The importance of fine wine data: ‘each bad decision has a cost’

The future of the fine wine trade will be shaped not just by relationships and expertise, but by the ability to turn information into insight, says Tom Burchfield, Liv-ex’s head of decision intelligence. Here he discusses why a more data-led industry can help businesses make better decisions and create a more transparent, efficient market for all participants.

The role of data in the fine wine trade has certainly changed immeasurably over the last 25 years, when the little there was was narrow and not dynamic. Now, however, “the availability of data has exploded” to an “almost overwhelming amount” fed by the internet, data feeds and APIs.

“Now the challenges are knowing which data to trust and how to make sense of it all,” Burchfield said. “The good news is that as we move further into the AI era, our ability to take that wealth of data, make it understandable, relevant and usable is increasing by the day.”

This  can be reflected in Burchfield’s recent change in role from head of market intelligence to head of decision intelligence. But what exactly does the change really mean?

He explains it not as “a shift away from the market”, but rather an increased focus on bringing relevant market intelligence and data more broadly to each of Liv-ex’s different customers and users. As he points out, “what is relevant and therefore helpful to one customer might not be so useful to another. We want to help all of our customers make more profitable decisions more efficiently. This move sets us up to be able to do just that.”

Adoption of data

He admits that fine wine has been slower to adopt data-led decision-making than some other market,, not only because it moves at a much slower pace than other markets, having its own natural annual harvest and release rhythm, but also as is driven by both collectors and investment companies. “We still see some buying decisions that the data doesn’t justify – some collectors will buy a wine because they love it, not because it makes complete rational sense. Adoption of data has thus naturally been slower.”

However, at a a business level, “we are definitely there now,” he said, pointing to third party price, stock availability, and critics ratings data “being put at the heart of most fine wine companies’ strategic and tactical decision making.”

Is there a risk for fine wine businesses that don’t shift towards a data driven model?

“The risks are huge and reach across a business’ operations,” Burchfield explains. “A practical example is how different your decisions would have been in late 2022 to mid 2023 if you hadn’t been able to see the turn of the market. Demand had started to falter earlier in 2022, prices were starting to soften. It was a time to reduce risk by cutting buying (eg. Bordeaux EP 2022), liquidating any positions where you could maximise margin, thinking twice about any big investments. It’s just one example where not having access to market data would mean making some very different and potentially damaging decisions.”

“With the market now showing signs of recovery the same could be true but in reverse, and we are seeing certain merchants looking to buy the dip.”

Risky business

He argues that by not putting trustworthy data at the heart of your decision making “you open yourself to all kinds of risk, including missing out on opportunities”. This isn’t only at a “fundamental strategic level”, but also at a more tactical level.

“Not using reliable and dynamic data means you risk selling too low, buying too high, selling the wrong stock, selling the right stock at the wrong time, not giving your customers reliable advice,” he explains. “Each bad decision has a cost, and those costs add up pretty quickly over the course of a year. Conversely each good decision means more profit.”

This all aligns into Liv-ex’s strategy to go from making data more visible to making it work better for its customers, and rebuild its platform from scratch to incorporate AI, as revealed at conference in February.

Looking ahead, Burchfield noted that while trade “will always be fundamental to Liv-ex as it is trade that generates data”, Liv-ex knows that the trade its members do on Liv-ex might account for only 5% of their turnover – but this in itself is an opportunity.

“Because we sit on the deepest set of transactional fine wine data (which continues to expand), we are best-placed to turn that data into a decision-making system that supports our customers across the other 95% of their business,” Burchfield explains. “In short, we want to have all the data that a fine wine merchant needs presented in a personalised way that fits seamlessly into their day-to-day jobs.”

It is also currently working with customers to build AI-driven tools that it says will make “key parts of their job easier to carry out”.

“Watch this space in Q3!” he adds. “In terms of data collection and generation, this means increasing the breadth and regularity of our mid-prices, expanding the number of publicly available lists we collect, building out supply and demand trends. But then making it easy for our customers to understand and act upon the data that is relevant to them.”

 

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