each shipment which meet the criteria.  
4. Transparent pricing model - The price of a shipment is simply the total of published retail prices of each wine selected (constrained by price range per bottle specified) plus shipping costs.
5. Vinfolio's "finer" customer service - One week prior to a shipment, we email a reminder so the customer has plenty of time to modify preferences, skip a shipment, request a different ship date, ask for the wine to be added to free storage for later shipment, or cancel altogether.  Weather holds are automatically applied if conditions do not permit the safe shipment of your wine (just as we do with all retail purchases)
   
6. VinCellar integration - All items purchased are automatically added to the customer's VinCellar online cellar management software account (also standard for any retail purchase).

If Vinfolio's redefined, personalized approach to wine clubs appeals to you, learn more.  It's really just a more structured way to build your wine collection and to try wines you might not otherwise buy.

A purchase is a purchase, however it's made.  The term "purchase" is so common that it hardly needs explanation but let me provide the primary dictionary definition any way: "to acquire by the payment of money or its equivalent; buy." 

So what's different about a wine purchase?  Many of your state regulators that write or vote on wine shipping legislation think purchases made from wineries are somehow different from purchases made from retailers.  Hmmm....

Tom Wark over at Fermentation addresses this issue in his post titled Winery vs. Retailer: What's the difference?  Please read it and while you're at it, subscribe to his RSS feed.  Tom generates a steady stream of insightful posts in an entertaining and clearly communicated manner that anyone interested in wine should stay plugged into.

A news item on Decanter.com last week titled "Yquem goes into nebuchadnezzar" notes that Yquem is creating a limited series of 120 of these 15 liter bottles for the highly-touted 2005 vintage.  This marks the first time in the long history of Chateau d'Yquem (since 1593) that this bottle format, named after a King of Babylon Nebuchadnezzar II, has been used.  Until now, the largest bottle format available has been 6 liters which only began in 1982.

The facts

• 120 15L bottles to be produced: 20 to be retained in the library of the Chateau
• 100 of the bottles to be sold via Bordeaux Wine Investments (BWI, UK-based) and Bordeaux Wine Locators (BWL, US-Based), which are sister companies owned by the same sole shareholder.
• The BWI/BWL's price per bottle is €12,850 (about $17,100)
• The wine will be bottled during the first quarter of 2009
• The Wine Spectator has scored the wine its highest possible rating in barrel which is 95-100.  Robert Parker has yet to rate it but in writing about the 2005 vintage, he said the 2005 Yquem "should be utterly amazing when released" given that it is a "towering example of profound Sauternes."
  
• Each bottle is etched and engraved with a bottle number.  Bottles will be presented in a special wooden presentation case.
• The names of the 100 buyers will be drawn in April 2007 at the Chateau, providing each purchaser with the opportunity to own bottle #1.
• Special glass was needed so that it would not yellow over an extended aging period.
• Two people are needed to handle a bottle given its weight and size.
  
• Special Styrofoam shipping cases are to be used for delivery.
  

Why now?

I decided to email Robert Lench, Managing Director of BWI, to ask if he knew what the motivating factors were behind the decision to produce 15L bottles.  Here is his response:

"The idea was conceived and initiated by my brother, Andy Lench [the owner of BWI and BWL]. We believed this would be a unique format for the greatest Sauternes in the world in an historic vintage, the 2005. The 2005 has received a generally high profile and acclaimed as one of the greatest Bordeaux vintages. A very special bottle for both investors and connoisseurs. This is a high profile opportunity to have a piece of history."

Apparently, the market seems to agree as there are less than 10 bottles left for sale between the two companies.

Other questions you might ask

1. How do I buy one? The bottles are only available through retailers except in the UK where an individual may buy directly from BWI.  Or just email service@vinfolio.com and we'll try to snag one for you.
2. Does this portend a new supersizing trend for Bordeaux?  Robert Lench did not think so.  This concept was something they initiated as wine merchants.
3. How much of Yquem's typical production is being diverted to the 15L format? About 65,000 bottles (750ml size) are produced annually.  The 120 15L bottles (20 750mls in each) translates into the equivalent of 2,400 750ml bottles or about 3.7% of annual production.
4. What is the price premium compared to the 750ml bottle format? $675 is the median 750ml price based on 23 U.S. retail prices taken from Winesearcher.  Using $17,100 as the minimum price one could pay, this equates to $855 per 750ml equivalent or about a 27% premium.  Two different U.S. retailers have both offered the wine at $20,000 which would be a 48% premium.
5. Would this be a good investment? My guess would be "yes" given the quality of the vintage and the producer, the limited number of bottles produced, rising global demand for top wines, the unquestioned sourcing of the wine, and the ability to prove the authenticity of the wine over time (via etched bottles and other certification).  The fact that over 90 have already been sold tends to confirm my guess.

A recent thread titled "Wine-Searcher used for teasers?" appearing on the Mark Squires' Wine Bulletin Board on the eRobertParker site struck a chord with me.

Most wine collectors use one or more of various wine price comparison engines to search for a wine they're interested in buying.  Winesearcher.com is the most popular of them.  A common problem encountered by users is that the wine being advertised is often "just sold yesterday" or otherwise not available when the collector seeks to buy it.  Are retailers engaging in "bait and switch" tactics?

Retailer input is a big part of the problem

1. Data collection by "scraping" - Most data appearing in Winesearcher is collected by "scraping" it from the retailer's web site, meaning a software program "crawls" the retailer site's unique layout and attempts to strip out the relevant information to populate a listing.  This is inherently problematic as every retailer site is different and site layouts get modified periodically.
2. Infrequent update frequency - Winesearcher on average updates a given retailer site "at least once a week."  Ideally it would be daily and it can be if the retailer makes a data feed available to Winesearcher to avoid the site scraping process (which is what Vinfolio does).
3. "Technology-challenged" retailers - Most retailers are small businesses (often rooted in a "bricks-and-mortar" operation) that are slow adopters of new technology that's needed to facilitate online sales.  Tasks like maintaining an accurate real-time inventory are not easy for them (as hard to believe as that may be for an inventory-driven business).
4. Listing of "sold out" wines - Many retailer sites complicate the accurate scraping of data by listing prices for sold out wine.  One search engine competitor of Winesearcher told me he believes that over half of the retailers' sites they scrape do this.
5. Brokered wine - Brokered wine is by definition wine that the retailer is marketing but does not own.  This is very problematic for the collector because there may be many retailers offering the same physical stock of wine from a single wholesaler.  A purchase request must first be confirmed with the supplier which often takes 1-2 business days and the wine may have been sold to someone else in the interim.

What you should expect

1.  "Garbage in, garbage out" - I'm exaggerating to make a point but given the 5 factors noted above, is it really a surprise that advertised wine is often not available when you call?
2. Hot wines - Newly reviewed wine with high scores tends to create a feeding frenzy among collectors looking to buy it.  Given the site update frequency and an "instant" surge in demand, you should expect to hear "sold out" or new higher prices for legitimate reasons.
3. Non-sponsors - Winesearcher charges retailers $3,150 per year for priority display of the retailer's listings in the free version of their site.  If a retailer is spending that much, their interest in maintaining daily, accurate price lists is probably higher than a non-sponsor.  Sponsor names are bolded and non-sponsors are not.  So if you encounter a non-sponsor, I would expect a higher probability of less accurate inventory information.

A recommended strategy for users

1. Subscribe to Winesearcher Pro - As pointed out in a prior post, this is a no-brainer.  Do it as the enhanced features provided are essential for dealing with the inherent data issues already noted.
2. Read price date stamps - Every price is date-stamped.  Older prices are more prone to problems.
3. Report problems - On every results page, Winesearcher has a feedback link for reporting issues with data.  They are very responsive.  For the sake of the community's use of the information, please take a minute to report problems.
4. Exclude merchants - The Pro version of Winesearcher enables you to exclude merchants from being displayed in the results of your searches.  So if you've concluded a particular merchant never has the wine when you inquire, or is unable to ship to you, just exclude them.
5. Developed preferred retailers - There is more to buying wine than the absolute lowest price.  Read another prior post: "Buying smartly from wine retailers."
6. Use Vinfolio's quote request service - If you're having a hard time tracking down a wine, let Vinfolio do it for you.  We accept quote requests on literally any wine.  If we locate it amongst our suppliers or customers who use our free VinCellar online cellar management software, we'll quote you a price with no obligation to proceed.

Ideas for improving Winesearcher and other search engines

1. Develop retailer rating system - The user community can police bad retailer practices.  Most price comparison engines in other sectors provide this capability.
2. Eliminate "sold out" prices - This data is not relevant to any user and contributes greatly to the effort required to actually locate a retailer with the wine to sell. It also skews the validity of the price data displayed as often the lowest prices are the ones where the wine is unavailable.
3. Identify brokered wine to users - Each price should have an attribute which identifies it as a price representing a brokered wine versus a wine that is owned by the retailer and available to sell immediately.  Note that "available to sell" could mean the wine is "in stock" or still on "pre-arrival."  The retailer should have an invoice confirmation from its supplier for wine that is available to sell immediately.  E.g., Vinfolio often sells wine on "pre-arrival" as we start selling it as soon as we've purchased it.
4. Display quantity available - For any retailer providing a data feed to Winesearcher, providing quantity available information is easy to do.  The quantity is obviously accurate only at the time of submission but it still provides an indication of the maximum quantity likely to be available.  While it won't be possible to capture this information from all retailers, those that provide it are likely to get a higher degree of patronage from Winesearcher users.  This should motivate others to work towards making it available.
5. Enable greater filtering of results - Why not let the user filter on the date of the price listing, a new "quantity available" field, or on whether the wine is brokered or available to sell immediately?

 Have other ideas?  Post a comment.

Today's Wall Street Journal (WSJ) had a front page story on wine counterfeiting titled "U.S. investigates counterfeiting of rare wines" (WSJ online subscription required).  When I arrived at the office today, I had a voice mail from Robert Frank, the writer of The Wealth Report blog at the WSJ (which is billed as covering "the lives and culture of the wealthy").  He wanted to discuss how wine buyers could avoid fakes.  My comments are incorporated into his blog post today titled "Oenophiles see double."

In the discussion with Robert, I noted that buying wine sourced directly from the chateau (which is called "ex-chateau") or from individuals who bought it upon release is the ideal defense against fakes, as the "chain of provenance" is fully known (including storage conditions). 

Quantifying the value of buying ex-chateau 

I realized when making this point that I potentially had a method for quantifying the market pricing premium for authenticity. The other day when reviewing the price list of a very reputable British wine wholesaler (Farr Vintners) specializing in Bordeaux, I noticed that they listed certain Bordeaux wines with a notation that the wine was "ex-chateau."  If they happened to also offer the same wine, vintage, and bottle size without the ex-chateau designation (and in otherwise excellent condition), then an analysis of the price differences might reveal at least this firm's educated view of the price premium for authenticity (as storage conditions of non ex-chateau wine from Farr is typically impeccable).

The outcome 

In examining Farr's full Bordeaux price list, there were 18 examples that met the criteria which spanned the 1986-1998 vintage time frame including wines from Latour, Mouton-Rothschild, Haut Brion, and Pichon Lalande as well as less expensive Bordeaux such as Lafon Rochet.  The chart below displays the results with a trend line based on a linear regression approach.  A few observations:

1. The trend is for an increased premium for older wines which makes sense as the risk of fakes intuitively is greater the older the wine.
2. Only 1 of the 18 examples had no price premium (and this was for the cheapest wine).
3. Absolute price levels were less correlated with price premiums than vintage in this limited data set.  E.g., the five most expensive wines (priced at $2,000 to $5,000 a case), had 3 examples in the 9-10% premium range but also one at 5.6% and one at 2.8%.
4. The overall median premium in this sample was 5.7%.

One way of interpreting the authenticity premium is as a measure of the potential liability that an auction house or other seller of fine wine exposes itself when selling such wine.  If one extrapolated the trend line to 1947 (as an example of a great wine year), the premium (or potential liability of selling non ex-chateau wine) rises to 32.2%.  That's about the total gross margin percentage between buyer's premiums and seller's commissions that a major auction house would earn when selling a wine of that vintage.

Bottom line: Pay attention to provenance and be prepared to pay more for when it's solid -- it's worth it.

A press release from the Wine School of Philadelphia caught my eye today.  The school's founder, Keith Wallace, states that consumer interest in wine education has "exploded."  Certification programs have tripled and "waiting lists are longer than our class lists."

Most wine collectors initially learn about wine through experimentation, joining a wine tasting group, and reading well-written wine books such as Karen MacNeil's The Wine Bible (see "The best-selling wine book of all time?"). Taking more formal classes, in person or online, is a logical extension of the above methods.

For those seeking an online offering, the Wine Spectator School, launched in 2002 (a year after the Wine School of Philadelphia), offers 9 online courses for consumers (ranging from $29-$195) and 3 for the trade.  If "free" sounds better to you (to get started at least), you might check out two online courses from a UK wine events company called Taste of the Vine.  

For the more serious collector or those who aspire to work in the wine industry and wish an independent certification, the Society of Wine Educators offers two certification programs, including the Certified Specialist of Wine (CSW).

One of the highest regarded wine education providers is the Wine & Spirit Education Trust based in London.  While they offer education programs targeted primarily at industry professionals, they also provide courses aimed at enthusiasts.  While most of enthusiast-oriented courses are held in person at their London facilities, their site lists an online classroom and an online course available as of April 1, 2007 called Great Grapes of the World (80 GBP).

Learning about wine is an enjoyable experience that never ends so you might as well get started. 

China's growing thirst for wine is likely to drive fine wine prices higher over the next few decades. 

The March 5, 2007 Newsweek (International edition) contains an article titled "Bordeaux meets Beijing" and the February 28, 2007 edition of the Wall Street Journal weighs in with its own story on the Chinese wine market titled "'People I know still put ice and juice in wine'" (WSJ online subscription required).

Here are some items drawn from these articles which grabbed my attention:

1. Chinese per capita wine consumption doubled in the past 5 years but is still only 0.7 liters per person (equivalent to 1 bottle).  In comparison, the U.S. is third in per capita consumption with 14.5 bottles per year (see my post: 92% of wine consumed by "core drinkers") while France and Italy are about the same with 63-64 bottles per capita consumption each.
2. In 2005, China became one of the top 10 wine consuming nations (in absolute terms).
3. Chinese wine imports in 2006 (2.2 million cases) doubled 2005's level (1.15 million cases).  Since 2001, wine imports have grown from $32 million to $133 million.  The WSJ story also states that "wine experts think that one day, the high end of China's wine market for imports could match America's, valued at over $2 billion."
4. The Chinese government is actively encouraging wine consumption for health reasons over grain alcohols.
5. Taxes on many wine imports fell from 120% in 2001 to 48% today.
   
6. Wealthy Chinese buy the most recognized wine names (at very high prices) as a bit of a status symbol more than for the taste.  Sounds like an opportunity for Robert Parker to publish a Chinese language edition of The Wine Advocate and encourage more experimentation!