The Wine Collector

When to buy

If you're a wine collector trying to decide when prices are at the right level to resume buying actively, I would make an analogy to stock investing.  Some investors will look at the Dow Jones Average today and fear it is going down another 50% from yesterday's weak close below 8000; others will view the market as oversold and shift cash back into the market.  Where you place yourself on this continuum is a decision only you can make (is the wine glass half empty or half full?).

As most professional stock investors will tell you, calling the bottom is near impossible and is often not clear until months after it's happened.  The long term outlook for fine wine, however, remains positive.  The global demand for fine wine is only going to grow with the global economy.  In particular, as emerging economies (mostly in Asia) recover, they will drive fine wine demand and higher global prices sooner than the average stock price recovers.

Bottom line:  As with stock buy/sell decisions, it's your money so make your own decision after evaluating multiple opinions and considering the facts.

In any given wine auction, whether in good or bad times, there are always examples of extreme price variations in both directions.  Just look up your favorite auction-quality wine on WinePrices.com and see the spread between high and low prices in any given year.  The wide variations stem from traditional auctions being an imperfect mechanism for selling wine.  Typical auctions depend on buyers showing up at a given time (or bothering to submit absentee bids) and typically only a very finite supply of a given item is available.  Moreover, many of the items offered are not that "special" or scarce to warrant making this effort.

So if a modest quantity of wine has a few people driving up the price or nobody bidding at all at a single auction, does that mean the value of that same wine owned by everybody else should be marked to that value?  No!  Only averages across a broader set of transactions provide insights into pricing trends which is why an index or transactions across multiple auctions are both better indicators than one-off prices obtained at a single auction. 

Bottom line: When you see attention-grabbing headlines about either large one-off declines (or increases), remember to focus on the bigger picture.

The December 2008 stats for the Liv-ex 100 fine wine index are now in.  The index fell 2.2% in December 2008 vs. only 0.6% for the Dow Jones Industrial Average (DJIA) but the the basic picture remains unchanged.  Namely, you would have been far better off with you money in wine than stocks whether on a one-year or longer term basis.  The four-year stats are dramatic with the DJIA declining 18.6% compared to a 110% increase in the the Liv-ex 100 index.

Madoff-like risks with wine investment funds?

One method you might consider for investing in fine wine is through a wine investment fund (although most are outside the U.S.).  Over the holidays, James Suckling's Uncorked blog at the Wine Spectator had a post titled "Scary thoughts on wine investment." I suspect James is correct that these funds are not regulated in their respective jurisdictions.  So to help avoid the risk of a Madoff-style debacle, I'd recommend that prospective investors consider what third party checks and balances are in place to prevent the "closed loop" system Madoff created.  E.g., are wine assets verified by a credible independent accounting firm on an annual or more frequent basis?  Are buy and sell transactions reported to investors in a transparent way?  Are third-party storage facilities used or an in-house facility? 

As an alternative to using investment funds which will charge annual management fees and a percentage of gains, interested wine investors can simply invest directly through one or more reputable merchants and take possession of their purchases for greater security.

Next post: I'll discuss various influences on fine wine prices and how to think about where prices may be headed.

I thought it might be useful to provide a recap on Vinfolio's progress in 2008 towards our overarching goal of providing "Fine wine, Finer service" to our customers/users and a perspective on what we expect to accomplish in 2009.  If you're not a customer or user of our software/websites, hopefully this will inspire you to become one.

Vinfolio's 2008 Achievements

1. 2008 revenues grew about 50% over 2007, despite the negative impact of the economic crisis.  We were named the 4th fastest growing private company in the Bay Area by the San Francisco Business Times.
2. Over 75% (by value) of the wine sold by Vinfolio in 2008 was sourced from private cellars.
3. Our organization reached over 50 employees plus approximately a dozen full-time development resources in India (with our outsourcing partner).  Approximately a third of total employees and contractors are working in software development (maybe 4x over the end of 2007).
4. A completely new (and still free) VinCellar, version 3.0, was released in July 2008 after 18 months of design and development.  We continue to enhance the application with updates every 45-60 days.
5. Registered users reached over 43,000 by year end.  All but 2,000-2,500 of which occurred since we moved to a free usage model in September 2006 in lieu of our prior membership-based (paid) model.
6. We further enhanced our already strong wine purchase-related guarantees with a new Price Match Guarantee.
7. Our buying tools were expanded with a powerful wine alerts service that sends email notifications when wines matching saved search criteria hit Vinfolio's inventory.  This capability complimented our pre-existing RSS feeds.
8. We launched several new collector services including Personal Cellar Manager and a Wine Investment Service.
9. A new free website, WinePrices.com, was launched in October 2008 to provide comprehensive retail and auciton price data for wine (see press release).  A new iPhone application for this site will be launched in January 2009.
10. A new Vinfolio Hong Kong operation was formed and staffed. See our new Hong Kong site (www.vinfolio.hk).
11. A second U.S. warehouse was opened in November 2008 in Napa to accommodate growth and streamline operations.  Accompanying this, we added a second delivery van in the Bay Area and expanded Will Call hours in San Francisco to 8 pm Monday-Friday.
12. A warehouse management system was implemented to facilitate more efficient operations and smoother fulfillment of orders.

Vinfolio's 2009 Goals

I'm excited about 2009 as changing markets create opportunities.  This is a representative list of some key objectives with the first and second being our top priorities.

1. The Company and a majority of our software development resources are highly focused on a major new initiative that will transform how fine wine is bought and sold (for both individuals and the trade).  We are targeting a July 2009 launch and are more than 50% of the way through development.
2. The bulk of the remaining technical resources (which we expect to further expand in the coming months) will develop further enhancements to VinCellar.  Our highest priorities are community-related and social networking features (including more blogger support, further integration with Facebook, adding Twitter integration, and potentially other social networking platforms).  Want a say in our plans?  Post your comments and requests in Vinfolio's Forums.
3. Introduce money-making affiliate programs for bloggers and other third parties.
   
4. Improve our site responsiveness and scalability of our server infrastructure.
   
5. Innovate more in our wine marketing and merchandising programs such as our new 1-cent ground shipping offer.
6. Overhaul our ecommerce checkout process to improve ease of use and launch a Hong Kong ecommerce site.
7. Add mobile phone-based checkout capability.
8. Introduce a major new co-marketing program with Napa/Sonoma wineries.
9. Open our Hong Kong wine storage facility in Q1 2009 and, later in 2009, begin selling wine from inventory held in Hong Kong.
10. Secure additional corporate partnerships with complementary businesses.  We are in discussions on four such partnerships currently that will impact 2009, one of which has already been signed.
11. Get more customer feedback!  We'll be stepping up our surveying of customers but don't wait to be asked.  Post any product or site suggestions in our forums and feel free to email me at steve@vinfolio.com or to send a direct message to me via Twitter (@Vinfolio).

Thanks

To customers and current software/site users, thanks for your patronage and support.  We want you to be so satisfied that you can't resist telling your friends about Vinfolio (if we haven't reached that level with you, I'd love to hear why not and what else we might do).

If you're not a current customer or user, visit our sites (www.vinfolio.com, www.vincellar.com, www.wineprices.com, and www.vinfolio.hk) and register (it's free) for additional benefits.  Your registered email and password will then work on all sites.

Among new selling tactics that Vinfolio is rolling out in January, the first is a 1-cent ground shipping offer for wine purchases of $500 or more.  The intent is to remove the shipping "pain point" for most purchases (our average purchase is over $1,000) so that customers nationwide can make purchase decisions without regard to shipping costs.  There's no promotion code to enter; we automatically apply the discount on qualifying orders.  We'll be testing the effectiveness of this promotion in January and considering whether to make it a permanent benefit of buying wine from us.

Note that we already offer free delivery services in our temperature-controlled vans to customers within the San Francisco Bay Area (plus Napa/Sonoma) region.  We are (from today) cutting the minimum quantity to qualify for free delivery from 12 to 6 bottles (no value requirement; note our site is not updated yet for this change).  See the "Delivery Services" section of our Shipping and Delivery page for more details on weekly route schedules for different subregions.

Our local customers may use the 1-cent ground shipping offer in lieu of our free delivery service as typically Fedex delivers ground shipments within one day locally.  Using our van delivery, however, allows customers to schedule a time when an adult may be present to receive the wine and for the wine to be protected from temperature issues in warm weather periods of the year.

Finally, to meet our daily Fedex deadline, wine orders need to be placed by noon (PST).  Meeting this time also enables locals to pick up orders at "will call" at either of our warehouses the same day (from 3-5 pm for Napa and from 5-8 pm for San Francisco).

P.S. In case you're wondering why we're charging 1 cent instead of making shipping completely free, the CA ABC prohibits offering "free" goods to help sell alcohol.