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THE WHEELER DEALERS

I often wonder what the Vintners buy One half so precious as the stuff they sell.' Omar Khayym, Edward Fitzgerald

When, in the early 1980s, wine first became an obsession of mine, I used to bomb up the A40 to the Phillips salerooms in Oxford, where keen but impoverished amateurs like me could pick up the odd parcel of fine wine for a song. There was always a certain south London wheeler-dealer at the back of these crowded sales, raising his hand for various lots of far pricier stuff than anything I could afford. Never mind if the wines belonged to other people and were sold straight on to third parties; this was the era when a broker, with little more than a desk, a chair, a typewriter and a phone, could conjure up a persuasive-looking list of wines. When I next caught up with Stephen Browett he was already one of the leading lights at Farr Vintners, which he joined in 1984. At that time Farr was still shunned by the pinstriped suits at Corney & Barrow, Justerini & Brooks and Berry Bros & Rudd, all of whom refused to sell wine to the oiks from the wrong side of the tracks. Brokers did broking for commission and wine merchants bought from suppliers, held wines and sold them for a profit to customers. That was that. And that was then. Today, the distinctions have become increasingly blurred, as broker has turned gamekeeper and gamekeeper morphed into poacher. Farr is among a number of so-called brokers, including Wilkinson Vintners, Seckford Wines and Bordeaux Index, whose activities have increasingly taken on not just the cloak of respectability, but subsumed the very identity of the traditional wine merchant. While the likes of Seckford and Farr are busy developing agencies and holding tastings, the traditional St James's merchants, like Berry Bros & Rudd and Justerini & Brooks, have become brokers in their own right, even modelling themselves on Farr. These traditionalists have woken up to the fact that they have long been missing opportunities in failing to exploit the resource of vast customer reserves fuelled by en primeur buying and the global reach of an expanding fine wine market. Meanwhile the Internet, too - with new techno-brokers' such as Fine & Rare Wines, Uvine and Liv-ex - has prised open the market still further, by creating additional information, distribution and supply channels. Underlying this market shift is the fact that the trading environment for fine wines has altered radically since the early 1980s. It was then that huge stockholders like Grants of St James's, Saccone & Speed, Percy Fox and Hedges & Butler started divesting themselves of the job of stockholding. Brokers who had previously relied on the brewery leviathans for undervalued stock now found themselves forced increasingly to take on the job of stockholding if they were to compete effectively in the fine wine arena. At the same time, with the advent of the inspirational 1982 vintage in Bordeaux and Business Expansion Scheme tax shelters, it became acceptable - desirable, even - for consumers to sit like contented hens on their maturing stocks of fine wine. As the market has become more transparent and more competitive, old-style brokers have had to look for more efficient and less expensive methods of finding and financing stock. For the likes of Farr Vintners, en primeur sales have thus become an integral part of the business. En primeur is important not just for the turnover Farr generates (20 million out of a total 56 million ex-vat last year), but also because buying back from its own customers is Farr's largest stock source. It's hugely important for us and although we have a large physical stock at Octavian, customers' stocks are four or five times the size', says Browett. As much as most customers genuinely buy for drinking,' Browett adds, most people buy far too much for their own consumption, because they operate on the principle of financing their own drinking. So we'll have a second bite, if not a third or fourth one, on more than 50% of wine sold en primeur.' Computerised records allow the more efficient traders, like Farr, to identify at the press of a button everything that's been bought and sold, who owns it and where it is. When someone comes on the phone, we can immediately put our finger on where hundreds of cases are, then ring ten people in ten minutes and obtain a sale.' As the fine wine market expands, holding stock goes hand in glove with a fuller range of merchant services to maximise the value of the customer relationship. This is the point where the definition of broking becomes more customer-based than transaction-based,' says Hugo Rose MW of Lay & Wheeler. The traditional Colchester wine merchant is itself getting in on the act, albeit at a fledgling stage of broking, with a turnover of around 1 million. We are sitting on 80,000 cases of customers' wines stored in perfect conditions and we see a business opportunity in connecting wines to potential buyers,' he says. With this in mind, Lay & Wheeler aims to build on its Directors' Bins list, launched in 1999 as a service offering fine wines from within its customer reserves, in three ways: it is expanding its under-bond stock through its Vinothque warehouse; extending the current criteria for selling wines through the service to the cellars of customers not currently under its control; and it has brought in new expertise. Traditional merchants with established broking departments now include Berry Bros & Rudd (turnover around 6 million), Corney & Barrow (5-6 million) and Justerini & Brooks (5-6 million). All are busy developing increasingly active broking services based on offering private customers the opportunity to sell surplus stocks with, typically, a 7-10% commission rate and a marginally higher buy-back price. Of the newcomers, Wilkinson Vintners - with a staff of seven, an annual turnover of 18 million and some 3-4 million tied up in stock at any one time - has, in the space of ten years, become second only to Farr Vintners as a serious dealer. Ex-Christie's auctioneer Paul Bowker says that Wilkinson has always taken the view that it can operate a better business by owning its own wines. It gives us greater ability to control prices, to confirm availability straight away without having to revert to the principal first, and to have physical control of the wines that we offer. It enables prompt delivery, which is crucial in the case of our business with restaurants, for instance.' Despite the name, Bordeaux Index, too - which holds wine to the tune of 2 million-plus - believes that stockholders are not just the most competitive on price, but are quicker than brokers in their ability to snap up stock. They also offer customers the traditional service of inspecting before sale, a significant feature of a business in which not just performance but provenance and condition are becoming increasingly important. According to Dylan Paris, purchasing director of Bordeaux Index, The customer is increasingly discerning about the quality of stock. You can't always trust suppliers, whose idea of good condition may be very different to ours.' With an annual turnover in the range of 7-10 million, Mark Bedini's Fine & Rare Wines, launched in 1996, testifies to the fact that broking, too, is still very much alive and well. Probably the most successful of today's Internet wine brokers, Bedini believes that broking enables his company to offer a broader range, as well as concentrate on sourcing a wide variety of wines, unhampered by agency agreements or the cost of money and storage. While broking accounts for 95% of Fine & Rare's annual turnover, Bedini feels Fine & Rare can compete on price by guaranteeing the authenticity of the wines it sells and offering an exceptionally large range (two thousand different lines) without the encumbrance of holding the stock itself. Bedini says, Our greatest opportunity for continuing growth in profitability and success hinges on three areas: effective aggregation of price and availability; data converted into competitively priced offers; and customer service backed up by efficient logistics.' While dealers such as Farr and Bordeaux Index challenge Fine & Rare's ability to compete on level terms on price, and on comparative speed and efficiency of service, others concede that a talent for selling without the need for vast capital resources may work for a business which is sufficiently nimble on its feet. Bedini initially looked at other forms of trading, such as an exchange model, but I couldn't see how you could give away margin and remain profitable without a big increase in turnover'. This is a dilemma faced by Uvine, the Internet wine exchange established in 2000, which acts like a cross between an auction house and a broker. Like Fine & Rare, it doesn't buy stock but holds consignment stock' (i.e., stock deposited by the vendor pending a sale). This allows customers to trade fine wines anonymously (and transparently) over the Internet like stocks and shares. According to MD Christopher Burr MW, Uvine is a revolutionary improvement for seller and buyer alike, based on giving more share of the cake to both.' Turnover last year for the whole business was in excess of 10 million, yet despite Burr's forecast of profitability during 2001, gaining customer confidence in an entirely new and somewhat complex form of wine dealing is taking its time. Everyone expected Internet usage to have a more rapid acceptance than it has, so growth is not so much a J-curve as a flat growth curve. We didn't hit the profit target set this time last year, but we have subsequently.' With the timescale lengthened and commission rates on either side raised from 3.5% to 5%, Uvine has also had to adapt to help the model we believe to be the right one to grow faster', first by buying the hotel and restaurant wholesaler Michael Morgan, and this year acquiring Kaigai Fine Wines in Tokyo. Liv-ex, for its part, is a wholly independent fine wine exchange for fine wine dealers, founded by managing director James Miles and marketing director Justin Gibb. Its membership represents over 65% of the UK fine wine trade, including Lay & Wheeler, Corney & Barrow, Goedhuis & Co., John Armit, Bibendum, Seckford Wines and Laytons, holding in excess of 30 million of wine and trading in excess of 110 million a year. Wilkinson Vintners is not a member, however. With sufficient stocks of our own, we don't need to be,' says Bowker. Gibb sees Liv-ex' job as to watch and analyse a large part of the UK wine trade'. It does not compete with its members, but facilitates their trade and provides them with pricing information. As a group, its members can offer their customers greater access to stock at better prices, thanks in part to the impact of the Internet on price transparency, which Gibb sees as an important step in building consumer confidence in the market, thereby building the market as a whole'. As the trading environment has changed, the opportunities for reaching new customers have equally been transformed. As might be expected, there's generally a higher ratio of private to trade clients among the broking customers of traditional wine merchants than among the more recent entrepreneurs. Justerini & Brooks' broking customers, for instance, are half private, half trade, with a 50:50 split between UK and overseas buyers. Berry Bros' split is more than two-thirds private, with 60% sold in the UK and the balance to customers mainly in the Far East, the US and Scandinavia. Lay & Wheeler's broking side is as high as 80% private, with the vast majority of buyers based in the UK. The majority of the newer traders, on the other hand, spread the net wider and tend to do more of their business with trade customers. Fine & Rare's customer base is roughly one-third private and two-thirds trade, split evenly between the UK and Europe, the Far East and the US. Most of Wilkinson Vintners' sales are to wholesalers, retailers and restaurants, and exports, which are on the increase, now represent over half the business. In Farr's case, four-fifths of sales (except for en primeur) are to the trade - roughly half within the UK and the other half divided mainly between the US and the Far East. Bordeaux Index is the exception here, with sales to private customers increasing and the UK expanding as a source of collectors. Whatever the dealing model, whether traditional wine merchant, stockholder or techno-broker', the UK's wine traders have unquestionably broadened the scope of fine wine trading at both ends of the transaction. As a major source of competitively priced fine wines, they are set to exert an increasing influence on the market, through their ability to make quick trading decisions and deal efficiently with a rapidly expanding worldwide customer base. Thanks largely to the Internet, increasing transparency of price may put slight downward pressure on margins, but in the long run dealers are likely to be more competitive, which can only benefit both suppliers and customers alike.

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