Can London’s wine-merchants stay central to the global fine wine trade?

Standing at the “intersection” of the global fine wine trade, London’s wine merchants have undoubted strong  historic links to the world’s fine wine market – but is the changing eco-system undermining or strengthened this link? Arabella Mileham reports. 

The question of whether or not London’s fine wine merchants can stay central to the global wine trade was a topic under discussion at a recent Areni Global webinar.

According to Pauline Vicard, co-founder and executive director of Areni Global, we are entering an era of “precision distribution” for fine wine, with discernible shift” in the distribution and logistics of fine wine over the last decade, which follows an shift in the cellar towards precision winemaking and the vineyard which had seen a rise in quality in the world’s wines.

Vicard, who hosted the webinar, argued that “consumers increasingly want a direct connection with both the wine merchant and the producer”, she noted and “how everyone is creating value for everyone is changing”.

“Estates have understood that the value creation didn’t stop at the property gate but actually had to be continued through the distribution value chain. Selling your wine just to the people who were willing to buy it was not enough” she said. On the back of this, there has been a rationalisation and consolidation in distribution, so “instead of working with 15 merchants, producers work with five”, she argued.

But how has this “change in the ecosystem” affecting London’s fine wine merchants?

As Anthony Maxwell, chief commercial officer of Liv-Ex, and Rob Symington, the new managing director UK of Berry Bros. & Rudd (BBR) pointed out, fine wine sales work in a very different way to the majority of wine sales. While the vast majority of wines in the UK (around 90%) are sold  in supermarkets, and drunk within 24 to 72 hours of being purchased, fine wine works very differently, making the supply also very different.

“Quite often, these wines are being sold… when they’re not ready to drink. They therefore involve careful portfolio management and cellaring. They involve advice, tastings and education. They involve creating stories behind it, and then the wine itself, thanks to the UK in-bond system, its supply and its life evolves quite differently,” Maxwell said.

Rather than flowing from the the importer, via an agent or distributor to the retailer and thence onto the consumer, “fine wine sort of comes back up the river”. The additional complexity and challenges being that people’s tastes change by the time they’re getting around to drink it, meaning they might want to sell it, or drink some and sell some, or swap it to something else for different reasons.

For Symington, the key role of the London fine wine merchant largely comes down to two words – access and service.

“To work at a merchant, you are at the intersection of the global fine wine market makes,” he said.  “Service makes it so much more than just selling boxes of wine – the way we host, the way we run tastings, it’s quite special,” he said. “We can’t forget we’re selling less than 1% or 2% of the world’s wine.”

London continues to be a “hub” for the fine wine merchants, the panellists agreed, and had largely retained a trend-setting agenda. As Cecily Chappel, CEO of Chelsea Vintners highlighted, its historical role as one of the first places for fine wine trading, where merchants “endorse and elevate properties that aren’t necessarily well-known.”

And although other markets – Asia and the US for example – had seen great changes in recent year, the UK had “maintained a steady footprint,” Maxwell said, with a knowledgeable collector market meaning that many producers want to sell into the UK.

He pointed out that of Liv-ex’s 600 international members, 200 are UK-based and around 80% of those are London-based, with London merchants accounting for around 30-35% of total trade.

“The US has changed a lot and Asia has changed, but the UK has maintained a steady footprint,” he said.

In addition, around 60% of Liv-ex’s trade in value is made in British pounds, pointing to the fact that “even people that are not based in the UK, exchange in pounds” and transactions of UK-based stock is happening internationally.

As Symington agreed, the “nuances” of the in-bond system needed to be to considered as one of the structural things that helps London reinforce its position (along with good global connectivity and logistics and favourable tax treatment (ie no capital gains tax). The “uniqueness” of the UK bonded warehouse system, which originated in 1733, for example, allows for deferred payment of duties and taxes until wines are removed from storage, and is accessible “for a very low cost to individuals”, Vicard noted, rather than just corporations. This offers both flexibility and liquidity advantages.

She also pointed out that what happens in the UK, has a direct impact – notably in terms of currency fluctuations and the interest rates. “When the pounds goes up, the price of fine wine internationally goes up, against other currencies,” she pointed out, while the higher the interest rate in the UK, the lower activity there is on the wine market.

As a result, “London’s impact is disproportionate to the size of London or to the number of their merchants” she said, particularly as they extend their sphere of influence outside of London, with branches in Asia and also the USA.

Areni concluded that London-based fine wine merchants’ influence remained “unchallenged”, with the potential “to continue growing in the future”.

 

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