The Wine Collector

Financial markets are in turmoil.  Your financial investments are in the tank.  Where else can you invest and still make a nice profit?  The answer: fine wine.

Almost exactly a year ago, I wrote Why fine wine prices will keep rising.  All of the reasons I cited then are still true.  As with any category of investing, there can be windows of buying opportunities which present themselves and we may be in one right now.

The chart below shows the results of last week's Zachys auction in New York.  We took the price results (inclusive of buyers' premiums) for all unmixed lots sold and compared the average per bottle price per lot to the given wine's 2008 YTD auction average according to WinePrices.com.  For the 831 lots where we performed the comparison, only 228 or 27% were at or above 2008 YTD auction averages (100% in the chart means the price per bottle equaled the 2008 YTD average)

The median (or typical) per bottle price achieved for a particular lot was only 87% of the 2008 YTD average price.  There were some other attractive wine auctions going on about the same time so perhaps buyers were focused elsewhere or just temporarily distracted by financial market problems. But if this auction's results are an indication of a dip in market prices for fine wine, then maybe it's time to reallocate some money to take advantage of what is likely a temporary buying window.  The global fine wine market is here to stay and market drivers still fundamentally support a trend towards higher prices.

P.S. Here's another prior post with Wine investing tips.

Join "Mr. Burghound", Allen Meadows, and Vinfolio at Spruce Restaurant in San Francisco on the evening of Tuesday, October 14 for a tasting of a dozen fine Burgundies (learn more, including the list of wines being poured).  Allen will provide his usual entertaining explanations of each wine and producer so if you'd like to meet Allen in person or just learn a bit more about Burgundy from one of its masters, purchase tickets for the tasting now at $225 each (note: the dinner event is sold out).

To see a selection of notable wine events for the remainder of 2008, including other Vinfolio events focused on Champagne and caviar in November and on Cult California wines in December, click here.

Sotheby's Wine department has produced their U.S. Market Review for 2007-2008 in a nice printed newsletter which I received a few days ago.  To me, the most interesting page was one devoted to Asian buying activity titled "Duty Free Asian buyers multiply."  I've reproduced below a short table from the article which caught my attention:

Whether this increased activity is driven by the elimination of Hong Kong and Macau duties, booming Asian economies, a weak U.S. dollar, or a combination of all of the above, it's no surprise that most major auction houses have already launched, or will launch, Hong Kong auctions.

Vinfolio has quietly launched (in beta) a new web site, WinePrices.com, to provide comprehensive auction and retail wine price data for free.  Currently, over 10,000 wines are covered with over 400,000 auction prices from the last eight years.  Wine retail price data will be added within the next couple of weeks (via a licensing arrangement with Global Wine Stocks). Once added, WinePrices.com will become the most comprehensive resource for wine price information on the Internet. Best of all, it's completely free!  To learn more, click here.

Features you'll like

• Free - The first 10 searches are free (without signing in).  To continue free unlimited use, simply sign in on WinePrices.com with your Vinfolio account (if you already have one) or create a free Vinfolio account on WinePrices.com (which will then also work on Vinfolio.com and for accessing VinCellar).
  
• Summary results screen: Shows wines matching your search string with average U.S. retail price, average auction price (inclusive of buyer's premium), and the average community score from VinCellar.  The relative strength of the underlying data is also indicated. Coming soon: for those with paid subscriptions to our content partners (i.e., Allen Meadows' Burghound, Stephen Tanzer's International Wine Cellar, Roy Hersh's For the Love of Port, and The Richard Juhlin Champagne Club), we'll also display their professional ratings when you're signed in and have linked your content subscriptions to your account.
• Wine detail page:
• Overview of auction averages for 20 vintages around the one selected with a one-click (or slider) ability to switch to another vintage of the same wine
• Summary auction results data with low, high, and average by bottle size going back up to 8 years
• Price graphs for 1, 3, and 5 years
• Individual auction lot detail supporting all summary data
• Coming soon: A new section of the page focused on U.S. retail price data (with individual store listings provided)

Strategic positioning

WinePrices.com is not intended to be a site to compete with the likes of Winesearcher.com or other wine search engines aimed at helping you locate where to buy a wine.  While WinePrices.com will provide retail listings (mainly to provide transparency and credibility for the retail wine values displayed), the data is not likely to be as "real-time" as those search engines.  Instead, the emphasis of WinePrices.com will be on the current and historical value of different wines, or groups of wines (via composite indices).  In short, the goal is to empower those wine collectors potentially interested in selling wine or investing in wine with a robust tool to support their decisionmaking.

Additional Background

Many wine collectors are familiar with the Wine Price File, which served as a definitive source of wine auction price data for over 15 years.  Vinfolio acquired this business (and the www.wineprices.com URL) in late 2003 and converted this print publication into an online database.  The data was used in conjunction with Vinfolio's ecommerce site and provided part of the valuation mechanism within our free online cellar management application, VinCellar. For retail prices, we licensed Winesearcher.com data a few years ago to provide a retail valuation component. While Vinfolio already makes market price data available (both auction and U.S. retail average price) within the wine detail pages of its ecommerce site, WinePrices.com enables this information to be accessed directly (through a "Google-like" interface) that is more efficient for researching wine price information

We want your feedback and suggestions

We're still working on fixing bugs and rolling our features.  Please take a moment to report problems or to suggest features you would like to see added.  Just go to the WinePrices.com forum on the Vinfolio site or there's also a convenient link at the bottom of the WinePrices.com wine detail page.

It's been over six months since I wrote Interpreting Amazon's move into selling wine.  With Amazon in the news again today (see Reuters story) and a buzz in Napa Valley from meetings Amazon has been holding with wineries, it seemed time for an update on Amazon's plans and an assessment of who will emerge as winners and losers.

The "facts" (as best they can be determined)

• U.S.-produced wine only (at least initially)
• Goal of 5,000 unique wines at launch (which is scheduled for October according to Reuters); Note: I've heard Amazon's ambition is far higher (think "world's largest wine selection")
  
• Producers need to consign only a minimum of two cases of each item to New Vine Logistics (NVL), the Napa-based logistics partner Amazon is using to fulfill orders. 
  
• Each unique SKU requires the winery to pay initial regulatory fees of about $400 for label registration in 26 states (the initial coverage area; NVL can support more) plus lesser annual renewal fees.
  
• Each item must retail for a minimum of $12 and the winery maintains control of the retail price.
• The winery receives 47% of the retail price when sold.
• Buyers seeking "sold out" items can request to be auto-notified when back in stock.
• Buyers who subscribe to the Amazon Prime (free two-day shipping for an annual fee of $79) will be able to use it (for a minimum of a 2-bottle purchase).
  
• As with any Amazon-sold item, consumers can post positive (or negative) reviews online.

Why some wineries will agree

• If you make more wine than you can sell, retaining 47% is not much different than selling to distributors (and far better than wine going unsold).  Moreover, Amazon provides a turnkey approach to getting one-stop distribution to larger market states.  This might particularly appeal to new brands or those with limited resources to invest in staff and support systems.
  
• Retail price control stays with the winery.
• Only minimal stock (2 cases) need be provided per item.
  

Why some wineries will NOT agree

• If you can sell your wine directly or through other established channels (such as directly to retailers) and keep 100% (or something much higher than 47%) of the retail price, you're probably way ahead even after absorbing other costs.  This tends to be the case with higher-priced wines which are often allocated.
• With 5,000+ SKUs, buyers still need to find the wine to buy it.  Selling through Amazon does not eliminate a brand's marketing investment requirements.
• For a winery with a large number of SKUs, the initial regulatory filing fees per SKU may put some off.
  
• Some will argue that Amazon's 100% online approach (where there's no human to consult for advice and recommendations) is too impersonal and doesn't deliver the brand experience desired by the winery.

 Winners

• Amazon -  The above model combined with Amazon's online marketing skillset, customer base of 100 million accounts, market clout, and sheer execution capabilities, is bound to be successful, at least with lower-priced, higher production wines.
• Certain wineries where the business model offered fits their needs.
  
• Consumers who appreciate the one-stop, transactional convenience of Amazon, especially those who've already paid to be Amazon Prime subscribers, as free delivery levels the playing field with local shops.
• Domestic wine industry - More direct-to-consumer selling ultimately helps generate broader acceptance of this method of distribution which will, in turn, increase consumer access (and wine sales for the industry) and bring more pressure to modernize antiquated direct shipping law.
• New Vine Logistics who just got a huge new customer, not to mention a serious endorsement that should help it attract more direct winery business.

 Losers

• Wine retailers that sell "mainstream" wine (whether offline or online) as they'll now have a significant new competitor.
• Winery logistics competitors of NVL.
• Distributors, as Amazon's move helps erode their state-specific market controls (even though NVL will go through the three-tier system in at least some states).

 Neutral/Unaffected

• Fine wine retailers who deal in collectible, allocated, imported, and higher-priced point wines.
• Certain wineries producing higher-priced wine at modest-to-low production levels who can sell all they can produce already at higher margins than Amazon is offering. Moreover, many of these wineries also prefer to control the customer interaction with their brand more closely and will shun distribution outlets that might "commoditize" their brand.
• Winery ecommerce systems providers might lose some winery prospects who decide to just "outsource" their ecommerce to Amazon.  However, basic economics still favor wineries developing at least some direct-to-consumer capability.

Your opinion

How do you think Amazon's move will play out?

P.S.  Other blog posts of note on this topic include the Winery Web Site Report's Details on Amazon's Upcoming Wine Program and Jeff Stai on Amazon.com's Wine Program, and Classicwine.com's Will Amazon Do for Wine What it has Done For Books?