Digitization and Diversity in Wine Auctions w/ Jamie Ritchie, Sotheby’s Wine

In this episode, we learn about the wine auction market from Jaime Ritchie, Worldwide Head of Wine at Sotheby’s, one of the leaders in the space.  We discuss how wine auctions work, how finding in-demand wines to sell is the current challenge, and the increasing digitization and diversification of the space.  From moving to more online auctions, younger buyers from more diverse backgrounds and geographies, to how tariffs and taxes and reshaped the wine auction landscape, this episode is a must-listen if you have any interest in the world of fine and rare wines. 

Detailed Show Notes: 

• Sotheby’s founded in 1744, wine division in 1970 - started with wine auctions in London
• Expanded wine auctions to New York and London, which also has retail
• Spirits getting to be a bigger part of their business, 3% in 2018, up to 19% in 2020
• How auctions work
  • Find the wine and collections
  • Create auction estimates (low - high estimates) and suggested reserve (confidential between auction house and seller)
  • Logistics - go-to wines, photograph, and ship
  • Terms & consignment agreement with seller signed
  • Data entry and presentation of the collection to maximize value
  • Publish auction catalog and marketing
  • Live auction
  • Invoicing 
• The auction process normally takes 6 weeks - 3 months. Large collections often require 6 months - 2 years lead time
• Auction vs. retail - auctions for rare wines or full cases, retail more for futures, latest vintages, more diverse way to buy wines (by the bottle or by the case)
• The wine auction market - ~$500M / year
  • Sotheby’s had record sales in 2019 ($118M), up 20% from the prior year
  • The average lot size is ~$7,500 / lot (2019)
  • Covid impact - fewer wines on the market, makes operations more difficult -> lower overall sales value and volumes
  • Market pricing still strong, likely due to stock market strength and low volumes, unlike during the Great Recession where prices fell 40%
  • The buyer set is expanding
    • Age - buyers getting younger
    • Geographically - more Asian and South American buyers
  • Long-term - the price of wine will rise as more people want to drink, and a relatively fixed supply of the best wines
• Asia market - Sotheby’s started in 2009 - $40M, $55M in 2010
  • Asian buyers are the least price-sensitive, used to be US market
  • Wines now go from EU/US -> Asia vs EU -> US before
  • Largely influenced by Hong Kong wine import tax rate going to 0%
  • The only cost to get wine there is to ship containers (~$6-10k / container)
• UK market - less competitive auction market, more competitive fine wine market; Brexit impact - trying to find ways to mitigate the impact, expecting a minimal overall impact
• US market - most competitive auction market, w/ tariffs, no collections being shipped to the US
• Logistics - offer shipments from NY to Hong Kong 3x / year
  • Overall, it depends on the laws and customs of each country or state
  • In general, it is the buyer’s responsibility to move the wine after purchase
• Digital transition
  • Planned only 6 online auctions and 20 in-person ones in 2020, ended up being mostly online
  • New digital Sotheby’s auction platform - was planning 3-5 year transition, did it in 3 months
  • Online to be the common marketplace with live auctions for special collections
  • Can still do events with online auctions - Robert Drouhin auction - dinner in Hong Kong with a live auction in London
• Business Model
  • Online still costs the same to process wines vs. live auctions
  • Buyer’s premiums rising because the main issue is sourcing the wines
  • In 1990 - used to be a 10% sales commission with no buyer’s premium, now no commission and all buyer’s premium
• Growth areas after the price of Burgundy has skyrocketed - Rhone, Italy (Tuscany, Piedmont), Champagne, German Wines; CA and Bordeaux have been flat
• Investable vs. Auctionable wines - investable wine have a belief that they will increase in value, auctionable just need a secondary market value, may not need to appreciate, be in good condition, and authentic
• The provenance of wines can drive big premiums
  • Lafite direct from Chateau auction (2010) - $7M sale vs $1M low estimate - 7x
  • Robert Drouhin sale of ‘45 DRC Romanee Conti - 17x estimate, $550k per bottle, a world record bottle price
• Auction market good at maximizing value for wines that have appreciated and for re-setting prices, not good at launching new wines
• Critics scores less important post-Robert Parker. No one has the same influence. People now aggregate 2-3 different critics scores, market-moving away from it
• The Auction Buyer - getting more diverse from all angles
  • Mostly men, wish there were more females
  • 50% of 1st-time buyers in their 20s and 30s
  • 50% of Hong Kong buyers in their 20s and 30s
  • 60% worldwide buyers in 30s and 40s
  • In 1990, the average age of a buyer was 65
  • Used to be heavy finance-driven, now more tech and real estate
  • Asia and N America consistent, with Mexico and Brazil buyers coming in and out
• The Auction Seller
  • 3 D’s - debt, death, and divorce -> even more with Covid; + doctor’s orders for wine
  • Most people have purchased too much wine, they can’t consume it in their lifetime, so it goes on sale
  • When people have children, they entertain at home more -> drives more buying

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