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Investment analysis: Fine wine trading platforms

New trading platforms are, for the first time, allowing fine wine collectors to deal directly rather than via third parties. But are they a good bet? John Stimpfig surveys the scene...

It’s now 18 months since the coincidental arrival of Cavex and Wine Owners, two independent fine-wine trading platforms, both of which are primarily aimed at private customers. What’s most exciting about the start-ups is that they provided collectors and investors with the hitherto unique opportunity to buy and sell their bonded wines from and to each other directly, without having to go through brokers, merchants or auction houses.

That wasn’t all. They also promised added value through greater convenience, transparency, faster transaction times and significantly lower commissions to sellers when compared with the 10% normally charged by merchants. Cavex takes just 3% from buyers and sellers. In contrast, Wine Owners charge a higher aggregate commission of 9% (2.5% to the buyer and 6.5% to the seller).

Even so, many observers predicted that the new boys were in for a bumpy ride. Some suggested they would go the way of Uvine, which launched its peer-to-peer exchange in 2001. Unfortunately, the technology wasn’t up to scratch and the online consumer market wasn’t anywhere near ready for this kind of radical sales pitch. Uvine went bust.

Thirteen years on though, things are very different. Just look at eBay and the size of the online spread-betting market. Meanwhile, in the fine-wine world, The London International Vintners Exchange aka Liv-ex, has long since established that the electronic model works extremely efficiently.

Of course, Liv-ex remains trade only. However, a number of merchants including Fine & Rare, Berry Bros & Rudd, Bordeaux Index (BI) and Aston Lovell have also created their own electronic platforms for private individuals. The biggest by far is BI’s LiveTrade, which was set up in 2009. Its two-way dealing screens allow punters to trade over 150 investment-grade wines in real time from the comfort of their computers. Prices, set by BI, are keen, and punters can also make bids and offers. Of course, LiveTrade is neither an exchange nor a brokerage operation because BI owns all the stock. The market-making service has been massively successful, with more than £150m worth of wine traded up to now.

Then in 2010, Berry Bros & Rudd launched its BBX platform, which has seen more than 7,000 cases of wines change hands, worth over £50m. The exchange now allows sellers to set their own prices when offering wine in return for a straight 10% commission on the sale. Buyers can also post bids and pay no fees. Moreover, because the wines were stored under bond in Berry’s own customer reserves, BBX can guarantee perfect provenance.

Progress report

In the face of such established and heavyweight competition, how are Cavex and Wine Owners faring? The latter has attracted more than 1,000 private members, whose combined portfolios are worth north of £60m. So far though, the number of actual transactions remains relatively small. ‘Currently, we’re doing about 50 trades a week at an average value of £1,400,’ says CEO and founder of Wine Owners Nick Martin. ‘Values vary enormously, ranging from £160 to over £20,000 for the likes of the ’82 Latour. Most of the wines traded tend to be older rather than recent vintages.’

Its content-rich site, impressive pricing data and excellent portfolio management tools continue to build momentum for Wine Owners. The service is typically aimed at time-poor, high net-worth collectors who are looking to get control of their diverse collections. Once their wines are uploaded onto the site, it’s easy to trade on the platform.

‘What is encouraging is that we’re getting around 100 new people signing up every month,’ adds Martin. ‘That results in more liquidity, more trades and higher revenues.’ He also reports no problems with provenance issues, while settlement is often within 24 hours.’ Significantly, clients are international and include about 50 trade customers.

Cavex is aimed more at sophisticated wine investors looking to ‘self-trade’ wines at the most competitive commissions in the market. For that reason, it offers less in the way of content or portfolio management tools. One collector/investor Decanter spoke to reported buying and selling £40,000 worth of classed growth claret on Cavex, ‘very profitably and very efficiently’. ‘We had a very good first year in a difficult market,’ says Cavex CEO Stephen Maunder.

‘Our average trade was £2,800 and we turned over £3 million. Next year though, we hope to more than double our sales to between £7 and £8 million.’

Moreover, Maunder believes that Cavex has huge potential to grow and goes so far as to assert that Cavex will ultimately eclipse and outperform BBX. ‘I think we will overtake them because we’re more competitive on price and because we’re not just limited to BBR customers.’ Like Wine Owners, Cavex is also having its turnover boosted by a number of trade customers. ‘We’re keen to work with merchants as well as private individuals because we are really just another route to market,’ he adds.

Both Cavex and Wine Owners come with strong wine credentials and serious financial backing. At Cavex, Maunder is a wine collector and former money broker and banker who left the City to join Bibendum’s fine wine team before going it alone. Martin has also been a serial wine collector since the mid-1980s. Prior to setting up Wine Owners, he was MD of a global marketing services business.

Encouragingly, BBX, Cavex and Wine Owners all report that the vast majority of wines have been priced at accurate market levels. ‘Sensible pricing is key because it means that people are much more inclined to come in with bids,’ says Martin.

On all three platforms, there are occasional bargains to be had. ‘Wines which are very good value on BBX go quickly,’ says Berry Bros & Rudd’s Charlie Bennett. He also adds that there are some wines on BBX – like mature vintages of Rousseau and Dujac – that you simply can’t find anywhere else. So it creates a very long tail in the fine wine market, which is new and exciting for collectors.’

This could have major implications for the way in which wine is traded in the future. One outcome is that greater online transparency and liquidity will reduce the bid-offer spread, making prices more accurate and sharper. Another is that lower and highly competitive online commissions will eat away at brokers’ standard 10% commission rates. However, given the size and strength of the traditional merchants’ operations compared to two new minnow-like exchanges, that isn’t likely to happen anytime soon. And, according to the likes of Farr Vintners, Fine & Rare Wines and Bordeaux Index, it ain’t going to happen at all.

Trading on these new platforms isn’t for everyone and many people will continue to prefer the old-fashioned approach of ringing up a merchant to get expert help, advice and a personalised service. But for those who are willing to trade their bonded wines online, this is an exciting, fast, easy, transparent, proven and convenient method.

All the sites mentioned have no registration fees and provide a free valuation service. Buyers looking for particular wines will find the search process very straightforward, while sellers receive automatic updates on live bids. Reassuringly, it’s also possible just to pick up the phone and call BI, BBR, Cavex and Wine Owners about buying and selling wine on their respective platforms.

A small number of investors and collectors may use all four sites, but most will prefer one platform in particular. If you are a passionate collector who does a bit of buying and selling, you are more likely to favour Wine Owners. Berry Bros customers will naturally gravitate to BBX. For those who are more focused on profit ahead of pleasure, LiveTrade and Cavex are probably their preferred destinations. Commission rates will play their part, and for UK residents VAT must be factored into your final calculations. Before you plunge in, take a look at all the options and see which suits you best.

Written by John Stimpfig

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