New online wine-trading platforms
The £2bn-plus secondary fine-wine market is being shaken up by two new peer‑to-peer online trading exchanges charging significantly reduced commission. But is there a catch? asks John Stimpfig. Portrait by Jude Edginton
In the spring of last year, “peer-to-peer” fine-wine trading platforms were a little bit like London buses.Nothing for ages, then two come along at once. Even so, many collectors and investors may have missed the low-key launches of Cavex and Wine Owners. However, they didn’t escape the notice of wine merchants, brokers and auction houses.
Almost all of these dismissed the new fledgling interlopers as “no big deal”, “deluded” or “irrelevant”. Managing director Gary Boom, of Bordeaux Index, suggested that “neither had any chance of long-term survival”. Stephen Browett, chairman of Farr Vintners, was of the same opinion: “People may try them for a while but, ultimately, they’re doomed.” One senior figure was even more scathing: “These guys are muppets. They’ve seen a market they think can benefit from dropping brokerages, but they’re dead wrong.”
Other interested parties took the opposite view; namely that these new, independent electronic platforms could turn out to be a genuine game changer for the global £2bn-plus secondary market in fine and rare wines.
One was the fine-wine fund manager, Peter Lunzer, who explained toDecanter magazine exactly why. “I actually believe that a lot of people, including myself will find this development extremely exciting for all sorts of reasons. Firstly, sophisticated collectors and investors will immediately ‘get’ the idea of dealing with each other directly, thereby cutting out the middleman. Secondly, they will like the convenience and the opportunity to set their own prices. And thirdly, they’re going to love saving potentially quite considerable sums of money when buying and selling their liquid assets. I imagine the major brokers would like to see these exchanges strangled at birth.”
That was the fate that befell Uvine, the first independent peer‑to-peer wine platform, in 2000. Back then, it had ambitiously tried to muscle in on the brokers’ margins by unilaterally declaring war on its website: “Why bother going to wine merchants when you can trade through us, at a fraction of the price?” it proclaimed. It was mission impossible. The technology wasn’t fit for purpose and the market wasn’t anywhere near ready. Uvine failed to gain traction, losing money hand over fist before it ignominiously crashed and burned.
A decade or so later, much has changed. The technology has moved on and so have consumers. In virtually every commodity market you care to think of, electronic trading exchanges have become the norm – except in the case of the fine-wine market, says Cavex CEO Stephen Maunder (pictured far right). Maunder had been a successful city broker and trader since the early 1980s. Like many in the square mile, he developed a taste for fine wine, which he bought and sold for pleasure and profit. Then, in 2006, he left the money markets and joined the London-based merchants Bibendum, using his connections to sell smart bordeaux to private customers in the City. Not long afterwards he had his “eureka” moment.
“It was obvious that, with one or two exceptions, the wine trade was still a very archaic, illiquid market,” says Maunder. “If the market goes flat or quiet – which it has done for the past few years – it’s fiendishly difficult for investors to successfully exit their positions, except via the brokers.”
Some investors also resented having to pay 10 per cent to brokers. “It’s hard to justify if you’re selling half a million pounds worth of wine,” one explained. “Just imagine if an estate agent tried to charge that kind of commission.
From his City address book, Maunder quickly found 15 eager investors who stumped up the necessarily large six-figure start-up sum. “I remember my main backer couldn’t believe that this didn’t already exist, and signed up on the spot. We just knew that there were hundreds of people at HSBC, Barclays and Goldman Sachs who would revel in this real-time trading platform.”
Cavex’s commission fees are mould-breakingly competitive, at just three per cent on either side of the trade. Buyers and sellers can also take advantage of well‑organised bid/offer functionality, adding speed, efficiency and fun to the trading process.
One early adopter was Grant Ashton, an entrepreneur and managing director of the exclusive fine-wine private members club 67 Pall Mall. Ashton was immediately impressed by the opportunities the platform presents. “I’ve bought and sold over £40,000 worth of wine on Cavex, including cases of ’98 Lafite and ’95 Margaux. It saved a tidy sum and was all done quickly and easily, without a hiccup.” Another was Yannick Naud (pictured above), portfolio manager at Sturgeon Capital. “I registered with Cavex in early June 2013. For me, it’s the most exciting development in the fine-wine market for a very long time.”
Cavex is no eBay and it isn’t open to everyone, partly because you can only deal in wines held in UK-bonded warehouses. Maunder makes no apology for this. “Cavex isn’t aimed at wine geeks or people who buy wine by the bottle at Waitrose. It’s for wealthy wine lovers and investors who have serious cases of wine in professional storage. For instance, so far, the average value of a trade is £2,800. But it’s not all blue-chip bordeaux and burgundy. You can also pick relatively inexpensive everyday drinking wines from the Rhône, Mendoza and the Barossa from £150 a case.”
Wine Owners is the brainchild of founder and managing director Nick Martin (pictured on previous pages), also a long-time collector. “Like many wine lovers, I’d bought from multiple sources and had wine stored in various different places, which meant I completely failed to ever get on top of my collection,’ says Martin. “Trying to keep things up to date and self-valuing was horribly frustrating and hopelessly time-consuming. There had to be a better way.”
So he set about creating it. His idea was to build a world-class portfolio-management system together with an integrated exchange that collectors could easily trade in and out of. Martin also has solid backing and a reassuringly impressive advisory board, which includes Anthony Thomson, founder and former chairman of Metro Bank.
In contrast to Cavex, Wine Owners is much more content-rich, with a plethora of reviews, information and pricing data on a staggering 160,000 wines. It is targeted at collectors, drinkers and investors in that order, rather than the other way around. Plus it has an impressive suite of decision-support tools, which really do put time-poor collectors in control of their often diverse collections. As well as having more added‑value “bells and whistles” for collectors, Wine Owners has different commission rates to those at Cavex. Wine Owners charges private sellers 6.5 per cent and buyers just 2.5 per cent.
Per Jonsson, an industrial advisor to private equity funds, has been an inveterate collector since 1982 and joined Wine Owners late last year. “The first thing they did was upload my entire 600-case collection of wines stored in the UK, free of charge,” he says. “That in itself was a defining moment because for the very first time, I got to see a comprehensive list of all my UK-bonded wines – and what they were all worth. It was also a very pleasant surprise, prompting me to sell over £50,000 worth of fine wine on the exchange that I was never going to have the chance to consume. It was quick, painless and highly profitable.” According to Martin, this happens regularly with Wine Owners members.
Others, such as Matthew Rhys-Evans, who works in sales and trading for a European bank, are buying more than they are selling. “There’s plenty of choice on the platform, prices are very competitive and I like its system, pricing information and content,” he says. “It’s very user-friendly and really does inform my decisions. If I’m looking for something to fill a gap in my collection, it’s now my first port of call.”
So far, Martin reports no settlement disputes between counterparties over payment or provenance. Wine Owners operates a process called “the wine passport” to ascertain the wine’s authenticity in terms of the ownership paper trail and where the wine has been kept. For further peace of mind, buyers can also pay for physical inspections and photography. But merchants such as Simon Berry (pictured below), chairman of Berry Bros & Rudd, have raised questions over provenance, especially in the light of well-publicised fake-wine scandals. “The problem with Cavex and Wine Owners is that they can’t always guarantee where the wine has been. And that is a fundamental issue which they haven’t really addressed.”
In contrast, in 2010, Berry Bros & Rudd set up its own exchange, BBX, which provides a cast-iron guarantee of pristine provenance. In four years, BBX has grown like topsy and recently passed the £50m mark in turnover; currently, it’s doing £1.2m every month. (By comparison, Cavex turned over £3m in sales in its first year.) And back in 2009, Bordeaux Index set up its own market-making LiveTrade platform, which also allows you to buy and sell wines on real-time, two-way dealing screens. Bordeaux Index sets the prices, but anyone can make bids and offers. “We also guarantee the stock because we’re not broking it. It’s all wine that we have bought,” says Boom. In the past five years, £150m of wine has been sold through LiveTrade.
“Both BBX and LiveTrade are great platforms and work extremely efficiently,” acknowledges Maunder. “The fact that they have been so successful was actually very validating for us when we were setting up Cavex. But they are still taking 10 per cent from the seller. So it’s not a like-for-like comparison. BBX is also primarily targeted at Berry’s customers, and therefore it has a limited marketplace. In the long term, I am confident we will overtake it, partly because we are more competitive on price, and also because we have access to a much larger customer base. Next year, we expect to more than double our turnover to between £7m and £8m.”
Wine Owners also reported a modest but successful first year with over 1,000 private members, and more than £60m worth of wine uploaded onto the site. “We’re doing about 50 trades a week, with an average value of £1,100-£1,400, which we’re pleased with,” says Martin. “The key thing is we’re getting about 100 new people every month, which means more wine, more liquidity and more trade.”
Ultimately, the big winners in this brave new online wine world are private buyers, who now have more options when it comes to managing their collections, as well as sourcing and selling wine.
“The choice of really interesting, older wines on Wine Owners just gets bigger and better,” says Rhys-Evans. “So if you are looking for something different or unusual, this is a great way of finding it.” But the same goes for BBX. According to Berry, “there are older vintages of Rousseau, Dujac and Cathiard on BBX that you just can’t buy anywhere else. That’s extremely exciting because it creates a very long tail in the fine and rare market, the like of which we’ve never seen before.”
In addition, many of these wines are being transacted at very transparent, competitive prices, which may well have another profound and positive impact for collectors and investors. “With the arrival of these new exchanges, the old-school model of charging 10 per cent to sellers is going to prove increasingly unsustainable,” says one wine-trade insider. “We’ve seen the same thing already play out in stocks and bonds because transparency and competitiveness inevitably decrease commission. The merchants aren’t going to like it, but sooner or later they’ll have to come down to five per cent.”
Browett, however, asserts that they will not: he believes the vast majority of collectors will continue to trade their wine through tried, trusted and established brokers like Farr Vintners. “Wine isn’t like car insurance. Most people want to talk to experienced, knowledgeable professionals who can advise, appraise, price and sell their wine for them. A couple of marginal independent wine exchanges, with no track record and very little stock, are really never going to change that.” Only time will tell.
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