Annual letter to members from James Miles
I am writing to thank you for your ongoing support. As we approach the end of 2016, I wanted to touch base on what’s changed in the last 12 months and outline our plans for the year ahead.
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The fine wine market in 2016
Currency has been the big theme in the fine wine market this year. Depending on whether you are looking in GBP, USD, EUR or JPY, the market is either up (+22%), flat, or down (-13%) in 2016. The weakness of Sterling, has certainly been a boon for the UK based trade. After four years of decline, our main index, the Liv-ex 100 Fine Wine Index (which is priced in GBP), has risen for an unprecedented 12 months in a row. Our overseas customers have been quick to take advantage of the GBP weakness. Purchases by US customers in particular have nearly doubled in the period.
Currency fluctuations aside, it does feel like sentiment has started to turn the corner. A period of consolidation is possible but, after four difficult years, most of the excesses of the boom period between 2005 and 2011 appear to have worked their way through the system. Of course, the downturn in the market has mostly been a Bordeaux problem – or a First Growth problem to be precise. Our broadest measure of the market, the Liv-ex 1000 Fine Wine Index, has been hitting new highs this year.
The best performing sub-index in the Liv-ex 1000 has been the First Growths’ second wines (+34% YTD). While the top five traded wines on the Exchange by value have a distinctly First Growth bent, by volume Pontet Canet, Duhart Milon, Lynch Bages, Sassicaia and Guidalberto lead the field. Indeed, the most marked trend is the broadening of wines traded on Liv-ex. You are now trading a breadth and depth of wine across regions and price points that we would have regarded as fanciful five years ago. Indeed, this year saw Liv-ex’s first ever trades in English and Chinese wines: the value and number of active markets on Liv-ex have doubled to £40m and 7,000 respectively in 2016.
Key developments in 2016: Connectivity, settlement efficiency and market insight
In my view, the most exciting change in technology in the last decade is the increasing ease and falling cost of integrating systems and websites. This opens up game-changing opportunities for the wine trade to automate inefficient processes, drive down costs and grow revenues. Our vision is to make every service and price point that is currently on Liv-ex.com available for you to consume from within your own website or ERP system.
In the last year, we have completed a number of tech investments to facilitate this initiative and have welcomed a few new acronyms into our lexicon of jargon. The first is LWIN, our common identifier. When matched to your product codes and descriptions it will allow you to easily and efficiently share information with the outside world. The second is API, the technology that makes this communication possible. I like to think of APIs as websites for machines. It is simply a location on the web where your system(s) can collect or deliver instructions and data to or from a third party’s system and vice versa. This removes the need for human intervention in the process.In 2016 we have built APIs that facilitate the entire Liv-ex journey from checking prices, to placing bids and offers, confirming trades, tracking orders, updating your stock records, sending release instructions and checking your account status. All of these interactions with Liv-ex can be automated, opening up a multitude of new opportunities to attract new sources of revenue and cut costs. You can find more background, case studies and tech documents at www.developers.liv-ex.com.
Another area that we continue to focus on is improving the efficiency of settlement. Our “Prime” logistics service, now supports 50% of all Liv-ex trade. It includes weekly flights to Hong Kong and trucks to and from Bordeaux, bi-monthly from the rest of Northern Europe and a monthly delivery to members who consolidate purchases in Beaune. By adding capacity and streamlining process at our London warehouse, we have also managed to cut the goods-in process (landing, SIB check/photo and put away) to 24 hours. No-one does it faster. We are also proud to have won the Drinks Business 2016 Supply Chain Initiative of the Year award for SIB Passport and Instant Transfer.
Elsewhere, we have expanded wine market coverage in 2016. Our En Primeur analysis was particularly popular, with traffic to our blog growing 150%. Interviews with leading wine trade personalities including Philippe Dhalluin, David Pearson, Tim Atkin and Michel Rolland have also been well received.
Coming in 2017: Wine Matcher and new Exchange platform
In 2017, we will continue to seek to improve our service. You will likely notice three key initiatives. One will be a new streamlined and simplified web presence. We also plan to release an early prototype of a new Exchange platform to deliver a more mobile and personalised experience to members.
In the second quarter, we will launch an entirely new product called “Wine Matcher”. All of us spend a huge amount of time cleaning, pricing, valuing and modifying lists of wines. Liv-ex is no exception. We are now cleaning and loading more than one million lines of data each month using a variety of tools that we have developed over the last 15 years. We have combined these into one product – Wine Matcher – which will be hosted online and made available for you to take advantage of.
Early tests show that Wine Matcher can clean a list of 1,000 wines and match it to LWIN with a high degree of accuracy (85-90%), in just a few seconds. Armed with an LWIN, downloading any one of a large number of Liv-ex data points or uploading a list to Liv-ex is just another few seconds away. Spotting trading opportunities, pricing up a cellar, preparing a pre-advice or loading orders onto the Exchange will never be the same again! An early version of the tool is available in Beta.
Conclusion and membership in 2017
Our strategy has always been to keep pricing as low as possible. Despite the inevitable cost pressures, which are born from investing in improvements to our services, we will be keeping the vast majority of prices unchanged in 2017. One exception will be the annual membership fee, which will be £1,750 (€2,100) for all those renewing their subscription from 1st January onwards.
Your input is essential in guiding what we do, so please do get in touch, with me or your other Liv-ex contacts, with questions, ideas and comments. On behalf of all at Liv-ex, thank you again for your support and, if it is not too early, have a very Happy Christmas and a prosperous New Year.