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The Wine Collector
Practical wine collecting advice from Steve Bachmann, Vinfolio's CEO
 
31
Mar
2008
The Wine Collector wins Best Wine Business blog
Categories: Blogging/PR

The 2008 American Wine Blog Award Winners were announced today and I'm pleased to report The Wine Collector won in the category of Best Wine Business Blog.  Thanks for your support.

When I started writing this blog in 2006 (see Launch of The Wine Collector), I did not foresee writing as much about wine business issues as I have done.  However, wine collecting is all about buying fine wine and the context in which one does that is fundamentally affected by a whole range of business factors affecting retailing trends, global demand, regulatory changes with shipping and foreign duties, wine authentication, investment trends, and more.

I look forward to continuing to write on issues facing wine collectors and the wine business.  The process of thinking through a blog topic is actually quite helpful to my "day job" running Vinfolio and one I thoroughly enjoy doing.   Should you have topics to suggest for The Wine Collector, please feel to email me at steve@vinfolio.com. 

28
Mar
2008
The weak dollar's impact on fine wine prices

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

24
Mar
2008
eProvenance: A wine provenance verification solution
A new company, eProvenance, just launched with a holistic solution for verifying a wine's provenance (defined as "authenticity, traceability, and knowledge of storage temperatures"). Read the press release.
 
How it works 
 
There are three physical components to eProvenance's system:
  1. Temperature-monitoring RFID tags at the case level (temperature is recorded 3x a day)
  2. Identification RFID tags permanently affixed in the punt of each bottle
  3. Anti-counterfeiting neck seal
These three components may be implemented independently but are most effective when used together.  All are linked via their unique identification numbers to an online database which may be accessed directly from the eProvenance website.
 
The key consumer benefits 
 
If eProvenance is successful, the upside for consumers is that they'll be able to buy fine wine with greater confidence that it's both authentic and undamaged by poor handling in the distribution chain up until the point of purchase from the retailer.  If the eProvenance system could be extended to cover the aging period of the wine after the consumer's purchase, either while the wine lies in professional storage or in the customer's own cellar, one could imagine obtaining future valuation premiums for the verifiable provenance.
 
Implementation challenges 
 
The challenge of course in implementing "big" ideas which require multiple layers of industry participants to cooperate is to obtain a critical mass of users.  The Company has nine leading Bordeaux chateaux, including some first-growths, involved in implementing programs and is berginning discussions with importers and distributors.  The estimated cost of a total solution to the producer is about €1.60 (about $2.50) per bottle of which about half is attributable to a per bottle allocation of the temperature monitoring component.
 
In a conversation with CEO, Eric Vogt, he explained that the greatest interest from chateaux has been in the temperature-monitoring component of the solution.  For a few eye-opening stories on why that may be of greater concern than authenticity, read a few new posts on Jancis Robinson's site (which is what stimulated this one) titled What happens to your wine in route and Schildknecht on reefer madness.
 
Bottom line: eProvenance has tackled a big problem which stands to benefit all wine collectors.  As I've advocated in prior posts, wine of excellent provenance is more than worth the price premium that it commands.  The success of eProvenance depends on all market participants agreeing with that premise.
 
P.S. Also read these prior posts:
23
Mar
2008
Vinfolio to open Hong Kong operations
Categories: Asia , Blogging/PR

Vinfolio is taking immediate steps to launch its first international operations in Hong Kong by Fall 2008.  See today's press release.  Here are a few factors which drove the decision:

  • The demand for fine wine has been growing steadily in the region and we expect it to continue.
  • The recent elimination of wine duties in Hong Kong provided a further catalyst and, over time, will create pressure for other countries to cut duties, too.
  • Hong Kong offers an attractive business environment and excellent location from which to serve neighboring geographies, especially mainland China.
  • The weak U.S. dollar is stimulating more Asian buyers to focus on the U.S. market to buy their fine wine.
  • Additional wine storage services are needed to support the arrival of wine historically stored outside Hong Kong.  Vinfolio's experience in running a full-service storage facility in San Francisco combined with our VinCellar online cellar management software create competitive differentiation for our services.

Next steps

I will be in Hong Kong again from April 8-11 to begin exploring warehouse and office locations.  In addition, we'll start searching for a Managing Director/General Manager hire.

Bottom line: The fine wine business is global and Vinfolio's operations need to mirror the market to maximize our opportunities.  This is no doubt only the first step in the globalization of our business.

21
Mar
2008
Vote for The Wine Collector in Two American Wine Blog Awards Categories
Categories: Blogging/PR

I'm pleased to report that The Wine Collector blog was just named as one of four finalists in the following two categories of the 2008 American Wine Blog Awards (see all finalists):

  • Best Single Subject Wine Blog
  • Best Wine Business Blog

Last year, this blog won the first category.  The second category is new but fits closely with many of the topics I cover.

If you enjoy this blog, please take a minute to vote for it in both categories (questions 2 and 7 on the 8-question ballot).

CLICK HERE TO VOTE.

Note that voting starts today, March 21, and runs through midnight (PST) on Friday, March 28th, so don't delay.  You can only vote once.

I would encourage you to check out all of the blogs and vote in other categories as they are all worth reading regularly.

Thanks for your support. 

20
Mar
2008
How to be a trusted wine retailer
Categories: Buying wine , Retailing

Buying wine involves a certain degree of trust by the customer in his/her wine retailer. 

A quick definition of "trust"

As succinctly described in The nature of trust from the Slow Leadership blog, "trust" boils down to four key elements:

  1. Meeting obligations to protect others' interests (not just your own)
  2. Acting with honesty and integrity
  3. Openness
  4. Keeping promises

Applying the elements of trust to wine retailers

Here are 10 ways wine retailers can develop that trust and the resulting higher sales derived from it: 

  1. Offer consistently fair pricing (including market comparables) so customers feel comfortable buying repeatedly without checking prices elsewhere.
  2. Provide professional wine ratings and reviews, good and bad, from well regarded sources to enable fully informed decisions.  See yesterday's post.
  3. Reward loyal customers with priority buying access (in an even-handed manner) to scarce, allocated wine and enable any customer to earn such privileges.
  4. Guarantee the wine you sell against flaws such as cork taint or heat damage.
  5. If you sell pre-arrivals or futures, guarantee delivery.
  6. Ship wine only in appropriate weather conditions.
  7. Store wine in climate-controlled conditions at all times.
  8. Resolve customer disputes fairly with a long term view of the customer relationship.
  9. Allow customers to verify their transaction history to ensure charges and credits have been accurately applied.
  10. Only buy wine whose provenance you believe to be 100% sound.
As a wine collector or enthusiast, what else can wine retailers do to develop your trust?
19
Mar
2008
The use (and abuse) of wine ratings by retailers
Categories: Buying wine , Retailing

Wine ratings can be a contentious subject and I've already done my own rant on them last year (see How to use wine ratings successfully).  But I wanted to expand further on the last part of that post addressing how retailers use professional ratings.  Here are a few approaches a retailer could use:

  1. Show highest ratings selectively - The selective representation of ratings is the norm for retailers.  The goal here is to promote the highest possible ratings but only when above a threshold to encourage buying.  The quality of the source is less important than the number. The actual commentary on the wine may or may not be provided.  A corollary to this approach is that wines with ratings below the threshold are displayed without their low ratings (the theory being that bad ratings are worse than none).
  2. Display professional comments without the ratings - The philosophy here is that the descriptions help sell the wine but the ratings might turn people off so hide them from the buyer.
  3. Show all ratings, good and bad - This method provides transparency (at least for an identified set of sources). It recognizes that many wine collectors will independently check ratings using their own paid subscriptions to reviewers' sites if none are provided or a rating is missing.  Moreover, as ratings are only one input into a purchase decision, I could easily argue that a poor rating on a wine from a favorite producer creates buying opportunities as price likely reflects less buyer demand.

Deception?

Let's face it.  Methods 1 and 2 are less than totally honest ways of dealing with customers.

Transparency builds trust 

As far as I know, Vinfolio is the only wine retailer who voluntarily offers up all ratings, good or bad, for a reasonably complete set of professional sources.  This transparency enables our customers to make informed purchase decisions without spending extra time looking up reviews and breeds trust in our brand. 

To be fair, taking this approach is easier for us than most retailers because we pay to license all review content from major reviewers such as Stephen Tanzer, Allen Meadows, Roy Hersh, and Richard Juhlin (see today's press release on the addition of Juhlin and our content partners page).  This content is deployed both in our free VinCellar online cellar management software and within our online store.  So whenever we are selling a wine reviewed by one of these parties, the most recent rating from each source is automatically displayed (without censorship!).  See example below:

In addition to our current licensed content partners, Vinfolio also manually adds Robert Parker and Wine Spectator scores wherever possible (and yes, we would be glad to license their content too if we could persuade them to do so).  But the lack of an automated way of mapping their reviews to the wines we are selling means we will always have "holes" for these valuable sources. Finally, Vinfolio also tries to provide its own ratings and reviews whenever there are none from professional sources (or to supplement them).

Bottom line: Which approach to retailers' use of ratings would you prefer as a buyer of wine?  What would you do if you were a retailer and why?
14
Mar
2008
Fine wine retailing lessons from Neiman Marcus
Categories: Retailing

The Neiman Marcus brand has earned its well-deserved reputation as a luxury goods retailer providing excellent service.  I would guess that many fine wine collectors are also Neiman Marcus customers just based on their common demographic profile.  So when I read the article today from Wines & Vines describing a Silicon Valley Bank-sponsored marketing seminar for wineries by former CEO Richard Marcus, I was particularly interested in the wisdom being shared.

Here are a few nuggets which resonated with me in the context of fine wine retailing:

  • Building a luxury brand - "Offering a top-quality product along with exceptional customer service are essential elements to building a luxury brand."  This is exactly what Vinfolio is striving to do and why our guiding principle is "Fine wine, finer service."
  • Paying attention to customers - "Each and every one of those customers has value.  Nobody can predict what any given customer is capable of spending.  This means knowing each client."
  • Personalize communications with customers - "The question is, are you talking to all of those customers the same way, or are you shaping your communications depending on how that customer has behaved with you?" We use wine specialist staff, analytical tools, an enterprise-class marketing software platform and knowledge of what wines are in a customer's VinCellar account to achieve our goal of personalized (i.e., relevant) communications with customers.
Your opinion: What else do you believe constitutes excellence in fine wine retailing?  Please add your comments to this post.
6
Mar
2008
Interpreting Amazon's move into selling wine
Categories: Retailing

The Financial Times published a story, Amazon to enter US wine market, that infers a new strategic move by Amazon into US wine sales based on a recruiting specification for a senior wine buyer to be responsible for a "massive new product selection."  What's it all mean?

The Opportunity for Amazon

  • The $25+ billion U.S. wine market is simply too big for the world's largest retailer to ignore.
  • Wine has truly gone mainstream or Amazon wouldn't deal with the potentially negative PR of selling alcohol (see Top ten reasons driving wine's growing popularity).
  • Selling wine complements Amazon's move into groceries, which includes national sales of more than 22,000 non-perishable items and a pilot program in Seattle called AmazonFresh that includes perishable items delivered locally.
  • Amazon competitors in groceries such as Costco and Safeway sell wine online (see Safeway expanding into online wine sales) so Amazon needs to respond.

Amazon's intentions

While the FT article indicated Amazon declined to comment on its plans, the reference to a "massive" selection implies national online sales as one wouldn't bother to build up a large wine inventory as a mere adjunct to the pilot program of AmazonFresh.

Challenges for Amazon

  • Licenses - Selling wine requires Amazon to become licensed in one (or more) states depending on whether they fulfill orders from a single location or from multiple states.
  • Shipping laws - Interstate shipping of wine involves a maze of confusing regulations that may be a new form of challenge for Amazon's highly regarded fulfillment operation.  Hopefully, Amazon will throw their weight and financial resources behind the SWRA's initiatives to streamline these laws.
  • Supply requirements - Amazon's mass market retailing approach implies a focus on wines at lower price points that tend to be available in larger quantities.
  • Age verification of buyers - This would be a new requirement to implement in an online context that isn't currently part of Amazon's ecommerce capabilities.
  • Perishable nature of wine - If Amazon plans to ship nationally, it will need to contend with weather conditions during shipment that potentially damage the product.

Inherent advantages supporting Amazon's move

  • Purchasing clout - Amazon can buy in volume and negotiate better pricing than other retailers (although this doesn't really apply to more sought-after, limited production wines that don't need to offer financial incentives to sell their full production).
  • Low shipping costs - If one can use Amazon Prime (free two-day shipping for an annual fee of $79) for a 40 lb case of wine, then this delivers real savings to the consumer.
  • Online marketing skillset - Amazon has a reputation for pioneering online marketing features which become industry standards.

Conclusions

  • Amazon is well positioned to make inroads into online wine retailing but will need to conquer the same challenges currently frustrating others to succeed.
  • The competitive landscape for online retailers selling mainstream, high-volume wine brands is likely to become much tougher.

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