The Wine Collector

This afternoon's announcement (see Wine Business story) by Amazon that it is killing its wine program came as a bit of a surprise given the hard work put into the initiative over the past several years.  But, as anyone operating a wine retailing business knows, the regulatory landscape is an absolute minefield that in this case has felled the leader in ecommerce.  Frankly, I personally welcomed Amazon's planned entry into the business as it would have ultimately led to more wine drinkers, many of which would develop into future purchasers of the fine wine Vinfolio sells.  Moreover, it would have brought a deep-pocketed player to the table with strong motivations to lobby for rewriting the out-dated wine shipping laws that make operating a wine retailing business in the U.S. like dealing with 50 foreign countries at once.

Wineries have an alternative: Vinfolio's Marketplace

The Vinfolio Marketplace has quickly become the world's largest online fine wine marketplace.  There are about 44,000 unique wines currently listed for sale out of over 270,000 wines owned by users of Vinfolio's VinCellar free online cellar management application, and by the users of our partner for the Marketplace, CellarTracker.  While the initial focus of the Marketplace was aggregating supply owned by individual wine collectors, it is equally applicable to the trade.

Wineries may be interesting in reading a prior post of mine called Vinfolio Marketplace "Highly recommended for Wineries and Importers from June. VinTank, the digital think tank of the wine industry, profiles why the Marketplace matters to wineries.  The key benefits are:

• Complete anonymity - This is different from Amazon but it provides more flexibility for a winery to sell items at other than list price if it so desires.
• Increased revenues - The winery controls the price of sale at all times and may vary it up or down from transaction to transaction.
• Flexible inventory management - Sell allocated or library wines at secondary market premiums and/or reduce oversupply at discounts.
• Access to new customers - U.S. and international buyers, especially in Asia, through our Hong Kong operation.
• Cost effective - Fees of 15% of sales or $6/bottle minimum (whichever is greater).

It's 100% legal

This question is often raised, and is likely to come up again given Amazon's regulatory difficulties.  See our Marketplace FAQ - 3rd question under General: "Is the Marketplace legal?

Intrigued?  Email us

If you're in the trade, email trade@vinfolio.com and we'll forward a complete information package for your evaluation

About two weeks ago, Will high-end wine sales rebound? was published by the Santa Rosa Press Democrat (in the heart of Sonoma wine country).  The headline is not specific to California but the article and the point of view of the newspaper is.  As you might imagine, I have an opinion.

Selective pain for producers

Before I dive in, it's worth noting that the difference of opinion about the future of CA high-end wine sales noted in the article is directly related to the uncertainty about the future state of the economy.  History shows that there's always a rebound and most market-watchers are confident this time is no different. But if one steps back from the macro-level picture, the future recovery will not be felt equally by individual California wine producers.

Top cult brands ($250+/bottle) will recover

The top, established cult brands will be fine. WinePrices.com's California 100 Index of the most frequently traded California wines at global wine auctions is up 7.1% year-to-date through June (new stats incorporating the September start of the Fall auction season will be calculated by mid-October).  The index's value is still down about 22% year-on-year to June 2009 but it's climbing back.  It's worth noting that the 100 wines in the index include 20 different producers although 5-6 dominate half the list.

Fate of those selling above $100/bottle will vary

How many readers know a wealthy individual who started a winery in the past five years to produce a high-end California cab?  I know plenty but I also suspect there will be a lot fewer such people going forward and that many of the "less committed" among them will throw in the towel.  That's good for the rest of the players as one of the problems in this $100-$250/bottle category is too many producers, all with a "story," well-known winemaker, expensive packaging (heavy bottles, wooden boxes), and a high price tag. It used to be that new producers earned their stripes (and price increases into the $100+ range) through delivering consistent year-to-year quality at fair price points instead of skipping to the head of the line by opening the cash spigot to create a high-priced trophy wine in record time.

Wine collectors who buy these $100-$250 wines will open up their wallets again as the economy enables them to (as some part of many purchases in this price range is the status it signals to others) but there will be less blind faith in speculating just to have the latest wine your friend doesn't.  Anyone paying this price also expects quality every time so inconsistent producers in this price range will have nowhere to hide.

Feast or Famine at $50-$100

This zone is "drinking territory" for many wine collectors but also where wine collectors have far more choices on where they spend money.  I suspect there will be many "feast or famine" circumstances where those producers with strong longer-term customers will be fine and others with shorter track records will be scrambling to sell their productions absent some strong reviews that provide some confidence of a sound purchase.

Bottom line: Wine collectors of California wine are in for a period of relative price stability as the opportunity for producers to raise prices (as many did year after year given abundant demand) is not likely to return for several more years.  But I believe spending on high-end California wines will return with the domestic economy and forward-thinking California producers (even modest sized ones) will begin cultivating foreign consumers more aggressively (especially in Asia).

Today's Wall Street Journal had a story titled "As Champagne Fizzles, Makers Squash Supply." A few items in it caught my attention:

• Champagne producers collectively agreed to pick 32% fewer grapes and reduce bottles produced by 44% this year in attempt to prop up Champagne prices in the wake of falling demand.
• An industry source estimates there are more than 1.2 billion bottles sitting in warehouses.
• Annual sales peaked at 339 million bottles in 2007 and might be 260 million this year so 1.2 billion bottles is a 4-5 year supply.  In other words, this "problem" was already building prior to the recession.

Supply and demand constraints

The fundamental law of supply and demand is at work.  Normally, lower demand with constant supply would lead to lower prices but there seems to be a collective view by the producers that this is unacceptable (something that we see with California high-end wineries too). In the face of limited levers to boost short-term demand and a reluctance to let prices fall, the only solution left was to cut production (as they have done).

What if prices were allowed to fall?

Let's consider the advantages of allowing prices to float downwards to a new equilibrium:

• Demand would rise, helping erase the oversupply situation.  When the economy recovers, a smaller supply overhang will enable prices to bounce back sooner.
  
• Champagne would avoid losing market share to other sparkling wines and still wine substitutes that may be hard to recover later.
• The Champagne category could use more price-competitive offerings to grow base consumption and attract new consumers amongst people who might otherwise not drink Champagne.  "Habits" or preferences once formed tend to persist so there's the potential for a long-term gain in consumption from cultivating greater consumption with lower prices.

Some producers might argue that their brand would be negatively impacted if they lowered prices.  I doubt it.  Everyone knows we're in a recession and many luxury goods businesses have had to cut prices.  It's not like this is an isolated example across categories.

What's your view?

If you were a Champagne producer, would you vote to cut supply or allow prices to fall?  I know every consumer and wine collector would choose the latter.

UPDATE: On September 12, the WSJ magazine published a story on the plight of the Champagne industry called Bubbles Take a Bath.  It's worth a read.

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.

Bottom line: Invest 5-10 minutes and you'll be glad you did.

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.

A story called Can Napa Wine Prices Stay Up? from Wines & Vines caught my eye today.  While there were arguments offered that perhaps prices can stay up, realistically, the answer is "no" in aggregate unless producers adopt creative sales and marketing approaches.  Here's why (plus a few suggestions on what wineries can do).

The fundamental law of supply and demand

There is no escaping the fundamental law of supply and demand.  When demand is high and growing (relative to a producer's supply and competitive substitutes), prices go up.  One of the best leading indicators of future prices is secondary market sales activity, i.e., when consumers sell a current or prior vintage of a wine after purchasing it elsewhere.  If secondary market prices are consistently higher than new release prices (as they have been for many Napa wines in recent years), mailing list prices can safely be raised. Certain high end wineries capitalized on this trend by raising prices 100% or more within only a few years.  On the other hand, if secondary market prices are falling, which they have been (25+% for fine wine in other categories), this creates downward pricing pressure on future releases.  Check out WinePrices.com for some well known, high priced Napa wines sold at auction and you can already see examples of price declines in the secondary market since September 2008.

How to maintain price levels

There are only two ways to do so:

1. Maintain sufficient demand at the historic price point.  This is perhaps possible if the winery had "excess" demand before, i.e. waiting lists can replace disappearing prior customers, or the winery will need to attract new customers, perhaps via new selling channels/methods (e.g., brokering wine through retailers), introducing new marketing methods, selling into new geographic markets, etc.
2. Reduce supply to match demand at the historic price point.  If the winery can afford to live without the cash flow from unsold supply, the unsold wine can be added to the winery's library to sell when better economic times return. Supply can also be shifted to overseas markets to reduce domestic availability (but that is really a demand building exercise).

As production from existing vineyards is hard to "turn off", and most wineries need the cash from current production to pay bills, the natural emphasis of wineries to respond to the current economic conditions will be efforts to stoke demand to avoid lowering prices.

Holding on to current price levels through market segmentation approaches

If a winery wishes to avoid a public price cut (long enough for an economic rebound to restore demand) and needs the money from selling annual production even if part of it needs to be sold at a discount to the public price, then they should segment the market to maximize revenues.

To address the market of consumers not willing to pay the "full price" for what is excess supply to the winery, the winery needs to avoid creating public price conflicts to avoid cannibalizing its "full price" customers.  One way of doing this is to offer wine through retailers capable of managing "private sales" of wines, perhaps only to their better customers and where it's not assumed the wine was sourced from the winery. Selling wine through an anonymous auction channel is a similar approach but adds more "below market" pricing data into the public secondary market data sources.

For example, Vinfolio has a priority customer program and markets wines to these high-spending customers via email without prices being publicly displayed on our site or fed into wine search engines.  Given that Vinfolio sources most of its wine in the secondary market (approximately 75% by value), even for a new release of many historically "allocated" Napa producers, the assumption by our customers is that the wine fitting this description is not from the winery.  The price, however, will nevertheless need to reflect secondary market price realities if the wine is to sell.  As the wine would only be offered after the new release was available, then such an offering is not competing with winery mailing list sales (where people still have a further incentive to buy to maintain a mailing list position).

Another method which comes to mind when a producer is to accept a lower price than desired on a portion of his supply is to consider any discount an "investment" in a relationship with longer term value.  E.g., perhaps a first-time direct customer gets a one-time welcome benefit of an extra 6 bottles at a better price per bottle for buying a full allocation at normal prices.  Or free shipping is thrown in which avoids the need to change the bottle price.  The producer might also make a longer term supply commitment to a retailer for supporting the brand in tough times that might permit the retailer to guarantee customers who buy now the right to the same wine next year (an extension of the mailing list concept to third parties).  You get the idea.

Innovation is the answer

The good news about bad times is it forces us to become more creative and to innovate.  That, in turn, is what leads the economy out of recession.  If you've got other ideas, please add a comment.

P.S. Also see a prior post from November 2006 titled "An explanation of fine wine prices."

I don't know about you, but I'm not drinking any less wine than I did a year ago.  If anything, I am more likely to have a glass of wine when I get home to relax in these stressful times.  I suspect I'm not unique so why wouldn't wine sales be up?

All signs point to industry wine sales being down.  Winery owners report less demand from mailing list buyers.  Wine retailers are hurting, and some have already gone out of business (e.g., the Wine Cask in Santa Barbara). 

Answer to the paradox

The answer lies in unraveling a number of behavioral changes by consumers that have come into play because of the economy:

• Wine collectors may be drinking their cellars without maintaining or growing their size, leading to fewer new purchase transactions.
• Wine drinkers are "trading down" to lower price points (although fine wine prices are off 25+% so they could drink the same wines as before and just pay less!).  We've noticed a certain class of our customers are spending more per bottle because they're optimizing their personal QPR (quality/price ratio) to drink much better wines for only modest incremental spending.
• Wine investors in some cases are waiting for further price reductions before jumping back in. 
• For really stressed out people, they may be substituting hard liquor for wine.

The silver lining for the wine industry

• There's roughly $30 billion per year spent on wine in the U.S. alone and foreign markets have huge potential for growth (Asia, in particular)
• The retailing and distribution side of the industry is ripe for restructuring and innovation.  There will be business failures, mergers, and new investments which will result in better options for consumers than they have today (i.e., greater access to diverse selection and at more competitive prices).
• The consumer voice in demanding increased access to wine through online and direct-to-consumer methods is ultimately going to trump wholesaler self-interest and lobbying dollars (if only because voters will get rid of state legislators who don't support the public interest). 

If you see other trends amongst consumers or the industry as a whole, please add a comment.

There's no question that fine wine prices have been negatively impacted by the current economy with higher end wines more severely impacted than others.  Some people will be forced to sell wine they would rather not to raise cash (which we've seen frequently with private collectors selling through Vinfolio in recent months) or do so for a variety of other reasons (see Common reasons to sell wine). Some potential buyers believe prices have further to fall and are deferring purchases which, in turn, contributes to further price declines (the deflationary spiral at work).

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.

I've been trying to research the size of the global fine wine market (in terms of annual sales) but have not found readily available research reports on the topic.  While there are reports estimating the U.S. wine market at $28-$30 billion annually, none that I've found provide any relevant segmentation that removes mass market wines.  Therefore, I thought I would pose this question to readers to see if a group collaboration could help answer it.

What is "fine wine"?

For the purposes of answering this question, let's define "fine wine" as any wine which retails upon release at $50 or more (per 750ml).  As some of your probably know, most market segmentations stop at $20 a bottle on the high end with that price point often described as the "super-premium, luxury" category (I'm not sure which dictionary they are using).

One "brute force" methodology

1. Identify all top producers of "fine wine" globally
2. Estimate average annual production levels per producer per wine
   
3. Multiply by an average retail price per wine
   

Your thoughts

How would you approach answering this question?  Or better yet, is there some existing research report which already does it?

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?

A recent article titled "Traditional markets shun Bordeaux futures" from France 24 caught my eye.  The Bordeaux futures market only works if there is a sharing of benefits between the producers, distribution channels, and consumers.  In recent years, this seems to have broken down on many fronts: aggressive pricing by producers, difficulty for retailers in buying specific brands without being forced to take large quantities of plonk with it, and resulting high consumer prices which drive consumers to alternative wine regions.

What consumers want

Consumers want wine to enjoy drinking Bordeaux at prices which make sense.  They don't care if producers had higher costs or lower production in a given vintage.  The only question they're asking themselves is whether the quality of the wine is worth the price being charged.  If it isn't, they won't buy it -- whether  for consumption or investment reasons.  Of course, the better the wine, the higher the prices consumers should be willing to pay.

What retailers want

Retailers make money selling wine.  Unfortunately, for Bordeaux, the risk/reward ratio is about as bad as it gets.  Here's why:

1. Simultaneous release of the supply into the retail channel creates excessive competition, driving margins well below normal.
   
2. The risk of buying is high because if the retailer doesn't sell through its commitment, it will often be stuck owning the wine for 18 months until it is bottled (as consumer interest fades rapidly) or selling at cost (or worse) to recover his capital.
3. It's difficult to for retailers to avoid "tie-in" offers from suppliers which compound risk.  E.g., the retailer may be offered one case of a first growth only if it also buys 10 or 20 cases of a $20/bottle Bordeaux.

Note: These are the principal reasons we don't sell Bordeaux futures.

How producers could fix the problems 

1. Bordeaux chateaux should finance their inventory with a bank or hedge fund and sell it only when bottled. After all, the top labels are increasingly being held as financial assets by international wine investment funds which are essentially doing this indirectly.
2. If these wines are as good as producers claim, they should appreciate in value, giving producers no reason to flood the market all at once as financing costs should be more than covered by appreciation.
3. Retailer risk would be reduced (no 18-month holding risk) and the margin opportunity increased which encourages more effort to promote Bordeaux wine.
4. Retailer risk could be further reduced if Chateaux (and their distribution partners) were willing to allow retailers to broker their wines without tie-ins to other brands (i.e. sell up to a guaranteed quantity before being forced to commit to the actual quantity to be invoiced). This would also justify retailers being satisfied with a lower margin and allow producers to keep a higher share of the final retail price.
5. Producer price volatility could perhaps be managed by hedging against key price-affecting variables as is done in commodity markets every day.  The perverse correlation between poor vintage conditions, extra production costs with lower volume, lower wine quality and higher prices (at least relative to the quality level), might then be broken.

Bottom line: The Bordeaux futures market is broken.  Maybe it's time for some leading chateaux to break with the system and pioneer a new approach to sales and distirbution.

The World of Fine Wine magazine' s latest issue (#19) contains a must-read article called "Every one a critic: The future of wine writing."  Mike Steinberger provides a fascinating, state-of-the-market assessment of what he references as the "twilight era" of Parker.  He makes many valid observations about the inroads being made by what are essentially lower-cost (often free) substitutes for professional (fee-paid) wine criticism.  What's going on and how can the professionals respond?

The "good enough" effect enabled by the Internet

Several trends are at work to shrink the size of the "fee-paid" wine criticism market. There's no question that the Internet has provided a platform for talented amateurs via blogs, forums, and community review websites (Note: Vinfolio is introducing community reviews in our upcoming version of VinCellar).  Many of these reviews (although typically free) can be on a par to those of a professional critic's.  Pragmatically, free amateur reviews need only be "good enough" for the reader to substitute for a paid review.  Moreover, if an individual amateur reviewer is prolific enough and/or focuses his reviews on a particular category of wine, regular readers can calibrate their palates in the same way they do with professional reviewers.

What will happen to the fee-paid wine criticism market

Despite increased competition, there will always be a market for fee-paid wine criticism.  Quality in most areas of life is worth paying for and there's no question that the mainstream professional critics are highly talented.  Moreover, the cost of "paying" (typically $75-$125 annually) is relatively modest compared to the cost of a buying mistake.  However, the "business model" of the professional wine critic may need to evolve to maintain their income.

Advice for professional critics

The theme to my advice is to become more aggressive in disseminating one's professional content to combat the rising "noise" levels.  This can be done in a controlled manner while developing new sources of income to the critic.  Here are some ideas to consider:

1. License content to wine websites and online services -  Vinfolio pays annual fees to Steve Tanzer, Allen Meadows, Roy Hersh, and Richard Juhlin for licensing their wine reviews for specific uses within our free VinCellar cellar management software and within our ecommerce site.  Certain access to full text reviews requires a separate paid subscription to the reviewer's site so we can help drive new consumer subscriptions.  As we expand the utility (uses) of a paid subscription beyond the reviewer's own site, I'd argue that we also increase subscription renewal rates.
2. License content to retailers - If consumers are more reluctant to pay, maybe members of the trade who rely upon the reviews to help sell wine will not be.  Right now, the trade must manually cut-and-paste reviews from the professionals' websites (or otherwise enter data) for what may be thousands of items.  These reviews may need to be refreshed if a review is later updated.  If these reviews were available in an automated way via an electronic API, I believe many retailers would pay material annual fees just to obtain the labor savings.
3. Create foreign language editions - Asian markets are emerging as major wine buyers. Why not offer a Chinese language edition?
4. Generate advertising revenue - Sell online advertising to support access to selected free content.
5. Go "on tour" - Wine critics are analogous to rock stars.  Even if the music (content) is free, fans (readers) pay heavily to attend concerts (wine events).

I could go on but you get the idea.  What would you do if you were a professional critic in this situation?

While the basic economics of supply and demand affect pricing of any good, for items marketed globally such as fine wine, significant shifts in currency values in major markets will take their toll.

"Cannot take it any longer" 

Yesterday, Reuters ran a story titled Burgundy wine prices hiked in U.S. due to weak dollar (read it, it's short).  Prices are being raised 10%-20% in the U.S. (the second biggest Burgundy market after Britain) as "they cannot take it any longer."

Burgundy demand is also high (see Burgundy exports to hit all-time high and my prior post, A leading indicator of higher Burgundy prices).  Therefore, if the U.S. market balks at higher prices, the wine will simply be sold elsewhere.

Just how much as the dollar weakened?

The dollar has depreciated 19.6% against the Euro since the beginning of 2007 and 26.5% since January 2004.  Given that the dollar fell 10.7% against the Euro in 2007, its decline in Q1 2008 has accelerated. 

The broader impact of the weak dollar on wine prices

• Domestic wine will become better values relative to imported wine (although certain items used in making some domestic wines such as French oak barrels have increased dramatically in price).
• Domestic U.S. retailers will increase their efforts to sell wine abroad.  See my post from earlier this week, Vinfolio to open Hong Kong operations.
  
• Foreign buying in the U.S. will increase (including European wines being sold back into Europe).
• Foreign investment in the U.S. wine industry should rise.

Bottom line: Fine wine prices are set globally and are on an upward trend given that rising demand is outpacing new supply (see Why fine wine prices will keep rising).  Fundamental shifts in currency values will cause supply to shift to other markets as well as new opportunities for those paying attention and able to operate globally.

P.S.    Today is the last day to vote for this blog in the 2008 American Wine Blog Awards.  Read about it and vote. 

The Hong Kong government just dropped duties on all alcoholic beverages, effective immediately (see story).  The duty on wine had been 40% after having been cut from 80% the prior year.  Financial Secretary, John Tsang, is betting on the behavior of free markets to turn this into an economic win for Hong Kong. 

Hong Kong destined to be Asian trading hub for wine? 

By forgoing approximately US$72 million a year in duties on all alcoholic beverages, Tsang commented that he expects wine-related trading activity may increase by as much as US$500 million.  In particular, the historic status of Hong Kong as a trading hub has been reinforced and this move places Hong Kong in a position to capitalize on its current lead as the center of wine in Asia.  Meanwhile, neighboring Macau, the new center of global gambling, has a 15% wine duty and mainland China's wine duty remains at around 50% (plus bottles are at risk of being "sampled" -- which effectively kills importing small quantities of rare wines).

Other Implications

1. More foreign wine business will open offices and expand activity in Hong Kong.  As previously noted, I'm traveling to Hong Kong on a previously scheduled trip this weekend to explore business opportunities.  Acker Merrall & Condit just announced a few days ago that it is launching wine auctions in Hong Kong in May.  The London International Vintners Exchange (Livex) has indicated its intentions to open an office if duties were dropped.
2. Further upward pressure on fine wine prices - In April of last year, I wrote a post titled "Global factors affecting trend for higher fine wine prices."  In it, I noted that the lowering of duties will drive more demand, which in a relatively fixed supply market for fine wine, supports longer term price rises.  While Hong Kong's economy is relatively small, it could easily become the "funnel" for wine purchases from wine collectors in nearby high duty countries.
3. Hong Kong wine storage facilities will boom - Hong Kong has limited local storage facilities for wine collectors. In fact, many local wine collectors are known to store their wine in London.  Expect much of this wine to return to Hong Kong for storage where it will be more easily accessible by its owners.  Hong Kong should also become the logical wine storage depot for wine collectors in nearby countries for the same reason.

What else do you think will happen?  Please add a comment to this post.

I'll be visiting Hong Kong for the entire week of March 3rd and Shanghai on March 10th to explore how Vinfolio can develop additional customers based in Hong Kong, Macau, and mainland China and better serve those we already have.  Some issues that I am hoping to gain insights about include:

1. How should we market Vinfolio in various regions to build awareness?  Are there logical partners to team up with?
2. What are the practical issues in selling wine to customers located in these markets without a retail storefront (in addition to duties and customs)?
3. Is there an opportunity to act as a wholesaler to other retailers, especially for older vintages of collectible wine?
4. How are other international wine retailers/wholesalers approaching the market?  What are they doing right and wrong?
5. Would it make sense for Vinfolio to consider opening an office in Hong Kong (or elsewhere in the region) to better serve customers?  Or is having a salesperson based in San Francisco making regular trips a viable approach too?

Overall, I am interested in learning as much as I can about how the market operates so that we can make informed decisions about how to best serve the market opportunity.

Setting up a meeting

If you're in the trade or a wine collector and would like to meet me during my trip, please feel free to contact me directly via my office or at steve@vinfolio.com.

The annual Hospices de Beaune charity auction held each November is widely viewed as a leading indicator for pricing of the new vintage (2007 in this case).  If you thought Burgundy prices couldn't go much higher, brace yourselves!  Red Burgundies rose by 38% and overall prices were up 27%.  White Burgundies did not rise as much but that might be because they were up 65% in the prior year.

More details on the 147th annual auction

• 607 barrels were auctioned, down 11% from 680 barrels in 2006.
• Of the 607 barrels, 469 were red and 138 were white.
• The minimum purchase is a single barrel.
• 42 cuvees were offered: 30 red and 12 white.
• One cuvee was new in 2007: Corton Clos du Roi, Cuvee Baronne Du Bay
  
• 22 different growers cultivate 2.5 hectares each (1 hectare = about 2.5 acres) for the Hospices de Beaune domaine.  Each grower produces one or more cuvees.
• Each barrel yields 24 cases of either 750ml or magnum bottles.  The purchaser receives the bottled wine with the Hospices label.
• According to Christies (who has run the auction for the past 3 years), there were "many new clients from Asia, Australia, America, and Europe sending pre-sale orders and bidding by telephone and the Internet."
• The $6.81 million proceeds from the auction provides medical equipment for the local Beaune hospital and covers the cost of maintaining historical monuments.

Bottom line: Be prepared for price hikes on 2007 Burgundies.  From an investment point of view, high-end collectible Burgundies always seem to me to be a pretty safe bet given that consumers worldwide can't get enough and are growing in number.

Photo note: Upper right is the Hospices de Beaune and its famous roof. Below is a sample label image.

 

 

It's simple.  Just make an effort -- the latent demand is there.  Decanter.com's recent story, "Bordeaux properties on major China, India tour," contained several factoids that got my attention:

1. The 120 Indian and 150 Chinese buyers and importers materially outnumber the visiting Bordeaux contingent of 80 professionals.
2. Only 20% of the Indian wine market is foreign-sourced.  This is unnatural and caused simply by ridiculously high import duties. 
3. The Chinese market for imported wine is growing 40% a year!

The demand for collectible wine, at least from China, is already surging and over the long term, both China and India will help ensure prices stay high.

P.S.    See my prior post, China's long-term impact on the fine wine market. 

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.

Wine Opinions, an Internet-based wine research company, published a report last month titled "Tracking wine media usage and the Influence of Critics."  The report, which includes both trade-only and consumer panels, makes fascinating reading but here are some key findings which struck me as particularly interesting (based on consumer-only responses):

• The most influential opinions affecting consumer retail wine purchases over $20 (the highest category) were "wine-knowledgeable friends" (72%) followed by retail staff (61%).  See chart below.
• The Wine Spectator (54%) has more influence than Robert Parker (41%) amongst high price point consumers.
• 24% of consumers in the panel read wine blogs, about double the level which read the Wine Advocate or eRobertparker.com.
• 87% of consumer respondents agreed with the statement "I trust my own taste more than I do the wine critics."  Despite that, 49% agreed that "I try hard to avoid wines with poor ratings."
• Interestingly, most consumers (42%) disagreed with the statement that "There is a big quality difference between a wine related 92 points and one rated 88 points."  Note: another 39% were undecided on this statement. 

  

My conclusions

• Initiatives to apply social networking to generating wine recommendations should have a receptive audience.
• Internet-based wine opinions contained in blogs or shared tasting notes are already a significant influence factor and growing stronger based on a steady flow of new initiatives.
• The role of expert wine retail staff is valued highly.
• Consumers trust their own opinions more than anyone's and apply their own judgment in terms of how they use third party ratings to make their decisions.
  

The full 32 page report containing charts, analysis, and the original survey questionnaire is available for purchase at the Wine Opinions Store for $195 (it is report CT4-1).

It's been 11 days since my last blog post because traveling back and forth to Europe, the impact of jet lag, and virtually non-stop Vinfolio meetings in London and Bordeaux (not to mention a few nice dinners), eliminated any opportunity to write.  Having returned yesterday, I thought I would share a few insights and observations that stuck with me:

• The European wine entrepreneur is alive and well.  Our meetings were mostly with smaller companies (in people terms) but many had substantial revenue and most forecasted growth rates for the coming year of between 25% and 40%.
• No wonder it's expensive.  "We sell all of our Domaine Romanee-Conti wine allocation directly to Japan." -- source: a large UK wine merchant.  In general, fine wine seems to be finding its way to the highest global bidder.
  
• Chateau buy-backs? - Bordeaux chateaus routinely buy back prior vintages held in stock by UK merchants to resell (sometimes as official "ex-chateau" stock) -- source: multiple members of the UK wine trade.  This occurs in part because the whole en primeur system of futures is totally focused on selling through every vintage upon release with little held back -- most producers simply can't afford to do otherwise (perhaps this will begin changing with cash from 2005 in their pockets).
• UK's tax-free wine investment gains - Capital gains from investing in wine in the UK are promoted as a tax-free investment opportunity.  The underlying support for this is that wine does not normally survive for more than 50 years which classifies it as a "wasting chattel" and not subject to UK gains tax.  Port doesn't qualify for tax-free treatment and clearly many fine wines shouldn't either.
• Investing in wine is far more common in the UK compared to the U.S. While the tax treatment may be one reason, the UK wine trade more actively promotes wine investment than U.S. merchants do and the average UK consumer has "grown up" with Bordeaux which has a proven history of long-term value appreciation.
• Low high-end California wine interest - California/U.S. wine is considered part of the "New World" wine category along with Australia, New Zealand, etc.  (I guess it's all relative.)  UK wine trade members report little interest in high-end California wine; certainly below even my low initial expectations.  Perhaps it's better that way for the rest of us who know better.

 

In mid-March, a Chicago-based  freelance writer (Michael Austin) called to ask what I thought was behind the rise in wine's increased popularity.  His story, Aging Well - Heard on the Grapevine: Americans' Wine IQ is Soaring (free registration required), appeared in the April 29, 2007 Chicago Tribune Sunday Magazine.  Here’s a more in-depth summary of what I replied:

1. People want “experiences” - Drinking wine is a sensory experience, like food, and wine offers a wide range of experiences based on different choices in grape types, regions, and wine-making styles.
2. Affordability - Despite higher prices for collectible wine, wine is broadly affordable relative to other types of “experiences.”
3. Quality is up - The average quality of wine has improved at all price points, particularly among lower-priced wine options.
4. Greater purchasing access - Access to a diverse selection of wine at competitive prices has been facilitated by the Internet and direct shipping.  The historic dependence on what's often a more limited local selection at higher prices no longer exists (in most states).
5. Consumption is growing rapidly - Per capita wine consumption is on the rise with a 17% increase from 2005 to 2006 according to the Wine Market Council of St. Helena (in Napa Valley).
6. Enjoyment factor - Wine preferences are highly subjective and personal which helps drive debate and conversation amongst friends, creating an “enjoyment factor.”  In general, wine has become part of many people's lifestyle.
7. Socially acceptable - Drinking wine is more socially acceptable than ever as historical pretensions surrounding wine have largely dissipated with broader market acceptance.
8. Health benefits - The health benefits of wine consumed in moderation relative to other forms of alcohol have become clearer in the past 5 years.
9. Proliferation of wine cellars - A “wine cellar” (either a small cooling unit or a custom-designed room) has become standard issue in new mid-to-upper-end home construction.  If you have one, you need to learn about wine to know what to fill it with.  See my prior post: 4.3 million wine “cellars” in the U.S.
10. Celebrity “endorsements” - The “celebrity factor” has helped popularize wine, whether the celebrity is a winemaker (akin to celebrity chefs) or TV/movie celebrities profiled in Wine Spectator or other publications.

What are your theories explaining wine's increased popularity?

A couple of news stories in the past month focused my attention on the potential impact of unleashing pent-up global demand for fine wine that is now impeded by high import taxes.  Specifically, Hong Kong decided to cut its wine import duties in half and South Korea concluded free trade agreement negotiations with the U.S. which look likely to result in a complete elimination of its high wine import duties (see Korea Trade Agreement Moves Forward: Wine Industry to be a Major Beneficiary).  As pricing is about supply and demand, sudden reductions in taxes could cause demand to rise in a world of relatively fixed supply of fine wine.  

See the chart below for a quick overview of major Asian countries' wine import duties in comparison to the U.S.  The basis of import duties and taxes varies by country, ranging from the value of the wine to volume and alcohol levels.  The data below is based on a single case of wine valued at $1,200.  While Hong Kong's and South Korea's dramatic future tariff reductions are impressive, their economies are relatively modest.  The bubble size in the chart represents the relative GDP among the countries shown, and therefore the potential purchasing power which could be released to impact wine prices.  The two countries combined represent less than 5% of the U.S.'s GDP so the planned wine import cuts are not going to redefine price levels on their own. 

"What if" scenarios for China and Japan

1. China - What's more interesting perhaps is China's high duty combined with its purchasing power (about 60% of U.S. GDP and growing faster).  What if China were to cut its 49% duty to zero?  Given the growing number of millionaires in China (now in the 300,000-400,000 range), you can bet a such a change would impact fine wine prices (see my other recent post, China's long-term impact on fine wine prices, and Selling wine to the affluent Chinese).
2. Japan - Japan's fine wine market is already very strong and while a reduction of 15% is much less than 49%, one can imagine a more immediate impact given the far more established channels of selling fine wine into Japan.

Bottom line: The stage seems set for long term price rises for fine wine.  Wine collectors need to keep in mind that the world of fine wine is a very global business in which trends or market discontinuities elsewhere will impact their wallets and/or investment approaches.

A news item on Decanter.com last week titled "Yquem goes into nebuchadnezzar" notes that Yquem is creating a limited series of 120 of these 15 liter bottles for the highly-touted 2005 vintage.  This marks the first time in the long history of Chateau d'Yquem (since 1593) that this bottle format, named after a King of Babylon Nebuchadnezzar II, has been used.  Until now, the largest bottle format available has been 6 liters which only began in 1982.

The facts

• 120 15L bottles to be produced: 20 to be retained in the library of the Chateau
• 100 of the bottles to be sold via Bordeaux Wine Investments (BWI, UK-based) and Bordeaux Wine Locators (BWL, US-Based), which are sister companies owned by the same sole shareholder.
• The BWI/BWL's price per bottle is €12,850 (about $17,100)
• The wine will be bottled during the first quarter of 2009
• The Wine Spectator has scored the wine its highest possible rating in barrel which is 95-100.  Robert Parker has yet to rate it but in writing about the 2005 vintage, he said the 2005 Yquem "should be utterly amazing when released" given that it is a "towering example of profound Sauternes."
  
• Each bottle is etched and engraved with a bottle number.  Bottles will be presented in a special wooden presentation case.
• The names of the 100 buyers will be drawn in April 2007 at the Chateau, providing each purchaser with the opportunity to own bottle #1.
• Special glass was needed so that it would not yellow over an extended aging period.
• Two people are needed to handle a bottle given its weight and size.
  
• Special Styrofoam shipping cases are to be used for delivery.
  

Why now?

I decided to email Robert Lench, Managing Director of BWI, to ask if he knew what the motivating factors were behind the decision to produce 15L bottles.  Here is his response:

"The idea was conceived and initiated by my brother, Andy Lench [the owner of BWI and BWL]. We believed this would be a unique format for the greatest Sauternes in the world in an historic vintage, the 2005. The 2005 has received a generally high profile and acclaimed as one of the greatest Bordeaux vintages. A very special bottle for both investors and connoisseurs. This is a high profile opportunity to have a piece of history."

Apparently, the market seems to agree as there are less than 10 bottles left for sale between the two companies.

Other questions you might ask

1. How do I buy one? The bottles are only available through retailers except in the UK where an individual may buy directly from BWI.  Or just email service@vinfolio.com and we'll try to snag one for you.
2. Does this portend a new supersizing trend for Bordeaux?  Robert Lench did not think so.  This concept was something they initiated as wine merchants.
3. How much of Yquem's typical production is being diverted to the 15L format? About 65,000 bottles (750ml size) are produced annually.  The 120 15L bottles (20 750mls in each) translates into the equivalent of 2,400 750ml bottles or about 3.7% of annual production.
4. What is the price premium compared to the 750ml bottle format? $675 is the median 750ml price based on 23 U.S. retail prices taken from Winesearcher.  Using $17,100 as the minimum price one could pay, this equates to $855 per 750ml equivalent or about a 27% premium.  Two different U.S. retailers have both offered the wine at $20,000 which would be a 48% premium.
5. Would this be a good investment? My guess would be "yes" given the quality of the vintage and the producer, the limited number of bottles produced, rising global demand for top wines, the unquestioned sourcing of the wine, and the ability to prove the authenticity of the wine over time (via etched bottles and other certification).  The fact that over 90 have already been sold tends to confirm my guess.

If you are interested in Yquem, you might also want to read an earlier post titled "1860-2003 vertical of Yquem sells for $1.5 million."

China's growing thirst for wine is likely to drive fine wine prices higher over the next few decades. 

The March 5, 2007 Newsweek (International edition) contains an article titled "Bordeaux meets Beijing" and the February 28, 2007 edition of the Wall Street Journal weighs in with its own story on the Chinese wine market titled "'People I know still put ice and juice in wine'" (WSJ online subscription required).

Here are some items drawn from these articles which grabbed my attention:

1. Chinese per capita wine consumption doubled in the past 5 years but is still only 0.7 liters per person (equivalent to 1 bottle).  In comparison, the U.S. is third in per capita consumption with 14.5 bottles per year (see my post: 92% of wine consumed by "core drinkers") while France and Italy are about the same with 63-64 bottles per capita consumption each.
2. In 2005, China became one of the top 10 wine consuming nations (in absolute terms).
3. Chinese wine imports in 2006 (2.2 million cases) doubled 2005's level (1.15 million cases).  Since 2001, wine imports have grown from $32 million to $133 million.  The WSJ story also states that "wine experts think that one day, the high end of China's wine market for imports could match America's, valued at over $2 billion."
4. The Chinese government is actively encouraging wine consumption for health reasons over grain alcohols.
5. Taxes on many wine imports fell from 120% in 2001 to 48% today.
   
6. Wealthy Chinese buy the most recognized wine names (at very high prices) as a bit of a status symbol more than for the taste.  Sounds like an opportunity for Robert Parker to publish a Chinese language edition of The Wine Advocate and encourage more experimentation!

This stat is from a new report published by the Wine Market Council of St. Helena. A core drinker is someone who consumes wine one or more times weekly. Core drinkers currently represent only 17.4% of the U.S. population. Wine lovers are drinking even more than before as this percentage has risen from 80% in 2000. If you reading this blog, my bet is you're a "core drinker."

A few other facts stood out to me from the report:

1. Per capita wine consumption in the U.S. is up 17% from 2.46 gallons in 2005 to 2.88 gallons in 2006. That's great but who uses gallons as a metric for wine consumption (unless it's plonk)? In 750ml bottle terms, that's an increase from only 12.4 bottles to 14.5 bottles per year. It seems low to me but it's enough to rank the U.S. third after Italy (12.8 gallons or 64.6 bottles) and France (12.5 gallons or 63.1 bottles).
2. 30% of the wine sold in the U.S. is through the restaurant channel. Wine collectors should care because fine wine is often allocated to restaurants for market exposure purposes and is therefore not available to buy through retailers or directly (at more affordable prices).
   
3. 20% of core drinkers bought wine via the Internet in 2006. In 2000, this was only 5% bought wine online. Wine is a consumer good so it shouldn't be surprising that consumers will use the Internet for more convenient and cost effective buying like they do with other items. Now if only state legislators would recognize market realities and revamp the direct shipping laws to accommodate market demand. At some point, consumers (aka voters) will make it happen with or without them.

This post was inspired by a February 8, 2007 article in The Napa Valley Register titled "Boomers, Millennials boost wine consumption".

Bloomberg Markets veteran wine and spirits writer, Elin McCoy, published an article last week titled “Home wine cellars, no longer just for geeks, soar in popularity.” It took me a minute to realize that the wine “cellars” in her article were what I would call wine storage cabinets, units, or even refrigerators. But let’s not quibble about semantics. The statement which floored me was this one:

"A 2005 Association of Home Appliance Manufacturers study found that 4.3 million households in America now have wine cellars, with more than 3 million purchased since 2003."

Wow! That’s a lot of households who cared enough about their wine to purchase a dedicated “appliance” to protect it. I suspect many will catch the wine collecting bug once they take this initial step. Hopefully, they will start reading this blog and managing their wine with our free VinCellar online cellar management software.

P.S. Please see my prior post "Wine cellars: Beauty over function” for comments on the custom cellar market.

When Amazon.com started, I recall the debate about whether consumers would buy books online. I just checked the growth in my own personal ordering with Amazon over the past 10 years (yes, I could do that in about one minute). In 1996, I placed three orders and so far this year, I have placed 47 orders (including one with Amazon UK). The wide selection, convenience of ordering, and reliable delivery system kept me and many others coming back, helping build Amazon’s current $16 billion market capitalization.

Despite the checkered history of Wine.com as an early pioneer in online wine sales, I believe there is pent-up demand by consumers to buy wine online for the same reasons which have driven Amazon’s growth: greater selection and convenience for consumers. The benefits to consumers are simply compelling.

The real question is why haven’t online wine sales been more robust and clear market leaders emerged? The constraints seem to be:

1. Restrictive interstate shipping laws that differ by state essentially create trade barriers for national retailers. Deep-pocketed wholesalers want all alcohol transactions to be face-to-face and have lobbied heavily to keep or tighten restrictions further. The creation of the Specialty Wine Retailers Association in early 2006 is dedicated to changing these laws for the benefit of consumers.
2. Risk of minors purchasing online. New services for online age verification such as Idology’s will increasingly be adopted by wine retailers (including Vinfolio) and defuse this argument by wholesalers once and for all.
3. Fragmented industry. The wine retailing industry consists primarily of family-run, privately owned business that tend to be risk averse and laggards in applying the latest technology to their business operations. The inability to sell easily across state lines in itself has stunted the development of larger players.
4. Perishable nature of wine. It’s simply more complicated to deal with the logistical aspects of handling and transporting wine than books or electronics.

Bottom line: Online wine retailers are making progress and a future of “wine without borders” is achievable with a sustained effort. Wine collectors should support legislative changes in their home states to facilitate development of a true national wine market.

A reporter for U.S. News and World Report, Alex Markels, forwarded me an article that he just wrote called “Uncork the lowest prices: A global glut of wine grapes has connoisseurs and bargain hunters stocking their cellars.”

It’s not news that there’s a lot of undifferentiated wine made worldwide that producers can’t sell and whose suppliers might be “desperate” to unload. This is the normal state of affairs. Therefore, statements like “markdowns nationwide have made this the best time to stock up in more than a decade” are a bit overreaching. Most of this wine is low-priced “plonk” and certainly not worth cellaring with any expectation of improvement.

Even the comment that “prized vintages once available only to restaurants and collectors are suddenly in plentiful supply (albeit still at relatively high prices)” doesn’t fit our experience. We have to press suppliers constantly for larger allocations of desirable wines (or be forced to consider “parcels” of undesired wine to get what we really want – usually we just pass).

I suspect the Cakebread Vine Hill Cabernet mentioned in the article (which retails for $90-$100) was “tied” to Applejack Wine & Spirits' purchases of other Cakebread wines. Or maybe it’s just hard to sell a $90-$100 cab without a critic’s review (the last published review I could find was an 87 from Wine Spectator for the 2000 vintage).

Bottom line: The “bargains” in lower-priced wine will never disappear. Take your time and fill your cellar with high quality selections.

Alder Yarrow of Vinography has an interesting post today called “Now THAT’s cultivating a market” about an effort to cultivate wine drinking in China among 100,000 middle class families. This is part of a broader trend aimed at satisfying expected growth in Chinese consumer demand to tap into a “luxury lifestyle” that includes wine.

An article from Business Week’s February 6, 2006 issue titled “In China, to get rich is glorious” paints an amazing picture of how wealth creation is driving demand for luxury goods. Ernst & Young estimates that the Chinese luxury market currently generates more than $2 billion in sales annually and is growing at 20% annually. By 2010, China is expected to have 250 million consumers who can afford luxury products, more than 17 times the current number. The impact of Chinese buying will increasingly affect worldwide auction prices for fine wine and other items considered to be luxury goods.

China is already on the radar of some forward-thinking British wine retailers such as Berry Brothers & Rudd who have been marketing Bordeaux futures to the rapidly growing number of affluent Chinese (300,000+ millionaires is a commonly quoted statistic). Vinfolio is about to launch its own initiative in partnership with Winespring and its local partners to sell collectible wine directly in China (it’s almost easier than dealing with interstate shipping regulations). We already sell wine to consumers in Japan, Singapore, and Hong Kong and expect this to be a growing part of our business.