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Trying to Create an American Model of Wine Futures

A couple trained in finance wanted access to rare Napa wines; they developed a new sales model

Kasey Carpenter
Posted: December 23, 2014

In 2005, Serge Marquié and Sally Wilkinson had a problem. After their twin sons were born, they wanted to secure some great wines from the boys' birth year. But while they were able to get their hands on some wonderful Bordeaux, en primeur, obtaining collectible Napa wines proved difficult. All of the desirable wines were either spoken for on mailing lists (or waiting lists to get on mailing lists) or swept up at auction at substantial markups to release prices.

The two parents, who happen to be experts at solving financial problems of great complexity, thought: Why is it easier to procure a first-growth from a highly rated vintage than a great wine from Napa? Their solution was E-Cep, an American take on futures, where consumers can buy bonds guaranteeing them top Napa wines while those rarities are still aging in barrel.

The couple are wine fans but not industry insiders, and had no link to the trade prior to starting E-Cep. Marquié holds a doctorate in game theory from Harvard and was the former joint-head of Goldman Sachs' Latin American Financing Group. Wilkinson was the U.K. economist for Deutsche Bank and an economic advisor to the British Conservative Party.

That background explains why they approached creating a domestic futures model from a finance point of view. "As financial people, this appeared to be a commodities issue," said Marquié. "We discovered that wine is not really a commodity. A commodity, by definition, is something that is all the same everywhere all the time, like, say, aluminum. Wine, by contrast, comes in endless varieties, vintages, appellations and producers.”

So E-Cep customers don't buy wine—they buy a bond, a financial IOU. An E-Cep bond is a guarantee for the offered wine upon release.

Once Marquié and Wilkinson had the legal framework of how to offer the bond, the real work began: getting Napa's elite wineries on board. Enter Nancy Andrus Duckhorn, co-founder of Pine Ridge and Archery Summit, who now works as an industry consultant. She directs Serge and Sally to brands that make sense for E-Cep. The wineries that have partnered with E-Cep include Carter Cellars, Dana, Scarecrow, Outpost and Dancing Hares, among others.

How does it work for the wineries? As Pete Perry of Dana Estates—which has offered three vintages worth of bonds—explains, buying early doesn't necessarily mean a special price. “We offer what we roughly estimate our wine will sell for on release via our mailing list to those who purchase via E-Cep. The value is that consumers get access to wines that they otherwise may have to wait a very long time for.”

Every two months, E-Cep releases an offering that follows a theme, ranging anywhere from four to six wineries, with some wineries only allowing one bond, others allowing more; the average bond is worth three 750ml bottles. Site members receive an offer sheet prior to the offer going live, so there is an incentive to register.

There is no long-term requirement to participate. Consumers simply view the offers they receive and decide whether to purchase or pass. If they pass on an offer, even a string of offers, they still remain eligible for future offers. Consumers who want to buy simply select the bottling they want, and, if quantities last, are issued a bond within 24 hours. The wine is delivered 12 to 18 months later.

The current offering is a selection of jeroboams. Each participating winery—Carter Cellars, Continuum Estate, Dancing Hares and Lindstrom—are offering one 3-liter bottle of their 2013 Cabernet Sauvignon or Bordeaux blend in each lot.

Others in the industry are cautiously optimistic about the service's potential. “While E-Cep is a niche offering to a niche audience, their focus on streamlining the acquisition of allocated products is a noble goal and one that I am sure other luxury service providers will incorporate into their business models,” said Paul Mabray of VinTank, a consultant that helps wineries develop digital services.

Rob McMillian, EVP and founder of the Premium Wine Division of Silicon Valley Bank, is more skeptical. “There is little incentive for a producer who is truly allocated to skip over their long-suffering waiting list members and offer their wines through these types of arrangements," he said. "Where this kind of a program can provide value is with the nonallocated but still rare producer of wine. Since wealthy buyers of wine prize their time, doing this spadework for their clients is the place where this company may find success.”

But Marquié and Wilkinson believe E-Cep isn't just about finding another way to obtain rare wines. They see it as yet another customer base for wineries to tap into, somewhere between the mailing list crowd and the auction set.

“It is in the very early stages for us, but this appears to be another way to broaden our base,” said Perry. “It seems that E-Cep brings a slightly younger demographic, along with people from outside the U.S., people that I’m quite certain we wouldn’t see otherwise. And the best part, quite frankly, is that it is really no financial risk to us: The wine is still in barrel after all."

The program also lets wineries try sales methods they might not risk with their mailing lists. "Some wineries use us as a testing bed," said Wilkinson. "A perfect example of this would be magnums. Many wineries had never offered magnums before, so they try it out with E-Cep. They offer the wine before the magnums even get bottled, so the risk is nil." Those offers allow wineries to see what demand is like for large-format bottles and how much customers might be willing to pay.

Currently, while E-Cep is set up to offer rare wines from Napa, the founders say they are looking into other regions that have appealing wines that are hard to come by. Until then, wine lovers will just have to suffer with jeroboams of Carter.

Chad
Missouri —  December 23, 2014 6:55pm ET
if she is looking for Dancing Hares, I have access to a cellar full of it :)
David Baghdassarian
Florida —  December 24, 2014 10:47am ET
To answer the question presented in the article "Why is it easier to procure a first-growth from a highly rated vintage than a great wine from Napa?", the answer is simple: quantity. How many cases does each first growth Chateau produce each year (well over 10,000) and how many cases does a collectible Napa winery produce (hundreds, maybe 1,000)?
Kasey A Carpenter
Fort Worth, Texas —  December 26, 2014 3:40pm ET
David,

While it is true that there is a more or less 10:1 ratio in production of a BDX house over a Napa house, one should also factor in the market presence (and pull) of BDX versus Napa, which I suspect would also be close to 10:1 (on an international scale at least), therefore negating any perceived surplus. So the difficulty wasn’t so much in the smaller numbers of Napa over BDX, but of the models by which one could acquire these wines, which were traditionally, mailing lists that were most often locked up for years.

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