Uvine.com: Exchanging stock ideas for a new market
When the great scientist and inventor Alexander Bell predicted "one day, there may be a telephone in every major city in the world," he uttered an understatement of cosmic proportions. And with those famous words in mind, the creator of the global wine stock exchange could be forgiven for claiming that "one day, every major wine dealer in the world may have bought a case from Uvine.com."
What Uvine.com offers is, in the history of fine wine, unprecedented: a realtime, online marketplace with the opportunity to trade various tipples as a commodity for investment or a liquid for drinking. Plus it is flexible. First there was B2B, then there was B2C but now there is E2E, as Uvine.com's chairman Christopher Burr would have it: "Everything-to-Everyone". Producers selling to retail customers; first tier buyers selling to second tier buyers; second tier buyers selling to retailers; and everything in between and beyond.
There is, of course, deep controversy in this concept for some of the more conservative elements of the trade and not without good reason. "If it ain't broke, don't fix it" could become their motto.
In US, the notion of a winery selling up to 80% of its stock direct to loyal customers through a website or mail order system is not news. After all, there are Californian vineyards planted with the intention of selling 100% of their produce through direct retail methods.
Victor Gallegos, CEO of the US division of Uvine.com, believes the site will allow the wine trade to behave like a normal market where prices fluctuate according to the laws of supply and demand. This is a future that Gallegos seems to relish.
"The only advantage they (Uvine) seem to offer the property is to make more money!"
He told just-drinks.com: "There's not a lot of power at the moment on the part of consumers to say: 'Look: we are not willing to pay these high prices.' The wine industry has protected both the customers and itself from the laws of supply and demand in the past, but in a true stock exchange those forces are brought to bear."
The example he uses to explain this 'protection' is the trade in fine Bordeaux and the massive surplus of produce from poor vintages which lingers in warehouses around the region. A spokesman for the stock exchange has said that rather than dropping prices when a vintage disappoints, the lower levels of the French distribution network tend instead to hold firm if the rains come down.
Advance sales are made as usual and the excess that cannot be shifted is put in storage; losses are recovered with suitably inflated prices the next time a fine vintage comes along.
As Gallegos points out: "You never see, at retail level, a significant price decline in fine wine." For anyone in the trade this must be a positive thing. But for the same reason, private wine buyers think themselves lucky when claret prices have only risen by a single percentage figure on the previous vintage. And they are, of course, being hoodwinked. No bottle of Grand Cru standard wine is really worth thousands of dollars.
It is part of Uvine.com's mission to find out what a bottle's real price is. And this can only be positive for the consumer. For some producers too this is a prospect that can be rightly looked forward to with optimism. Jon-Mark Chappellet, director at California's Chappellet winery, oversees the annual production of 25,000-30,000 cases of wine that ends up selling for one, two and three digit sums.
Only 10% of their wine is sold abroad but Chappellet is curious about what his wine may fetch on a stock exchange. He says: "We've got a lot of room to do more with our export markets … and although using the stock exchange might not be that important for our overall sales initially it might be a good sounding board for the market. It would be more interesting abroad than it would be for the domestic market - I would be very interested to see how well the wines can do.
"In such a scenario we would need to pay more attention to reviews that are not just read on a domestic basis."
And it cannot be incidental that after a few somewhat cautious reviews from Robert Parker (although he shouldn't be unhappy with 89/90 out-of-100) Chappellet says he is now making wines that are "ripe, forward and fruitier" than they were before.
Chappellet is quick to praise his traditional distributors who are "doing a fine job" but he would not have a problem, he says, with "adjusting our sales mix."
To adjust your sales mix in France could cause a seizure for some negociants. At face value, the Bordelais producers are putting up a united front, with their spokesmen firmly declaring that they would not countenance direct online sales to customers. A man with an unrivalled view of south-west France is Charles Sichel whose family-owned business is from the top draw of the wine trade.
He says: "The system Bordeaux works on is archaic but it works. In theory, the Uvine.com idea is good and I am sure it is interesting for consumers trading with their own cellar and maybe some UK brokers but I can't see why producers would be interested.
"Producers today enjoy a structured network which gives them great visibility on the national and international market. In view of this unique system the pricing policy is inflationary and serves them well. The only advantage they (Uvine) seem to offer the property is to make more money!"
Sichel points out that this profit would be spent in part on developing a new consumer-direct distribution network. Whether there would be the money left over to make this a profitable transition is a question that hangs over the significance of the impact that Uvine.com will make.
The Americans have clearly perceived that direct retail is worthwhile but they do have a different, heavily regulated trading environment.
Jon Stevens, UK brand manager for Australian wine giant Penfolds, says he is impressed by the low commission rate on the stock exchange (their 3.5% cut is roughly 12% below a standard auction fee) and with the trophy wines like Penfolds Grange and RWT in his portfolio, his decisions are significant ones for Uvine.com.
He says: "At the moment, the Penfolds premium and super premium wines are in a position whereby demand outweighs supply so how we sell is not necessarily as important as to whom we sell.
"We want to ensure that end user loyalty to the Penfolds brand increases as a result of the purchase... The issue with Uvine.com is the extent to which this brand loyalty increases."
"Customers will have something to gain and to lose and the market's decision will be final."
It is almost impossible to make a single-minded judgement on the future of the wine stock exchange when there are so many conflicting forces acting on it. Some will say that its only future is with the exchange of relatively small quantities of extremely fine wine with globally recognised brands. But with the advent of the 'Uvisory' service that will give Uvine.com customers impartial information collated from a survey of internationally acclaimed critics, wines of variable calibre could be bought through what may be termed "virtual tastings and advice."
At its most simplistic, if a super premium producer is currently selling his wine at $300 a case from the winery/chateau and sees it sold from the shelf at $750, there is potentially $450 to be made on a case to plough back into a new distribution network if they sold direct. This would, however, take a firm decision to dispense with the middlemen and adopt a direct retail philosophy. All this might be at the expense of the steady-to-inflationary that all aspects of the trade have enjoyed to date. It may be difficult to prophesise the future of the online wine stock exchange but if a free and - in every way - more liquid arena for trade exists, customers of every kind will have something to gain and something to lose and, if it goes to the wire, the market's decision will be final.
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