Building A Full-Bodied Exchange

Since online exchanges have discovered that important value-adds include dynamic pricing and online negotiations, one wine exchange's multiple auction formats supplement or replace long-term contracts with a forward market.


[From iSource Business, April 2001] Given the fact that California produces 95 percent of the country's wine grapes, when the Glassy-winged Sharpshooter, a bug that produces a bacteria that kills the grape vine, trekked north from Mexico and infected vineyards in 13 counties it became the bug from hell. Such are the vicissitudes of nature that have always plagued farmers; now they pose interesting challenges, and opportunities, to the creators of e-business solutions. Last August, WineryExchange hosted its first online auction as a charity event. Bien Nacido Vineyards donated three tons of Pinot Noir grapes, Foxen Vineyards donated its options on the grapes, and Florida distributor Bacchus Wine Corp. placed the winning bid of $13,000. The proceeds went to the non profit American Vineyard Foundation to fund research on the Sharpshooter.

While doing its part to save the industry on which it depends, WineryExchange also tested its Web-based dynamic pricing and negotiating software. The event came off without a hitch, an equally happy moment for Moai Technologies, developer of LiveExchange, the auction platform that powers the exchange. However, the scions of California wine-making families and industry professionals who founded WineryExchange and form its executive team understand that there are some things e-commerce technology can't do. Staving off crummy weather and Biblical pestilence are two. Completely eliminating the middleman, upon whom the wine industry is heavily dependent, is another.


A Smooth Marketplace


Farmers fantasize about a life without brokers, distributors and other intermediaries taking their cut of the $200 billion U.S. agriculture industry, to which the wine industry contributes approximately $25 billion. The Net has the potential to radically transform the agricultural economy, and none too soon since U.S. farm income has plummeted almost 50 percent since 1996. Facing highly fragmented markets and few other options, farmers have long been quick to adopt cutting-edge production and management technologies in order to squeeze more efficiencies out of their operations. Eighty-five percent of young farmers age 25 to 40, an aggregate figure that includes grape growers, have moved at least some part of their business online. The number of ag-related Net markets is increasing and is expected to handle $2 billion worth of crop input purchases by 2002, including seed, fertilizer and chemicals. Total worldwide agriculture and food-related e-commerce is projected to exceed $3 trillion within three years.


WineryExchange is ready to jump into the fray. While it prepares its 700 worldwide members to trade online, the company has developed its portal into a one-stop shop for wine grapes, bulk wines, case goods, new and used equipment, supplies and services. From the dirt to the bottle, as the company likes to say. It's partnered with ICG Commerce to offer MRO catalogs; Gomberg, Fredrikson & Associates for industry analysis; and Wines and Vines magazine for an industry directory of wineries and suppliers. The company also purchased WineIndustryNews.com to provide the Web site's daily news coverage.


The company's founders share the fantasy of a frictionless marketplace, but the reality in the wine industry is that certain middlemen are to the buyer-supplier relationship what noble rot is to fine wine: essential. The Joseph W. Ciatti Co., the world's largest bulk wine brokerage, has partnered with the exchange to help manage its relationships with growers, wineries and wholesale distributors. One of the services Ciatti performs is to provide samples because wineries purchase varietal and bulk wines for bottling, along with other categories of wine that buyers need to taste before they purchase. A reputation for producing quality wines is critical, but, in the tradition of the wine business, the rule is taste but verify. The grape's ineffable qualities require something more than a text description on a static Web page.

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