Uvine goes under

Fine wine exchange Uvine went into administration last week after its directors decided that they could no longer afford to bail out the failing business.  Uvine.com, which described itself as a "revolutionary platform for trading in wine", was founded in 1999 with the intention of cutting out the middleman (and significantly undercutting fine wine merchants) by allowing the grower and the customer to trade directly with one another.

But high expenses and running costs, largely related to its overly complex IT system, meant that the business model was never reliable. Instead of designing its own software, the company leased its spread-betting model at high cost. Christopher Burr MW, ex-chairman of Uvine, says, "We had three major costs in IT including a quite expensive licence fee. I did bargain our providers down but there was a limit to what I could do. This agreement is something that we would look to change if we manage to save the business." Burr hopes to be able to sell the business as a going concern and claims it could be run at a quarter of the cost. Burr made a number of cutbacks four years ago after investing a significant amount of money in the business but was n’t able to make any further cutbacks this year.

When asked why the company kept trading with net liabilities of over £2 million, Burr told the drinks business, "At some stages, we almost broke even and there were some months when we were profitable. We held a number of very good, profitable auctions including one last May that generated £1m. But, ultimately, we carried a lot of debt and a lot of expenses and the directors could n’t afford to keep the business going any longer with their own money."

According to the company’s latest financial statement, Uvine’s auditors were unable to carry out "all the audit procedures necessary to obtain adequate assurance regarding amounts brought forward as at 1 January 2005". This is significant because "any adjustment to these figures would have a consequential effect on the loss for the year ended 31 December 2005."

Burr says, "We have all the records of what belongs to our clients. We will provide this information to our clients by rotation number and to the warehouses where the wine is kept." Although the company has not run an en primeur campaigns since 2003, it is thought that as many as 60 clients are still awaiting payment for wines sold through the exchange. Burr comments, "If we do our job properly and manage to save the business, those people will get paid."

However, all is not doom and gloom in the electronic wine trade. The founders of The London International Vintners Exchange (Liv-ex) anticipate making a profit of £200,000 in 2006 and claim that turnover on the trading platform is up 3 times on last year. The founding partners, both ex-stockbrokers, had observed that City middlemen such as Merrill Lynch were doing well out of electronic trading and modelled Liv-ex on a traditional commodities exchange, where everyone is carefully vetted and members that fail to follow club rules are blackballed. Unlike Uvine, which had a client base of around 25,000, the Liv-ex model does n’t rely on a large customer base to be successful. At the moment, clients can gain access to a significant proportion of the wine industry via its network of 150 wine trade customers.

© db 4th October 2006