The Wine Collector

Tom Wark has created a "must read" summary of what is a complex topic in his recent Fermentation blog post titled "The Three-Tier System and Consumer Access to Wine." Make sure you read the comments too.

Why you should read it

• If you're a wine collector or enthusiast and have problems buying wine out-of-state because of interstate shipping barriers, Tom's post provides the historical rationale for the 3-tier system and why it evolved the way it has to create such consumer access issues.
• If you're confused about why a winery can ship to you but a retailer in the same state cannot, you'll learn why.
• If you thought the 2005 Supreme Court decision, Graham vs. Heald, solved the consumer access issue once and for all, learn why it didn't.
• If you live outside the U.S. and don't understand why the U.S. regulatory environment is so complex, reading the post provides a good foundation.  Frankly, Tom's post should become required reading in any serious wine education program worldwide.

Sotheby's Wine department excellent results for the 1st half of 2009 provide further evidence of Asian buying power (read the press release).  The tables below provide more details but here are a few points to highlight:

• With only a single debut sale in Hong Kong in the first half (out of nine auctions), Hong Kong already surpassed the five sales in London in the same period and almost beat New York.
• Over 56% of buyers at all nine auctions (measured by value) were Asian.
• Among the top 100 lots by region, an astounding 88% were purchased by Asians.

WinePrices.com's most actively traded fine wine indexes were up from between 10%-17% in May 2009 based on global auction results (the Dow Jones Average was up 4.1%).  See full summary results page for all nine indexes.

What's going on?

As noted in my prior post, Asian wine buying influence continues unabated, I'm sure these prices reflect the impact of higher auction prices being paid in Hong Kong.  Of the 11 auctions held in May worldwide that we tracked, four were in Hong Kong and about 25% of the price data points derived from these auctions.  I'll be doing a separate analysis soon to try to quantify the "Hong Kong effect" although Asian buyers continue to be active in New York and London auctions.  Note that these results exclude the first mainland Chinese wine auction for reasons I will address in a separate post (the results would have been skewed upwards further).

The sharp upturn in The Conference Board's Consumer Confidence Survey during May (see press release) also seems to correlate with these May auction results.

California fine wine prices performing particularly poorly

The California 100 index has turned in the worst performance of the nine indexes since January 2005 (101.11 index versus 100.00 in January 2005).  The 2009 price recovery which has positively impacted all other indexes has largely skipped the California 100 with only a 1.2% increase YTD to May.  The lowest other index for the same YTD period is +9.1% for the Italy 25 and +31.3% is the highest for the Bordeaux First-Growth 100.

If anyone doubts that fine wine prices aren't set based on global demand and supply, read the following two stories:

• Asia dominates Sotheby's sale - This was a NYC auction but also held live on the Internet.  "The top five most-expensive lots were bought from Asia.  Nine of the top 10 revenue-grossing lots were claimed by Asians."
  
• Counting China's millionaires - A few key points: 825,000 mainland Chinese - or one in 1,700 - have a personal net worth of at least US$1 million.  "82% of China's richest have not made any lifestyle changes since the financial crisis hit.  The underlying reason is that their confidence remains high." 
  

Bottom line: It seems that fine wine prices have a serious underpinning of demand that will only grow over time with Chinese economic growth.

Bloomberg's Elin McCoy just published her article, Wine 'Spot Market" Puts Collectors, 12 Million Bottles Online, about Vinfolio's Marketplace.  I'm not sure there's much to add as she did a great job distilling the Marketplace into a concise story.  As of first thing this morning, it was already the #5 most emailed story on Bloomberg in Asia -- and that includes among all financial and political stories.

A few important points to clarify:

1. Marketplace goes live on July 7 - Since I started talking to Elin a few weeks ago, we've move the commencement date for "going live" to July 7 from July 1 to push it until after the 4th of July weekend.  UPDATE: I forgot to mention that interested sellers can start marking their wine for sale now to prepare for live bidding.  Here's how.
2. International expansion of Marketplace - There's no question that the Marketplace is applicable in both Europe and Asia but we need to "walk before we run."  The reference to "end of year" for the UK is clearly ambitious and not likely unless we partner with someone.  In Asia, my comment about the market not yet being ready simply recognizes the reality that regional collector-owned wine supply drives the Marketplace.  That will develop in Asia over time given the pace of buying and the emergence of more local wine storage options created by the elimination of Hong Kong wine duties last year, but virtually all supply being sold in Hong Kong wine auctions today is coming from the U.S. and Europe.

VinTank, the "digital thinktank" for the wine industry, issued a new Pulse Report yesterday on the launch of Vinfolio's Marketplace and its "potentially high" market impact for wineries and importers.  While the Marketplace is fundamentally about systematically aggregating fine wine supply from wine collectors and enthusiasts to create a scalable secondary market supply channel, it is equally applicable to the trade.

Marketplace helps the Trade optimize revenues

In particular, the Marketplace may be used by the trade as a low-cost, direct-to-consumer sales channel (via Vinfolio) for both new releases and library wines to optimize revenues.  For example, wineries or importers with allocated wines may decide to anonymously sell some portion of their wine at above mailing list or "official" prices when secondary market demand is strong. Or, if facing an oversupply of an item, they can discreetly choose to sell wine at below official prices without fear of negatively impacting their brand position.

Home state of Trade participant doesn't matter

All wine sold through the Marketplace must physically pass through Vinfolio in California.  If a winery or importer has no supply already located within California, Vinfolio's CA type 9 importing license provides us with a blanket right to bring wine into California from any jurisdiction within the U.S. (provided we pay CA import excise taxes and the wine is legally registered for sale within the U.S.)

Trade license of Marketplace sellers is not relevant

Anybody can sell using the Vinfolio Marketplace because it is operated as an auction in California.  The relevant statute permits wine sold by "any person" and removes all vintage-related limitations on what wine may be sold.

Why consumers benefit from Trade participation

Consumers will have access to more choices, including new releases, wines from closed mailing lists, and potentially bargains from wineries and importers looking to sell excess supply.

Bottom line: As VinTank's report says, "any healthy alternate route to market that causes margin release is favorable.  This is the case with the Vinfolio Marketplace."  If you're a member of the trade and would like to learn more, please contact trade@vinfolio.com.