Market 'Failure' in the Wine Business:
The case of 'Wines 'Til Sold Out'
9 Aug 2009 in Regulatory Economics, Information Quality, Amusements
UPDATED. SEE "MORE".
The Panic of 2008 and subsequent recession have put a damper on the wine market, especially at the high end. As a member of too many wine clubs (still the best way to access fine West Coast wine from the East Coast), I have seen more discounting by wineries in the last six months than I observed in the previous six years.
So it should not be surprising to see a bevy of entrepreneurs pop up who are attempting to exploit these depressed conditions. The Los Angeles Times published an intriguing story by reporter Patrick Comiskey about new web-based vendors doing exactly what we'd expect ("Good deals go fast on wine websites," July 8, 2009). Of the vendors Comiskey mentions, Wines 'Til Sold Out seems to have the most unusual business plan: they sell tranches of a single wine, one at a time, first come first served, presumably (but not verifiably) until they are sold out -- then move on to another wine.
After reading the article, I signed up with Wines 'Til Sold Out to investigate.
SEE UPDATES BELOW
After receiving several email offers, it occurred to me that Wines 'til Sold Out might be exaggerating the release price to make its sales price look more appealing. This is, off course, hardly an unusual (if ethically dubious) business practice. Nevertheless, it is an example of asymmetric information -- a form of market "failure" that government often uses as a justification for regulation -- popularized in economics by George Akerlof's seminal study of the used automobile market ("The Market for Lemons").
In the typical case of asymmetric information, the seller (or buyer) has information he does not want to reveal to the buyer (or seller) because it would undercut his market price. The parties disadvantaged by informational asymmetry takes this into account, however, and the market price is bid down. Buyers (or sellers) of high quality goods and services thus have incentives to distinguish themselves in the market, and they do so by taking pains to relive the informational asymmetry.
The suspicion in this case is that WTSO was misrepresenting information, not merely withholding it. But there are other sources for this information, and in the Internet age it isn't hard to find it. Thus, prospective customers can choose to verify the seller's claims before deciding whether to buy.
For each wine offered for sale by WTSO since joining, I obtained release prices from Wine Spectator if WS had reviewed and rated it, or from the winery otherwise. This back-up plan worked on several occasions for California wines but not for French or Italian wines.
The table below is interactive.
- WTSO Offer List: Complete list of email offers received to date, in reverse order.
- Offers by Country of Origin: Chart showing offers by country of wine origin. About half are from US (California). Click on (2) in the graph to see the updated figures.
- Average Percent Exaggeration of 'Original' Price by Country of Origin: At original posting, this was typically about 20%. Italy has a small sample size; a verified release price was found for only one of the nine offers. Click on (3) in the graph to see the updated figures.
- Average Percent Exaggeration of 'Original' Price by Wine Spectator Rating Decile: Wine Spectator's 100-point scale is one of several alternative quality ranking schemes. Small differences are subject to controversy but deciles are not. At original posting, the average percentage by which WTSO exaggerated the original price was about 10% for wines rated below 90, and about 30% for wines rated 90 and above. For wines without a Wine Spectator ranking, the average exaggeration was about 45% at original posting. Click on (4) in the graph to see the updated figures.
At original posting, release prices were not determined for about half of the wines offered, so the extent of original price exaggeration cannot be determined for them. However, it is notable that in every instance where the release price could be found, it was less than the "original" price cited by WTSO.
We are keeping the database updated until further notice to provide real-time updates. Bookmark this page to see if Wines 'Til Sold Out changes its business practices.
Many wines WTSO is selling have not been rated by Wine Spectator, which limits the sample sizes shown below for (4) -- the graph showing the average percentage of release price exaggeration by WS decile. In several cases, WTSO publishes a rating by Jonathan H. Newman, the proprietor of Newman Wine & Spirits, a suburban Philadelphia distributor. We've noticed that Newman also is a distributor of several of the wines marketed by WTSO. In these cases, there is at least the perception of a conflict of interest and WTSO does not reveal the business relationship..
To conduct a running test of the hypothesis that there is no difference in the degree to which WTSO exaggerates the release price when Newman is involved, we've added his ranking and included as a separate variable whether his firm is distributing for the winery.
UPDATE August 9, 2009
Obtaining valid and reliable data to test the new hypothesis proposed on July 28 has proved to be too difficult, and is now a
We have revised our analysis accordingly:
- WTSO Offer List. We have independently verifiable release prices for 26 of the 86 wines (30%). The proportion of wines without independent release price data is 75% for France (6 of 8) and Spain (3 of 4), 60% for Italy (12 of 20), 50% for Argentina (2 of 4), 26% for US (11 of 43), and 17% for Australia (1 of 6), Exaggeration is lowest on average for US (i.e., California) wines (14%
- Average Percent Exaggeration of 'Original' Price by Country of Origin: Among the 26 for which data were obtained, WTSO's average percent exaggeration of release prices is 22%. By country of origin, average exaggeration is 51% for Italy, 27% for Australia, 4% for France, and 14% for US).
- Average Percent Exaggeration of 'Original' Price by Wine Spectator Rating Decile: The average percentage by which WTSO exaggerates the release price rises with the Wine Spectator rating decile. Average exaggeration is 9% for wines rated below 80 (N = 1), 20% for wines rated 80 to 89 (N = 15), and 31% for wines rated 90 and above (N = 10). There are 25 wines for which a Wine Spectator rating was unavailable, and the average exaggeration of release price was 22%.
As before, readers can investigate the data on their own using the interactive chart below.
From Scott on 13 October 2009, 16:45
This entry appears to be incorrect (i.e. 140 is not 133% higher than 112):
From Richard Belzer on 13 October 2009, 17:00
Thank you for spotting the error, which is now corrected.
From castello on 14 December 2009, 03:00
Nice job! Please keep me updated on their status. From what I see, most of the exagerations aren't too bad for Cali wines. I ordered a couple of their Champagne a couple days ago, a fancy looking french rose form a major producer. Not Heidesck but one like that. I need some deals on bubbly.
I'm not sure if it's new but now they say "with shipping" which will give them some wiggle room but may be deceptive. Do they know you're watching? Sorry, I didn't read all your stuff. Keep up the good work and maybe I can help. They appear to have some good deals.
I also ordered the merlot just yesterday, I think, so I can fill you in if it's a rip off.
Careful with the big/rarely used words. relive? decile? I had to look both of them up. Now I feel drunk/stupid.
From C. Woodbury on 1 February 2010, 03:45
So far, though, when I receive an offer from WTSO and research the wine on the internet from other vendors, I have never found it available at a lower price than what WTSO is offering it at. And with the free shipping, it's an even better deal. Deceptive? Perhaps...but I think (as you're discovering) it's sometimes difficult to find out what a winery's original release price is.
From Shelley Padnos on 25 February 2010, 18:00
I also have been checking the internet before buying from wtso and regularly find them to be the least expensive. That is not to say that they are not exaggerating the amount of the "DEAL" --but they have been the least expensive. As in all things, buyer beware. Do your homework before buying. It only takes a few "clicks"
From castello on 25 February 2010, 18:30
Folks are talking about this very subject today at Cinderellawine.com Most think it's is usually a better buy at Cindy and uses more well known wine reviewers.
From Gary on 25 March 2010, 02:15
When you take into account shipping, WTSO is usually less expensive - barely. They exaggerate the deal; what I don't understand is why. If they did *exactly* what they do now, but simply said " we are the lowest price" and didn't exaggerate release prices, ratings, etc. they'd have a lot more credibility. On several occassions I have sent them emails stating that the 'lowest internet price' they advertised simply wasn't so - I'd found it for less than they claimed. Their response was always "yeah, but if you take into account shipping, it's cheaper from us". They are correct; so why exaggerate? The best price IS the best price; but don't lie to me about what it really represents. I'd rather save $3 on a $20 wine and know it, than think I'm saving $5 and then find out it ain't exactly true... leaves a bad taste in my mouth!
From L. Eber on 14 April 2010, 13:15
I have e-mailed WTSO on several occasions asking for them to explain the relationship of Jonathan Newman to their operation, I also asked them where else I could find Newman's ratings. In the absence of any response from them, I must suspect that there is conflict of interest here in his ratings. If anyone has more information about this, I suggest that they post it here.
From e. s. neutz on 18 May 2010, 18:15
i'am as well suspicious of newman's ratings...
i disliked an ordered wine and they refunded the purchase prize.
the free shipping is a great marketing device.
From Ben on 7 June 2010, 07:45
I got a Cloud View from WTSO at an amazing price and was totally satisfied. I also research and compare and find their prices to be quite good with the free shipping built in.
The puzzle of Jonathan Newman also intrigued me. I found a Jonathan H. Newman that used to be president of the PA liquor control board but owns a suburban Philadelphia wine and spirits retailer that he started in 2007.
WinesTilSoldOut.com is registered to Joseph D. Arking of Pennsauken, NJ. He is a large retail wine distributor.
I always thought marketing sale wine that you pick up at a deep discount from distributors would be a wonderful business model, but never thought of doing it one bottle at a time until sold out.
From Bob on 23 September 2010, 16:00
It's kinda like BevMo ratings. They use their own guy Wilfred Wang (or Wong) who is on their patroll. Although I still shop their stores sometimes, I won't even look at anything rated by him.
From Acorad on 10 November 2010, 13:00
From WTSO's website:
Jonathan Newman served as Chairman of the Pennsylvania Liquor Control Board (“PLCB”), the largest buyer of wine and spirits in the U.S., and the largest purchaser of California wines in the world. Jonathan was Wine Enthusiast’s Man of The Year (2003) and received the American Wine Society’s Award of Merit (2004). In 2005, he was awarded the Guild of Sommeliers highest honor, the Distinguished Service Award. He was also named by Market Watch Magazine as one of the Top Five Leaders in the alcoholic beverage industry (2005). In 2006, he was elected as Chairman-elect of the National Alcohol Beverage Control Association.
From Richard B on 3 December 2010, 07:15
Marvelous analysis of data, including deciles ;). Although these data are indeed available to anyone with the time to "click around", most of us don't take the time -- me included. I have ordered probably fifty bottles from WTSO in the last three months, and have also become suspicious of the "Jonathan H. Newman" reviews. They're not particularly well-written (most start off with the phrase "I recently sat down with..."). I'd be surprised if Newman were not financially involved with WTSO. But, as pointed out by other reviewers, the free shipping is the real hook here: even if price difference is exaggerated, and from your data it is, the wine arrives free of any charge for shipping or tax. I'll keep using WTSO, but with a gimlet eye for the true price difference and for the reviewer.
From D. Keegan on 5 December 2010, 14:00
I still purchase a good deal of my wine from WTSO. Their delivered price has always been less than any other sites on the net. However, I do not purchase anything rated by Jonathan Newman. Just because he bought wine for the state of Pennsylvania does not make him a wine critic. It only makes him a businessman and former dealer for one of the largest alcohol beaurocracies in the country. He was given awards by US wine groups to influence his decision to purchase more domestic wine. Have you noticed all his ratings seem to be 92? Try tasting these wines and you will agree that he has no palate equipped to justify his critical judgement. I believe he pushes the wines that offer him the highest return margin rather than on a quality basis. I love WTSO, but any time I see "Jonathan Newman" on the offer page, I let it pass.
From Gary on 9 January 2011, 18:30
I have place 58 orders with WTSO over the last couple of years. Their prices are very good and the convenience of having the wine delivered is a pleasure.. Of the 58 orders, 4 were either corked or simply not good, and they credited back my purchase with no questions asked. I find that very business friendly.
As for Jonathan Newman, I have found his ratings to be poor at best. While i dont always agree with Wine Spectator, if they give a wine a 90 or better, there is a very good chance that I will like the wine or at least find it drinkable. With Newman, I have ordered several wines that he rated 92 or 93+ and have found them to be terrible. As a matter of fact, i almost never agree with him and will no longer order wine when he is the only one rating it. So what's up with that ?
From VK on 20 January 2011, 11:15
Actually, all you have to do is google the wine and check its most current retail. On that front, I find WTSO to be at or slightly worse compared to whatever is out there, though free shipping certainly makes up for some of the difference. I only buy WTSO when (a) it has a 90+ WS/WA rating and (b) it is 30% or more cheaper than the best price I can google.
From CeePee on 23 February 2011, 07:45
I, too, have ordered from WTSO and find the wines fairly priced and their customer support good. (I had a case go missing that fed-ex claimed was delivered and WTSO credited my account, no questions asked.) Before ordering, I always check the community postings on CellarTracker. I have noticed that WTSO sells the same wine at different points in time, usually lowing later purchase prices by a few dollars. Anyway, CellarTracker is another source of comparisons and tasting info.
From TS on 6 April 2011, 17:00
Interesting board. I completly agree with D Keegan, Newman must be a heavy smoker for he has a dead palate, and should never be taken seriously regarding his ratings. I too refuse to order any wine on which he is the exclusive rating source and after complaining to WTSO about his poorly educated palate had my name removed from the email list for a while. It was only after I noticed no new reviews for a week or so that I emailed the company and they reinstated my address. That said WTSO has proven to be a good source of wines at a reasonable price and I have purchased a great deal of wine from them. The FedEx guy knows me well as he delivers weekly at the least. Mostly second tier selections, but every now and then a true pearl appears.
From Dewey2 on 27 June 2011, 13:15
I too have been suspicious of Mr. Newman's reviews, until I finally understood that he has an 8 point system that starts at 92.
WTSO is certainly guilty of a few white lies. On the whole, I've found it to be a convenient resource for everyday wines at good prices.
From gary59zio on 8 September 2011, 14:15
Beautiful blog comments! Makes me think I'm half smart about my wine purchases. D Keegan, Dewey2, and TS above are right on target with understanding the WTSO business model. What is most important to me is getting a good bottle of wine at a low price, a great bottle of wine at a nice price, and all my wines delivered to my door. Can anybody ask for anything more?
From Sbloomwood on 12 September 2011, 00:15
I just saw this string and want to make a point in reference to a comment above by Bob (granted, it was a year ago so the chances he is reading this are poor!) about Bevmo and Wilfred Wong. While it is absolutely true that Mr. Wong is an employee of Bevmo, he actually has one of the best palates in the country. I have judged on several wine competitions with him for a number of years and he is universally respected by winemakers, retailers, and journalists alike. While it is appropriate to be skeptical of conflict of interest, in this case it would be good to know something concrete about someone before assuming they are a fake.
From Bob on 25 September 2011, 11:15
I have not changed my opinion of Wilford Wong. He may have a great palate (which I do not have), but he still works for BevMo, and should be suspect of conflict of interest. When I first joined BevMo I tried several of his 90+ reds, and was sadly disappointed. Unless I can find another rating, I do not buy his recommended wines. I just returned today from a week in Tuscany and a week in Paris. I was totally blown away with the very good inexpensive (less than $10) Bordeaux's that were available in the wine shops. The Chianti's and Brunello's were as always... great.
PS. I never said Wong was a fake, but suspect of being a paid shill, which considering his employment, can not be refuted.