The Wine Collector

The 20% advantage

Vinfolio recently did an analysis where we examined the retail prices at which we sold wine compared to what those same wines sold for at U.S. auction houses (hammer plus buyer's premium).  The average price advantage we achieved in 2007 YTD is 20% (22% to be exact but we rounded down).  Please review Maximizing sales price on our site for details on the analysis, why this premium exists, and why our retail prices are still competitive for buyers.

Benefit to private sellers of wine

This pricing advantage translates directly into higher net proceeds for the seller (even when the auction house has no seller's commission). 

Payment is also made in a few days (not months) because sellers are paid upfront, before the wine is even sold to consumers.

Why do people still sell at auction?

Mainly because that's the traditional choice (see The limited relevance of wine auctions).  When sellers learn that it's faster, simpler, and more profitable to accomplish their goals via a different method, they pay attention.  For example, we purchased a $600,000 cellar of impeccable provenance this month in direct competition with most of the New York auction houses.

Bottom line: If you're considering selling wine through an auction house, sell your wine to Vinfolio instead.

If you consider yourself a wine collector (or are looking for a gift idea for someone who is), you owe it to yourself to check out The World of Fine Wine magazine.  At $169 for a U.S. subscription (it's British), this quarterly publication is not cheap.  But it's very content-rich (216 pages in the latest issue #16) with in-depth articles on a broad range of topics and only a handful of advertisements.  Relative to Decanter or the Wine Spectator, it feels like you're reading an academic journal of sorts but it also contains beautiful color photography and is printed on heavy stock paper so it lands on your coffee table with a loud thump.

You can download some sample articles by visiting their home page and scrolling down to the bottom.  For example, here is a link to Burgundy 2004 En Primeur from Issue 11 and to Symington Family Ports from Issue 12.

I subscribed myself and am glad I did. 

Deal

1. The retailer has a small quantity of a well regarded wine left that he wants to clear.  This is a common occurrence but don’t expect to get a full case or even six bottles.
2. The retailer obtained a volume discount and is passing along the savings.  Note that many fine wines are hard for the retailer to purchase “in volume” so the higher end you go and the smaller the wine’s production, the less likely this is to occur.
3. The wine is selling too slowly at its initial price so the retailer is cutting the price to recycle his capital into faster moving items
4. Fine wine with cosmetic damages to labels or capsules may be discounted as their resale value by the collector has been negatively affected but that doesn’t matter if you plan to drink it.
   

Not a deal

1. Everything at the retailer is “on sale” all the time.  Usually this means the “initial price” is a sham and the sale price is often comparable to normal prices elsewhere.  This marketing approach plays on consumers’ desire for getting a bargain even when it isn’t one.
2. The wine is past its prime, increasing the risk that its taste is negatively affected.
3. The wine is just poor quality with a low price that reflects it.
4. Identified bottle conditions indicate potential damage to the wine itself (as opposed to cosmetic flaws).
   

Final price check worthwhile

Ultimately, if you’re inclined to buy an “on sale” item, you might wish to go online and check one of the wine price comparison sites like Winesearcher.com to see how the pricing stacks up with alternatives.  You should also weigh the value of factors such as shipping costs, any wine guarantee offered, and the reliability of the retailer in your decisionmaking process.

Bottom line: Take advantage of the right sale opportunities to extend your buying power.  

P.S.    Here’s a link to Vinfolio’s sale items which are almost all in the category of “well regarded wine with small quantities available.”

Facebook is gaining serious traction as a social networking platform for a wide variety of applications since opening up their API (application program interface) to others (a brilliant strategic move which spells the end of Myspace).  As such, I recently took the plunge and set up a Facebook profile.  So if you're interested in linking up to me, send me an invitation from within Facebook.

In addition, I decided to set up a new Facebook group called Wine Collectors.  Anyone with an interest in wine collecting should join it as I think it could be a lot of fun to share tips and advice on a peer-to-peer basis.  If you've got other ideas for the group, then add a comment to "the Wall" or start a discussion topic on the group's page (or just comment here).

If you're not yet a Facebook member, then go crazy and sign up!

P.S.    After I wrote this post, I had several people suggest creating a Vinfolio group on Facebook which I have now done so please join that too.   

Periodically, every wine collector needs to stop buying more wine and take stock of what's already in their cellar. Ideally, you're maintaining an accurate inventory as the benefits of doing so are compelling (See "Reasons to update/create your wine cellar inventory").  If not, you may be faced with the exercise James Laube describes in his article "No bottle left behind" (too new to be online yet) in the September 20, 2007 issue of The Wine Spectator.

Most people discover what Laube did in his friend's cellar -- namely that some wine is way past its prime (i.e. dead) or needs to be consumed immediately. But his three categories for classifying what he found -- "keep, toss, and party" -- is missing an important one which is "sell."

If your rate of consumption is not keeping pace with your rate of buying, regularly selling off wine before it goes bad is one way to avoid stockpiling excess wine (see reason #2 in "Common reasons to sell wine").  You might even find that selling helps finance your buying habit.

Vinfolio announced today that we've completed a $4.5 million financing in what is the second round of outside capital raised since inception (see full press release).

From our customers' point of view, there will be numerous benefits which result from this capital infusion:

1. More supply of hard-to-find fine wine - The pace of our private cellar acquisitions through our personal selling service continues unabated (e.g., two cellar purchases this week total over $1 million).  About 60% of our retail sales are now supplied from this channel which is often the only way to obtain many fine wines that were either highly allocated upon release or which are no longer offered from trade sources.
2. VinCellar and website enhancements - Roughly 20% of Vinfolio's staff are Java software developers which we further supplement with numerous specialist consultants.  As a business which is 100% online, we need to be innovators and stay in front of competitors with our website and VinCellar functionality.  Numerous major developments are under way which will be released over the coming months.  Moreover, as we raised $1 million more in equity than we had targeted, we plan to expand even further our previous aggressive plans in the software arena.
3. Even finer service - Vinfolio's guiding principle is "Fine wine, finer service."  Good service in any business is usually driven from the top (that means me in this case!) and it depends on investing in people and systems to provide responsiveness, convenience, and certain self-service capabilities.  If you have suggestions on how we can improve our service, please email service@vinfolio.com and put "Service suggestion for Steve" in the subject line.

To all of our customers, thank you for getting us to this point and we appreciate your business.  If you're reading this and are not currently a customer, visit our site and see what you're missing.

While shipping wine between states has its problems, shipping internationally can range from simpler than many U.S. states (e.g. Japan) to much harder (e.g., mainland China where a local importer is required to clear the wine through Customs).  Here are some general tips if you find yourself wanting to ship wine internationally:

Tip #1 - Use wine retailers and storage providers who offer international shipping

Generally, to ship wine internationally from the U.S. (and even domestically), you need to be licensed.  Therefore, the easiest way to ship is to buy from wine retailers who offer this capability (most don't because it's complicated and always somewhat manual of a process) or store your wine at storage facilities who are willing to make the shipping arrangements.

Tip #2 - Use DHL

We've researched the options at Vinfolio and for international wine shipments, DHL is more organized than the other primary carriers at navigating the various rules and duties in each country around the world and has greater coverage.  Service is usually door-to-door by air freight. 

In certain high volume shipping markets like Japan, however, there are sometimes national carriers who may be far more cost effective than DHL.  See the example international shipping rates on the upper right of Vinfolio's shipping and delivery page.  Japan's freight rate is about the same as air freighting a case of wine to the East Coast via Fedex because we use a Japanese carrier for shipments to Japan.

Tip #3 - Ship complete and multiple cases

Shipping wine internationally is expensive.  It can easily cost $25-30 a bottle even when a case is shipped.  Due to the fixed effort required in processing any item through foreign customs, there's a fixed cost for any shipment which can be amortized over more volume.  Therefore, shipping less than a case almost never makes sense and some savings (up to 20% on per bottle shipping cost) may be realized by sending at least 5 cases at once.

Tip #4 - Investigate duties, taxes, and surcharges in advance to avoid surprises

Most countries charge duties and taxes for importing wine.  The parameters which drive their formulae vary widely (and change periodically) so cannot be easily summarized (even for a single country much less across multiple countries).  Generally, the value of the wine is a factor and carriers like DHL require a purchase invoice (or other statement of value).  These duties and taxes will need to be paid by you separately to the carrier before your wine is released and are in addition to the freight charges.

For a further discussion of wine import duties, see an earlier post titled "Global factors affecting trend for higher fine wine prices." 

Tip #5 - Protect your shipment

• Time your shipments to match favorable weather conditions in the destination country because you never know whether your wine will get held up in customs and sit in an non-climate-controlled warehouse for days.
• Insure your wine.  While I don't have specific statistics to back up my intuition here, I believe there's greater inherent risk of theft or wine just "disappearing" along the way when it is goes to remote locations.  Note that all Vinfolio shipments (whether domestic or international) automatically carry $250,000 in insurance coverage at no charge to our customers.

The propaganda campaign of the Wine & Spirit Wholesalers Association (WSWA) to try to throw up any roadblock to wine direct shipping to protect their economic turf continues.

Craig Wolf, the CEO of the WSWA, was recently quoted in Wine & Spirits Daily saying that "There are scores of thousands of retailers, and if the state allows retailers in addition to wineries to ship, how is it possible that they will ever be able to regulate those sales?"

Some facts:

• "Score" (in the context used) is defined in the dictionary as a group of 20 items.  Mr. Wolf is therefore claiming that 40,000+ wine retailers will rush to gain wine direct shipping permits (if available) and overwhelm the state regulatory agencies.
• Even if 40,000+ wine retail outlets do exist (which I highly doubt even counting 7-11s, supermarkets and convenience stores), most retailers in this broadly defined category are not shipping wine today.
• According to Winesearcher.com, considered to be the leader in wine price comparison engines, their comprehensive site offers price listings (as of today) from a total of 908 U.S. wine retailers.  Presumably, this is the relevant universe of wine retailers interested in shipping to other states as they are promoting their wines online.
• In contrast, there are currently 4,712 wineries in 50 states according to WineAmerica, the national association of American wineries.
• According to a recent press release from the Specialty Wine Retailers Association (which is what prompted this post), retailers represent only 15-20% of permits issued in states where wineries and retailers can both apply (which is about the ratio of the above numbers).
  

Bottom line: The answer to Craig Wolf's rhetorical question on how states can regulate wine retailers if they are permitted to ship directly to consumer is simple -- "easily."