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June 22, 2022

Making Fine Wine Transparent, Efficient, & Safe w/ James Miles, Liv-ex

Making Fine Wine Transparent, Efficient, & Safe w/ James Miles, Liv-ex

Though the Liv-ex 100 and 1000 indices are what it may be best known for, it is actually an end-to-end trading platform.


Seeing the opportunity of bringing solutions in the financial markets to fine wine, James Miles, CEO and Co-Founder of Liv-ex, launched the London International Vintners Exchange (“Liv-ex”). Through standard contracts, guaranteed trades, and a plethora of data, Liv-ex is making the fine wine market more transparent, efficient, and safe. Though the Liv-ex 100 and 1000 indices are what it may be best known for, it is an end-to-end trading platform. Listen to James explain it all as well as market trends on this episode of XChateau! 

 

Detailed Show Notes:

Liv-ex background

  • Founded in 2000
  • Based on the similarities between wine and stocks, leverages financial solutions for wine
  • Mission - make the fine wine market more transparent, efficient, and safe
  • An exchange for wine - London International Vintners Exchange (Liv-ex is the acronym) - an end-to-end solution to buy and sell wine, including price discovery, trading, and logistics to ship wine globally
  • Customers (merchants) in 42 countries, Liv-ex doesn’t compete and sell to restaurants, hotels, or represent producers

Trading on Liv-ex

  • An order matching system - customers place buy and sell orders on the platform
  • Bids are firm, cannot cancel orders - a new concept for wine, which is usually “subject to availability”
  • Created standard contract for wine trading - includes condition, when to pay, and when it will be delivered
  • The order book is a queuing system - 1st based on price, 2nd by the time of bid, the book is always open

Wine traded on the platform

  • 2010: £55M traded across 1,000 wines - 97% Bordeaux, top 10 Bordeauxs + DRC = 70%
  • 2022: £100M traded across 15,000 wines - Bordeaux ~35%, Burgundy, ~25-30%, Champagne / Italy ~10%, CA growing; France still ~70-75%
  • Transactions are growing ~20% per year, but avg price is declining

Merchants

  • >580 merchants on the platform
  • 2022 - UK ~35%, Europe ~40%, USA - ~15%, Asia ~10%
  • Fastest growth - USA, Europe, slowest - Asia

Provenance/condition of wines

  • Joining Liv-ex requires review by the membership committee - look at financials, where wines are bought, etc.
  • Has data-sharing initiatives with customers
  • Has special contract for older / rarer wines (takes into account more information)

Liv-ex Data

  • Liv-ex Fine Wine 100 index - tracks most traded wines, uses production and scarcity weighting vs. just price (multiplies price by # of cases and depreciates this over time; price is mid-point of bid-offer spread or last transaction price)
  • Liv-ex 1000 - price-weighted, top 100 wines and last 10 physical vintages, breaks down to regional indices
  • If no price from the platform takes price from customer listings or valuation committee
  • An active market in ~15,000 wines but tracks ~350k wines
  • Customers have ~$1.5B of wine actively marketing

Market trends

  • Burgundy is the big winner; Champagne & Italy did well, especially w/ US tariffs
  • Top increases: DRC, Roumier, Leflaive, Selosse, Salon, top Italian wines / Barolos
  • Everything w/ a hint of Leroy doing well (e.g., Arnoux Lachaux has risen 4x having worked for Leroy in the past)
  • Wine has been doing well so far against macro headwinds (e.g., Brexit, tariffs, Covid, war, inflation), and physical assets are an excellent place to be

Business model

  • Membership fee - based on features used and amount of data consumed
  • Trading fee - 2-3% commission on both sides, usually ~5% of total trade (low vs alternatives - wholesaler - 10-20%, auctions - 25-30%, importer/agent - 30%+)
  • Settlement fee (per unit fee) for logistics

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