The case for efficiency

THE WORLD, or rather the pace of life dominating the developed world, is getting faster. Some call it efficiency, others a damn nuisance. Yet the march of technology and its effect on our daily lives will not be denied, and while one might rightly decry the millennials’ obsession with their mobile phones, it is also true that a very great deal of inefficiency and inconvenience has been removed by technology from all sorts of sectors.

One area in which this streamlining process is ongoing is the world of fine wine trading, where hitherto every transaction was bogged down in tedious back and forth and, most crucially, in the laborious and potentially risky task of moving wine from one place to another – and still is in some instances.

An analysis of supply chains, written in 2013 by Jasmine Voos, the former logistics manager at Liv-ex, while she was at London Metropolitan University broke down the surprising processes behind buying wine.

The author found that the average trade would include the wine moving through five different warehouses (if it went from a Tilbury warehouse to Octavian for example) using three different vans. Four different product codes would be required, and 15 separate reference numbers; the wine’s name would need to be entered five times on the various handlers’ and buyers’ systems and there would be 16 different data entries to amend stock records, verify the order, confirm shipments and so on.

This is very slow, while the fine wine market is now truly global. Liv-ex has 440 members in 35 countries, meaning there is never a moment when the exchange is not in use, when someone somewhere isn’t buying wine.

The back and forth and intensive nature of fine wine trading simply is not up to the task of dealing with current demands or expectations, and it hasn’t been for some time, while other, bigger industries, such as groceries and finance, have striven for fully automated systems for years now. As James Miles, co-director at the London International Vintner Exchange (Liv-ex), says, it is only now that “tech is so cheap that this leap for fine wine is possible.”

Enter Liv-ex’s own tech systems to help achieve this, the Standard in Bond Passport, Liv-ex Wine Identification Number (LWIN) and its Vine warehouse service, which are designed, Miles says, to “remove barriers” and make fine wine trading “transparent, efficient and safe”.

Liv-ex has become renowned for its role as a platform that allows its members to trade fine wine quickly and simply. Yet its principal raison d’être, as Miles again pointed out when writing on the drinks business back in 2014, is, in fact, “much closer to its dictionary definition, ‘to give and receive information, ideas’. An exchange is actually an information exchange. It is a meeting place, where the members of an industry come together to find out what is happening in their market and identify profit opportunities.”

And there is now a lot of money to be made in fine wine. Through the ups and downs of recent years, the market has soared in value and is now worth in excess of US$4 billion. Wines at the very top end of the market are increasingly expensive, and the system described above, with 16 data entry points, brings the possibility of error. Imagine ordering a case of Domaine de la Romanée-Conti’s Romanée-Conti and the Romanée-Saint-Vivant turns up due to a clerical mistake.

A lovely wine to be sure and you now have something of a “first world problem”, but nonetheless you have paid £90,000 plus for one wine and a case worth £10,000 of another has shown up.

“One of the worst things about trading in wine is that everyone spells things differently,” says Nick Gabb, managing director of Vintner Systems.

“You can’t believe the chaos caused by one spelling mistake.”

At best it is an annoyance, and at worst it erodes trust; a client’s trust in a merchant to fulfil a simple order and the merchant’s trust in its logistics provider. All of which is a hindrance to trade, a particular inconvenience as increasingly low margins mean swift turnover is imperative, “and time is money as they say,” remarks Gabb.

According to Miles, “a large part of this inefficiency is down to the lack of a common identifier. This was the basis for LWIN. It’s a link code, an identifier. It removes the requirement for data entry.”

LWIN is the vinous equivalent of the International Standard Book Number (ISBN) in that it allows any case of wine registered on the system to be instantly identified by a unique code which can be expanded to include the wine’s vintage, pack and bottle size.

The idea is to allow merchants, brokers and funds to easily and unambiguously search for any wine on the system and, crucially, as warehouses and logistics companies such as LCB and Cru Logistic adopt LWIN, it means that communication between merchant and warehouse to call up stock after a trade is that much simpler and more accurate.

“One of the most brilliant ideas is the standardised code for products, so you can identify that product everywhere,” Gabb says. “We’ve adopted it so we can go straight in from our system and download the code. It’s a major step forward in trading in fine wine.”

David Hogg, sales director at London City Bond, which has adopted LWIN wholesale, explains the benefits: “It allowed us to provide full, accurate and informative product descriptions, which in turn, has allowed us to provide independent market valuations for our private customer base of over 7,500 accounts. Many customers now rely on such valuations for insurance purposes or to monitor progress on their investment portfolio. The advantages are apparent – accurate and consistent data, and where a code doesn’t exist, a simple email request usually results in a code being set up within two hours.

“Using LWIN codes greatly assists in inter-warehouse trading within LCB, as the wines are then easily identifiable and instantly recognised by the receiving warehouse.’ LWIN is a crucial cog in Livex’s drive to achieve greater automation and efficiency in fine wine trading, but there is an even more ambitious target it hopes to achieve.

This is, for now at least, centred on “Vine”, its own storage and distribution network in the UK, Bordeaux and Hong Kong. Vine, designed to be a dedicated fine wine facility with a rigorously enforced set of standards, including temperature control and security and with a dedicated team, has allowed Liv-ex to implement more initiatives in controlled conditions.

One of these is the Unique Case Identifier (UID) which gives every case in one of Vine’s facilities a code that shows who it belongs to and allows it to be tracked and located. Vine also has an online system which gives web access to stock records, movement details and evaluations, all in real time.

The fine wine merchant Burns & German stores stock for both its trade and private clients with Vine. Co-founder, Edward Burns says that the UIDs already gave customers a lot of faith and, indeed, greater attachment to a case of wine, as they knew it was “theirs”. “When a customer says, ‘Can I have an updated look at my cellar,’ we can give it and it’s all in real time. It’s a lot of information, and something our customers seem to want these days,” he says. It was also “a very handy tool to let our customers look at their reserve and get independent evaluations,” Burns says, although currently, it is not possible for clients to access their stocks independently. With wines being monitored and stored in optimum conditions, this means Liv-ex can also issue a Standard-In-Bond (SIB) Passport. Every wine coming into a Vine warehouse, whether it is simply passing through or meant to stay, can be looked at by the team, photographed, given a condition check (levels, own wooden case and so on) and verified (the team are increasingly being trained to spot counterfeits says Vine’s head of operations, Ashley Hopkins).

If the wine is then staying at a Vine warehouse, the “SIB passport” the case will be given guarantees both its condition and provenance for the next three years.

Burns says: “If I buy something from Liv-ex it automatically gets a passport, and anything 1990s or older we automatically get a passport done.

Nowadays, with the value of wine people are buying, it just gives peace of mind.”

All of these initiatives point to Liv-ex’s ultimate goal – the almost complete immobilisation of movement for all tradable fine wine stored in bond.

For one thing it is a simple solution to combat counterfeits. Roberto Conterno of the Barolo estate Giacomo Conterno, speaking unprompted on the problem of counterfeits at a recent lunch at the offices of his importer, Corney & Barrow, declared: “The best solution to counterfeiting is tracking the wine from start to finish. The less the wine moves the better.”

With all the various systems, that is simpler than it may first appear , even if making it simple in the first place requires a lot of work. Hopkins says: “LWIN, UIDs, the Passport – all turn that case of wine into an efficient, tradable unit in the Liv-ex universe.”

Which means, according to Miles, it can be “traded without a fuss”. The means of doing that is the Instant Transfer system which allows members storing their clients’ wine at Vine to instantly transfer ownership to someone else with no movement of the wine required and at no cost to anyone either.

“The certificate turns a traditionally risky and slow process into one that’s instant and free,” Miles says. “It doesn’t cost anything to change ownership on a database.”Another long-term goal would be to extend the SIB Passport, UID and Instant Transfer initiatives to other warehouses as well; meaning someone could buy a case of wine stored at Octavian, EHD London Number One Bond or Vinotheque and have it stored there in the full knowledge that it can be accurately tracked and its condition is guaranteed. That would take time to achieve, though, and would require all warehouses to abide by an accepted set of standards, which, while most of the main players largely adhere to high criteria anyway, would doubtless require regular audits to ensure the new standards were being kept.

As for the SIB Passport service, this too would take time and training to bring staff at other facilities up to the required level. At the same time, the over-arching question is whether warehousing and logistics providers and their clients even want to adopt these systems? “Part of the challenge is bringing people along with you. We still have lots to prove in our own environment,” Miles admits.

Yet, crucially, he says: “We now have the scale to really test things in anger.” And once the tests begin to show the systems can really work, it is that much easier to convince others that what you have to offer is worth buying into.

“There’s still a lot of work to be done,” Miles says, “but it’s an exciting opportunity. If it’s a direction the trade wants to go, we see a big upside.” db