Vinfolio.com

The 20% advantage

Vinfolio recently did an analysis where we examined the retail prices at which we sold wine compared to what those same wines sold for at U.S. auction houses (hammer plus buyer's premium).  The average price advantage we achieved in 2007 YTD is 20% (22% to be exact but we rounded down).  Please review Maximizing sales price on our site for details on the analysis, why this premium exists, and why our retail prices are still competitive for buyers.

Benefit to private sellers of wine

This pricing advantage translates directly into higher net proceeds for the seller (even when the auction house has no seller's commission). 

Payment is also made in a few days (not months) because sellers are paid upfront, before the wine is even sold to consumers.

Why do people still sell at auction?

Mainly because that's the traditional choice (see The limited relevance of wine auctions).  When sellers learn that it's faster, simpler, and more profitable to accomplish their goals via a different method, they pay attention.  For example, we purchased a $600,000 cellar of impeccable provenance this month in direct competition with most of the New York auction houses.

Bottom line: If you're considering selling wine through an auction house, sell your wine to Vinfolio instead.

Periodically, every wine collector needs to stop buying more wine and take stock of what's already in their cellar. Ideally, you're maintaining an accurate inventory as the benefits of doing so are compelling (See "Reasons to update/create your wine cellar inventory").  If not, you may be faced with the exercise James Laube describes in his article "No bottle left behind" (too new to be online yet) in the September 20, 2007 issue of The Wine Spectator.

Most people discover what Laube did in his friend's cellar -- namely that some wine is way past its prime (i.e. dead) or needs to be consumed immediately. But his three categories for classifying what he found -- "keep, toss, and party" -- is missing an important one which is "sell."

If your rate of consumption is not keeping pace with your rate of buying, regularly selling off wine before it goes bad is one way to avoid stockpiling excess wine (see reason #2 in "Common reasons to sell wine").  You might even find that selling helps finance your buying habit.

In an era when check deposits clear in one business day, why does payment for a successful wine auction sale take 30-60 days or longer?  Stories of much longer payment periods (6 months or even a year) are not uncommon.  Read this thread titled “Auction question – float” on the Mark Squires Bulletin Board on eRobertParker.com for some examples.

3 Factors explaining delayed payments

1. Risk of buyer rescinding purchase – As possession of your money provides some protection from the auction house being stuck with the cost of resolving buyer claims (e.g., regarding authenticity, quality, or title), delaying the seller’s payment provides time for potential buyer claims to be raised.
2. Buyer’s money may not have been collected – Virtually all sale contracts require collection of monies from the buyer before payment to the seller.
3. Reimbursable expenses may need to be calculated – Charges for shipping and other reimbursable expenses may need to be gathered as these are typically deducted from any sale payments.

Bottom line: 

1. Read the sales contract!  All of these payment details are spelled out in the sale contract you're required to sign.  Contracts I’ve seen from major auction houses state 35 days in one instance and 50 days in another.
2. Consider superior substitutes to auctions such as Vinfolio’s personal selling service where payment is guaranteed in 0-7 days after the sale.  Note that immediate payment occurs for larger cellars that are bought outright.  Inspection is performed at the customer’s location and funds are wired and received before wine is removed.

Vinfolio, for example, just signed a contract today to purchase a private cellar in the Midwest for over $400,000. Here’s a quick summary how our process works:

1. We price the cellar based on our expected retail selling prices (which are almost always higher than auction averages).
2. Our fee, which is effectively our retail margin earned when we later sell the wine, is factored in and the seller receives the net amount.
3. Payment is made as soon as the wine can be inspected (which in this case is at the customer’s home by staff we fly out).

The result: the seller nets more, is paid faster, and the transaction is completed far quicker than with an auction house.

There are no statistics on the volume of fine wine sales made by collectors to retailers or other alternative channels. My guess is that it’s greater than the auction house channel and a clear substitute for private collectors to consider who currently default to thinking “auction” when they think “time to sell.” Hopefully we can change that mindset.

For details on individual auction firm performance in 2006, please see the Decanter.com article “US/UK auction roundup” or the Wine Spectator article “2006 Wine Auctions Break the $200 million mark."

1. Tastes have changed, prefer other categories of wine now
2. Overbought, need to sell before wine is past maturity
3. Didn’t like a wine upon trying it and don’t want remaining bottles
4. Financing drinking with gains from sales
5. Value appreciation, too expensive to drink
6. Divorce, death and taxes
7. Balancing cellar between red and white
8. Trading to fill holes in verticals
9. Need cash for a special project or living expenses
10. Changed entertainment style, prefer large bottles over 750mls
11. Medical conditions
12. Charitable donations
13. Moving
14. Emotional connection to certain wines have faded (see the Wine Spectator’s James Moleworth’s blog post, “How wines stay in my cellar”, which inspired this post).