The Wine Collector

The well-known wine collector Russell Frye, who sold $7.8 million of his wine through Sotheby's in May 2006, has launched a new website, www.wineauthentication.com, dedicated to "helping the wine industry fight the battle against counterfeiting."

The website has a number of interesting features including:

1. A repository of news and articles on wine counterfeiting as well as solutions to the problem.
2. A discussion forum
3. A bottle registry service intended to help identify whether two people have a bottle with the same serial number.
4. A bottle photo library (including the ability for users to upload photos)
5. A list of top 10 wine counterfeits
6. The ability to report a suspected counterfeit
7. An "inexpensive" authentication service (no indication of price provided)
   

Business model

The site intends to cover its costs through corporate sponsorships and by requiring "a token membership fee."  See the About Us page.  Sponsorships and advertising is what this site should focus on.  Even "token" fees will scare off the vast majority of people from participating in the community.  Without participation, there is no community.

Suggestions to make the site even better

1. Identify the "experts" behind the site.  The Authentication Service page mentions that there are "specialists" on staff.  What are their credentials?  Who are they?
2. Publish a note for wine collectors on "How to spot a counterfeit wine" and a list of particular clues with specific wines (e.g., label changes in particular vintages).
3. Start a blog on the site to share wine counterfeiting expertise.
   
4. Make the Top 10 Counterfeits list more than a list.  Publish actual case studies showing detailed photos of bottles deemed to be counterfeit with the reasons explained.
5. Draft auction houses or others who may routinely encounter counterfeit bottles as contributors to the site. Consider making them "sponsors" in return for their non-cash content contributions.
6. Work with online cellar management software providers to collect and exchange bottle registry information.  Speaking for Vinfolio, we would be interested in cooperating with our VinCellar software.  We don't currently enable our users to record serial numbers for wines in their collection but it would be easy to do.  It also seems far more likely for wine collectors to do so in this context than to make the effort to go to a special site to do it.
   

Bottom line: Wineauthentication.com is a site to bookmark and visit often.

P.S. Regarding the label image, the 1945 Mouton Rothschild is the most expensive bottle ever sold at auction (a 4.5L bottle was sold for $310,700 in February 2007).

The San Francisco Business Times compiles an annual list of the Bay Area's fastest growing companies and Vinfolio was ranked #5 based on 2004 to 2006 revenue growth.  Read our press release.

A little noticed news item in The Napa Valley Register on September 30, 2007 would seem to signal an expansion of online wine sales by the major grocery chain, Safeway.  From a quick check of Safeway's shopping site, one can already order wine online (2,147 items listed on Winesearcher.com) but only for local delivery.

What happened?

1. The American Canyon, CA planning commission approved a conditional use permit for Safeway to open an office that will be licensed to take online wine orders.  When the office will open is not determined yet.
   
2. Orders will be shipped Fedex with warehousing/shipping support by New Vine Logistics, a major wine industry fulfillment house used by many wineries for (almost) national shipping of wine -- 36 states can be shipped to via NVL according to the services description on their site.
3. Given the maze of shipping laws that wine retailers must contend with, it's not surprising that Safeway is starting off cautiously by taking online orders only from California residents.

Why it happened

1. Safeway no doubt has noticed the success that Costco has had in the wine category, including Costco's online wine sales initiatives which are currently limited to 5 states (CA, IL, NM, OR, and TX).
2. Wine is a huge retail category with $25+ billion in retail sales annually.  That's too big a pie to ignore.
3. Consumers are increasing their online spending in all categories and offering wine online enables consumer needs to be better met.

Why it's significant

1. The fact that the director of Safeway's national direct business was involved in securing the approval and her comment that there "potentially" could be other offices signals broader ambitions.
2. New Vine Logistics' ability to support out-of-state shipping from a single location also implies sales beyond CA might occur in the future.
3. Major national retailers like Safeway and Costco seeking growth in online wine sales is a very positive development for consumer direct shipping initiatives such as those of the Specialty Wine Retailers Association as it should inevitably bring additional support to bear.

Acker Merrall Condit's PR firm sent out an email yesterday (which I've replicated below) that is offering an entire cellar (see "The Man with the Golden Cellar" catalog), claimed to be among the world's top 3, for a mere $20 million. 

I've discussed the trend towards the purchasing of "instant cellars" in prior posts (see Sold for $1.05 million! and "Instant" wine cellars vs. developing a wine advisory relationship) but the sheer audacity of this proposal is to be admired.  In this case, which is Acker's first attempt to sell an entire collection, Acker's CEO John Kapon says (on page 11 of the catalog) that he is doing so because he considers "this collection to be a work of art" and that there should be a chance to keep it together.  He also acknowledges it might create some buzz (he's right).

While it would be a major exercise to perform a "sum of the parts" valuation of the component wines in the auction, I suspect the $20 million figure reflects a healthy premium to any such analysis give the reference to "a work of art."  However, I would also not be surprised if a wealthy Asian buyer emerges and pays the tab.  After all, it would sure save a lot of time and effort, not to mention generate instant credibility in the wine collecting world.  The credible alternative of selling the wine via an auction also focuses the mind of any buyer to act by the October 17th deadline or the opportunity will be lost forever.

Contents of the October 4, 2007 Email Sent by Acker's PR Firm

The bull market for fine wines shows no sign of retrenchment. The London International Vintage Exchange Index - an index of the top 100 investable wines - rose 42% in 2007-- trading at its highest level since its inception in 2000. Prices on the most sought-after vintages shot-up by 90% this past year, and new investors from Russia, China and the rest of Asia, are clamoring to get into the game in even bigger ways.

Now, for $20 million, a single investor can instantly become one of the world's undisputed top collectors-overnight.

Beginning October 5 through the 17th, the New York-based wine retailer Acker Merrall Condit (host of the world's largest-ever wine auction in 2006, which grossed $24.4 million) is looking to break new ground this year by offering a single buyer the opportunity to acquire one of the world's masterpiece wine collections in its entirety. Impeccably curated over decades and ranked as one of the world's top-three collections, it aggregates a portfolio of 1,500 of the best-of-the-best wine lots (roughly 12,000 bottles) that closely track the Liv-ex Index.

If no single investor steps up by October 17, the collection will be sold at a blockbuster auction attended by Wall Street high-rollers and international investors at New York's internationally acclaimed, Le Bernadin restaurant on October 19 and 20. Absentee bidding is expected from around the world via web and speaker phone.

John Kapon, president and CEO of Acker Merrall Condit, says that many of the investors he meets love to collect wines and to share a bottle with colleagues and friends. Aside from the high-yield on their investment, fine wine is a potent business tool, helping to cultivate and cement key relationships. "This collection is so extraordinary, the wines so rare, that it couldn't be recreated over a single lifetime. It's truly one-of-a-kind, like a Picasso."

John Kapon is available to discuss all details of the collection and auction. Let me know if you're interested in speaking with him.

Thanks for your consideration.

Why do wine collectors lose their economic wits and overpay for wine sold at auction that can be purchased for much less from reputable retailers?  They're literally throwing money away.

Possible reasons for overpaying at auctions

1. Excellent provenance is worth paying a premium to obtain but how much of a premium?  Would you pay 20% more?  100% more?  The premium may vary based on how long a period the wine has been "protected" (see an earlier post called The wine authenticity premium).
2. The desire to "win" overtakes rationale behavior.  Drinking during the auction itself (which can be encouraged) doesn't help maintain clear thinking either.
3. You miscalculate the per-bottle price being paid because your bid needs to factor in the quantity of bottles in the lot, fixed bidding increments, and buyer's premiums.
   
4. The stated "uniqueness" of the lot helps you rationalize paying more to get it.  Perhaps you're not aware of where else you can buy the same wine from a reputable source.  The same people who sell their collections through auction houses often prefer the market pricing, privacy, and speed of selling their collection outright to a retailer or other member of the wine trade.

Example of recent Zachys Stormby celler auction of Yquem

On September 28, 2007, Zachys held its auction of Dr. Nils Stormby's cellar.  The catalog documents the provenance of the wine and it's about as good as it gets.  Still, the prices paid by collectors were significantly higher than estimates, with the large Yquem section of the sale achieving two to three times its estimates (see Decanter story "Yquem collection goes for US$2m at Zachys Sale").

Yesterday, I received an email from the Antique Wine Company (AWC) in London, pointing out that their enormous selection of 1,372 bottles of Yquem was far more attractively priced in comparison to the prices paid at the Zachys auction (with numerous examples of vintages such as 1916, 1929, 1953, and even 1967 where AWC prices were about half or less).   Stephen Williams, the Managing Director of AWC, called me today in response to my inquiry and cited certain examples, such as the 1929 Yquem, where AWC's bottles were more pristine than Zachys' photos and condition descriptions.

Bottom line: Wine collectors should check retail sources in advance of bidding at auction to understand market alternatives and/or tap a more convenient (immediate) purchasing method.  If you missed out on any Stormby Yquem lots, it's not too late to get the same wines - just give AWC a call (especially for older vintages) or ask your favorite fine wine retailer.  For older vintages, you should also ask about provenance and to see condition photos.