Vinfolio.com

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.

Richard Shaffer of Israeli Wine Direct sent me a note the other day (on Twitter, @Vinfolio) asking whether there's a formal definition of fine wine.  While "fine wine" is a term bandied about by many, including me, I believe most people use it informally to distinguish high quality (generally higher priced) wine from everything else.

In fact, the first of 18 definitions of "fine" on dictionary.com is "of superior or best quality; of high or highest grade."   The example used to illustrate this meaning is "fine wine"!   But we all know judging quality is highly subjective and that a given wine will generate a wide range of opinions.  Rather than debate the well-covered subject of what constitutes a quality wine (e.g., balance, complexity, finish, etc.), I believe a good normalizing proxy for when a wine can safely be referenced as "fine" is its price. 

Why price is a good determinant

A wine's median price is essentially the typical merchant's view of what typical consumers are willing to pay.  Arguably, this price should be highly correlated to quality (or consumers would be spending less for a better quality alternative) and not to perceptions of quality created by marketers such as clever packaging. In essence, the various ways consumers evaluate quality ultimately translate into a willingness to spend a certain amount of money.

$50 is a good break point

I believe $50 is a good break point, above which, a wine is more likely to be considered "fine" by a majority of people than not.  The higher the price above $50, the greater the consensus is likely to be.  I don't have a survey or study to confirm this somewhat arbitrary threshold but Vinfolio has long used a minimum $40 retail price point for accepting wine to sell from private sellers (as well as a minimum professional score) and even that level was an accommodation to facilitate selling a greater percentage of the person's cellar.  Below $50, we've found that wines are often less differentiated and harder to sell. 

What I'm NOT saying

To help clarify the definition, I'm not saying that every wine priced at $50 or more meets the "superior or best quality" standard and we all know there are wines priced below $50 that easily meet this quality standard (particularly in certain QPR categories like sauvignon blanc and Chablis to name a few).

How would you define "fine wine"?  Please add your comments.

P.S. For a few other perspectives on defining fine wine, here's an excellent post called What is a fine wine? from the Wine Anorak and another on the LovetoKnow.com site called Fine wine defined.

Decanter.com's recent story titled "Christie's closes South Kensington wine department" was mistitled.  It should have been headlined "Christie's new wine strategy will focus on Asia."  Among other points made in the article:

• Hong Kong remains a profit center and is sustaining the economic crisis better than elsewhere (based on recent auction results)
• More staff will be recruited to the wine department in Hong Kong

Christie's is making a smart move.  While even Hong Kong is not immune to the global slowdown, our Hong Kong office quietly launched on November 1 and we can attest that fine wine sales have been growing nicely.  Customers currently buy from our U.S. inventory, either online at our U.S. site or by speaking with or visiting Mabel Ho, Executive Wine Specialist (call (852) 3748-3834 for assistance).  Our Hong Kong wine storage facility is proceeding (after some delays) but plans are in place to launch it within the next couple of months. Please see the Vinfolio Hong Kong website (www.vinfolio.hk) for more information.

P.S. The closing of Christie's South Kensington location after 30 years was long overdue.  The South Kensington auctions served as an outlet for a "grab bag" of merely average wines not worthy of being sold by a reputable firm such as Christie's.  Closing it will remove this blemish on their highly regarded brand.

If you're on email lists for fine wine retailers, you know that they're feeling pressure from the tough economy. Before considering wine retailing specifically, let's quickly look at the state of retailing in general.

The current general retail environment

Today's Wall Street Journal cover story is titled Retail Sales Plummet with a subtitle "Discounts Don't Revive Holiday Spending; High End Walloped."  After reading the article, I felt these headlines were a bit misleading.  Here's why:

• The 8% decline in December 1-24 sales over the prior year was really half that or 4% when gasoline price declines were excluded.
• Luxury goods (excluding jewelry) fell 21.2% instead of the 35% in the front page bar chart.  Unfortunately, that's still a high figure and fine wine probably fits more in this category than any other.
• Inflation-adjusted consumer spending in November showed consumer spending actually increased slightly in November (over 11/07) given falling gas price benefits.  Personal savings rates climbed too.
• "E-commerce showed the most resilience with online sales falling just 2%."  In another WSJ story, Amazon Lauds Its Holiday Sales, Amazon says it had its "best ever" holiday season.

The fine wine retailing environment

Robert Parker launched a comment on the Mark Squires Bulletin Board on eRobertParker.com in late November called Wine Market Correction which generated hundreds of responses and over 20,000 views.  While he paints a somewhat gloomy picture for various participants in the wine trade, there are always opportunities which emerge from adversity as people's willingness to try new approaches is higher than ever in the search for solutions.

With regard to fine wine retailing, I believe we will see some players fold who can not adjust fast enough to the new environment; others may seek third party investments (see The Wine Club takes on a new partner).

What fine retailers should do to succeed

1. Focus on execution fundamentals - Almost two years ago, I wrote a post called Criteria for selecting a good wine retailer which is aimed at wine collectors and enthusiasts but this can also serve as a checklist for what retailers should deliver.  Solid execution drives success as the Amazon story demonstrates.
2. Reassess business model assumptions - Assumptions that were once true may no longer be.  Evaluate how to operate more efficiently and with less business risk while treating nothing as sacred.  Cut costs wherever you can.
   
3. Pressure suppliers for better terms - Suppliers, whether distributors or producers, need your business too.  If you need more competitive prices, demand lower prices or the ability to market wine without buying it first where possible (i.e., brokering).
4. Access new customers - Get creative in how and where you target new customers.  Innovate with new marketing tactics.  Beef up your online presence.
5. Reactivate prior customers and increase "conversions" - Everyone has customers who haven't purchased in a while.  Have you revisited them to provide an incentive to come back?  If you conduct business online, are you doing everything to maximize the number of your online site visits which convert to sales?  E.g., we recently added a live chat facility to our site to provide expert wine assistance to online visitors during business hours with higher conversions as our objective.
   

What wine collectors and enthusiasts should do

1. Patronize wine retailers you care about - Support your favorite retailers by focusing your wine purchases with them, even when prices might be a little higher.  Consider why you like them and the services they provide that you don't get from others.
2. Refer friends to your preferred wine retailers -Word of mouth is a powerful mechanism.  If you're a wine collector or enthusiast, chances are you have plenty of wine drinking buddies.  Don't hesitate to share your "secrets" of where you buy wine (and why).  Read Seth Godin's piece Don't know what you've got till it's gone as he makes the point far better than I can.
3. Consider investing in fine wine - I've written many posts on wine investing recently but contrarian thinking is how people make money.  Moreover, your access to choice items at excellent prices is higher than ever.
4. Manage your pre-arrivals risk - In an environment which could drive some retailers out of business, you should consider the financial viability of your preferred retailers before making new pre-arrival purchases and track down overdue pre-arrivals not yet delivered.  (If you're a VinCellar user, this pre-arrival management capability is built-in).

Bottom line: Times are tough but fine wine retailers have plenty of levers they can pull to respond to much tougher market conditions and even gain market share in what is still an enormous, multi-billion dollar market for fine wine (even if prices are lower).  Wine collectors also have a role to play in helping retailers while also helping themselves.

For the past week or so, I have been experimenting with Twitter.  Frankly, I originally dismissed this method for communicating and staying connected with others because it sounded like a messaging version of reality TV.  But I became intrigued by a post on Guy Kawasaki's excellent How to Change the World blog called How to use Twitter as a Twool.  This article had the same motivating effect on me that reading Robert Scoble's Naked Conversations: How Blogs are Changing the Way Businesses Talk to Customers.  In the latter case, after reading the book, I decided to launch this blog. 

One way of viewing Twitter is as a "micro blogging" platform for those thoughts and ideas one comes across that don't necessarily rise to the level of writing a full blog post.  More broadly, Twitter helps businesses monitor the real-time "chatter" about your business and its competitors while even providing unique ways of providing customer service (e.g., see JetBlue uses Twitter - Listens to Customers, Grabs New Business).

You're going be reading more about Twitter as this social networking platform proliferates and is adopted by more businesses in innovative ways.  Sign up and see what you think.  While you're at it, make sure you "follow" Vinfolio on Twitter (I've been slow out of the gates in "tweeting" but will be stepping up my activity after the holidays).  Vinfolio will also be introducing other Twitter accounts soon to enable more active customer interactions

I was reading the Saturday Wall Street Journal this morning, specifically Peggy Noonan's Rectitude Chic and a Heard on the Street article called For the jet set, a newfound austerity.  Peggy references a coming "age of restraint" and in the other article discussing the private jet market, a UBS equity analyst says "Now, any display of wealth is negatively perceived."  How is this public mood going to affect the wine collector?

One of the beauties of wine collecting is that it's a pursuit that can be conducted with discretion:

• Dinner party guests generally don't know the value of the wines unless you're serving broadly recognized trophy wines or they're wine collectors themselves.  Even then, values of a given wine typically vary dramatically by vintage.  You can be even more low key by decanting the wine and leaving the bottles in another room
• Avoid serving more grandiose formats like 6L bottles that might be interpreted as "showing off." Those bottles age better anyway so a few more years in the cellar won't hurt them.
• Your wine collection is probably hidden away in your basement or in a professional storage facility.  Unless you're holding dinners in your cellar or giving tours, nobody really knows your true cellar size or the amount of money you've invested in it.
• If you buy expensive wine at auction, skip the live events in favor of absentee bidding or phone-based bidding to maintain a lower profile.

The latest Liv-ex 100 fine wine index data for November has been published for November 2008 and it shows virtually identical performance for the month to the Dow Jones Average and continued outperformance on a longer term basis.  Here are the stats:

For a graphical comparison over the last year as well as the past four year period, please see the charts below:

Bottom line:  Fine wine is an attractive investment class.  As with stocks, one can try to pick the bottom but most professionals will tell you it's hard to do and not to bother.  If prices are attractive, then act on them now before prices recover.

P.S. Here's another good story from the International Herald Tribune for more commentary on the price resiliency of fine wine: "Wine Investing 2009: End of the Madness."

With investors looking for alternatives to stocks and bonds given the daily roller coaster being experienced in public markets, Vinfolio now offers a new investment option via its Wine Investment Service (see yesterday's press release). 

Many wine collectors have often been "accidental" wine investors by purchasing more than they plan to drink to finance their consumption.  Vinfolio's new service is aimed at investors, whether wine knowledgeable or not, whose first priority is making money.  Even better, all of the necessary components (expert advice, fine wine selection, professional storage, and multiple selling options) are all provided under one roof.