How digital technology could change the bulk wine market

Wednesday December 07 2016 by Sharon Nagel

Virtually every aspect of our day to day lives is now governed by digital technology. To some extent, the wine trade has been watching progress from the sidelines. But this may be about to change as pure players emerge, not only at retail level but also for bulk procurements. Vitisphere spoke to Denys Hornabrook, managing director of digital exchange Vinex, about the future for online bulk trading.

Could you briefly describe Vinex?

Vinex offers a different version of the conventional process for selling and sourcing bulk wine, bringing technology into the sector to greatly advance connectivity between buyers and sellers. All members of the exchange are anonymous, therefore advancing objectivity. It is also promoting real time transactions. The exchange also plays a role in providing players with greater transparency which we believe was lacking in the industry in this modern era of information. We focus on pricing and inventory reporting on which there has been very limited reporting or analysis. Vinex is also recognition that we are now part of a global village, certainly for commercial wines which are now far more universal in style, with less emphasis on region or origin. Vinex is an investment to produce the technology to facilitate connectivity within the sector. This is not a small investment, it has been more than two years in the making with 16 industry confidants consulting up to this point.   



Who are the investors?

It is a private company with 24 shareholders who are not from within the industry. They are investors in technology. We are not owned by a broker, we don’t produce wine. We don’t have any affiliation with the industry directly, which is very important for the credibility and independence of the exchange, but my business partner and I do have extensive knowledge wine trading, specifically bulk wine, internationally


What kind of volumes have been traded on the platform so far?

We have reached 780 listings so far totalling 140 million litres. Trade has been growing each month since June. A few weeks ago, the first 1 million litre trade went through the exchange and our average trade at the moment is 220,000 litres. We have seen trades from 10,000 to 1 million litres and we’re seeing good growth.


After several months of trading, have you reached your targets?

We would like to be a lot further but this is a new service and whilst it largely reflects what we do conventionally, it is nevertheless a different way of doing business. There is a longer on-boarding phase – the learning phase takes about 10-12 weeks on average. We know that younger generations gravitate towards technology a lot faster. If we’re talking to people under 50, generally speaking by the end of the presentation they have downloaded the mobile app and have embraced the features and benefits of the exchange. Older members tend to take longer.


Have you set any volume targets for the first year of trading?

We have made large investments in South America, in Australia and New Zealand, and are growing our investment in Spain and now more so throughout Europe. The pay-back on that investment means that we have to put a minimum volume through the exchange. Whilst we may have targets of wanting to trade 1-200,000,000 litres in any given twelve months, we think it will take time to build to that, but we certainly have targets of trading well in excess of 100 million litres.


The bulk wine market has grown in recent years. Do you think growth will reach a plateau at some point?

OIV has been reporting 6% year-on-year growth for several years now which is phenomenal. Our view is that there is no stopping the growth of bulk wine being traded because it is being underpinned by commercial pressures. Certainly for commercial wines, as retailing consolidates and grows around the world, retailers will want their own brands on their own shelf space. If we take out the pure own label retailers like Aldi and look at the more traditional retailers, they have gone past 30% and are approaching 40% of own label. They want to bottle in market efficiently and drive down costs, and one of the major ways of doing that is to secure bulk volumes and bottle as close to retail as possible. We see private label, own label and brand ownership continuing to grow along with virtual brands and therefore growth in bulk wine procurements. Bottling facilities are in for a good future.


Countries such as South Africa and New Zealand have expressed fears over the amount of bulk they are exporting. Could there be a backlash against bulk over the next few years?

The people perpetrating that message are the wine authorities. They are playing to their own membership base, many of which are medium to small producers who are paying a subscription fee to those authorities and still have locally branded, strong origin products. And they want to perpetuate that story. The reality is that commercial wine and wine consumption is growing and that wine is mass consumed around the world. The market that Vinex is playing in, which is basically the under £10 market in the UK, is heavily driven by commercial decisions around margin protection and whenever there’s a need for margin protection, commercial pressures come to bear; to control their costs, retailers need to be operating in the bulk wine sphere. We know the market is a pyramid and at the top, that 3-5-7% is a very small market. The vast volume of wine is consumed at the commercial level and that is growing.


The long-term sustainability of some bulk models such as Spain’s has been questioned. What is your opinion?

I don’t understand where that is coming from or what the logic behind it is. Is it coming from people who haven’t visited Spain and understood the amount of work the country has done to achieve greater efficiency in the vineyard? They now have fewer vines in the ground and are producing greater volumes. It is a staggering outcome. Why would they not be sustainable? They’ve got a great environment for growing vines, very sustainable varieties, they do a great deal of cultural practices and they know their business well which is why they are now such a major player.


Does premiumisation pose a threat to bulk wine trading?

Bulk wine is now more accepted at growing premium levels than it ever has been. There are bulk shipments of single vineyard, regional origin wines selling for £10 in the UK. No-one is promoting the fact that it was brought into the UK in bulk and bottled locally. Who would have thought that we would see single-vineyard Barossa Shiraz or Coonawarra Cabernet coming all the way from Australia, bottled in the UK? There is now a growing movement around boutique bulk, which is a wonderful concept where smaller parcels are now being brought into the UK, bottled and marketed in very premium packaging. It all stems from achieving price points and delivering margins. These are very smart wines, in fact some are extraordinary.


How important do you think China will be to the global bulk wine market in the future?

China will be very important. In 2014, they were already importing 150 million litres, 27% of their total wine imports, in bulk so the figure will be higher now. The advantages of FTAs, where there is 0% duty on bulk wine from Australia, New Zealand and Chile, have prompted growth well ahead of bottled wine which still has higher tariffs. China’s middle class is driving wine consumption. It’s an absolute powerhouse and a very strong market for virtual and own brands. We are seeing very large investments, underpinned by the state, in bottling facilities and equipment. There seems to be more shiny new bottling equipment in China than anywhere else in the world. A lot of it at the moment is standing idle, but rest assured they are building their capacity and that growth will accelerate. If we take it that 55% on average of all wine imported into a European country or North America is in bulk and China is 27%, that percentage could easily double so that 60% of all wine coming into China in the next five to ten years could be bulk.


How do you see the bulk wine market evolving in the future?

The two big issues are short supply and the volatility of exchange rates for international trading. The volatility is occurring post-Brexit and now potentially post-Trump. Exchange rates have potentially caused up to 25% loss in value. That has large implications and compounds an already short market with price pressure. The pendulum is certainly swinging back in terms of supply. The next 18 months will be a very interesting period with buyers now scrambling to shore up their positions and secure supply. Vinex sees a real opportunity in this context, providing another conduit to the market where quality of wine and pricing can be tested and new supply sources can be found.


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