What did fine wine trading look like before Liv-ex ?
Pre 2000, before Liv-ex, there was little in the way of technology – something we now all take for granted, and perhaps feel has been with us forever. Mobile phones did not become mainstream until the middle of the 1990s, emails in the late 1990s and websites only at the turn of the Millenium. When Liv-ex launched in 2000 most merchants were still on dial-up modems which meant even the most efficiently coded sites, ran painfully slowly. So many merchants were still operating as they had done in the 1980s and 1990s with hard copy catalogues being sent by post and offers being shared via fax. Pen and ink were mainstays.
The market was therefore very opaque, dominated by a handful of large merchants in each country who saw most of the offers, and subsequently were best positioned to price wine. There were fewer merchants overall and gross margins were higher. Collectors were totally reliant on their merchants for information.
En Primeur campaigns were launched only after the majority of the wines had been released and catalogues printed and posted.
In short, it was an analogue world that operated at a leisurely pace, with price information scarce and far from comprehensive.
What was your vision for the fine wine trade when you started Liv-ex?
We have the same vision today as we had in 2000 – to make the market more transparent, efficient and safe. By doing this we felt we could help grow the market for the benefit of all – growers, merchants and collectors alike. We still believe that today.
Did you run into any hurdles along the way?
Plenty. But to name just three………..
First, the idea of transparency was anathema to the trade. It meant margins would come under pressure, which to a degree they did. But transparency was on its way, thanks to the internet, and they needed to adapt. It took many meetings with prospective members to explain what James and I had learnt in financial markets – that transparency brings greater trust in a market and greater trust leads to greater confidence, broadening participation and thus growing the market. Smaller margins perhaps, but a far bigger market for all.
Second, unknown to us, we were not the only wine exchange that was being built. We launched for trade in July 2000 and found that almost a dozen others had already launched or were in the process of doing so. Despite the fundamental difference between us and them – all of their models set out to disintermediate the trade, by connecting growers and collectors directly, while ours has always been built around the trade itself – their presence muddied the waters greatly and meant it took longer for the trade to understand and trust us.
Third, technology. We needed to adopt the latest technology, but we could not get too far ahead of our members who were moving at a more glacial pace. This meant great leaps forward were nigh impossible and tech iterations more regular and costly.
What were the quantum leaps/ game changers, in Liv-ex’s evolution that vastly improved trading ability?
Without doubt the first and most important was the SIB contract. Until then, every deal between traders was subject to availability, condition etc, etc…..ie deals could be cancelled, nothing was firm. With the introduction of the SIB contract, not only did we set minimum standards of condition, but also the number of weeks till available. And all bids and offers on Liv-ex were firm – a commitment by both parties to the transaction. This meant no need for back and forth over the phone and email with questions, saving a lot of time and effort.
The second was introducing anonymity to the contract. Initially members settled with each other at the end of the day. By introducing anonymity, and taking control of the settlement process, many more merchants joined, pleased to be able to buy and sell wine without having to explain themselves to others.
Since those early days of working with our members to create the standards around trade and settlement, we have continued to invest in technology and data, helping our members to expand their services to their clients whether it be through broadening the wines they can offer, or providing them with independent, real time valuations, and on the back of these, independent insights.
How has your role grown/ evolved over the past 25 years?
We continue to work closely with our members to improve and personalize the tech we offer them, to aggregate, clean and deliver to them comprehensive and independent data, to broaden and deepen the pool of liquidity available to them and their clients and to keep in sharp focus the most challenging area of all – the efficient settlement of transactions between 600 counterparties in 47 countries. And to do it quietly in the background while they get on and develop their client bases and the services they offer them.
How has data and technology impacted/ improved the ability to buy and sell fine wine?
Hugely. 600 counterparties can now trade through one centralised, independent, transparent, rules based platform, saving members an enormous amount of time both pre and post trade. This allows them to concentrate on their growers and their private customers, who are the ultimate winners here and have never been better served.
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