The Present and Future of Online Whisky Auctions
September 1, 2016 –––––– Jonny McCormick
Online whisky auctions have had an indisputable impact on the world of whisky. Their phenomenal success has turned casual and serious whisky collectors into eager customers, radically altered the scale and accessibility of the secondary market, trumped the best liquor stores on choice and price, and in turn, compelled a reactive whisky industry to rethink the pricing and availability of every new limited-edition whisky. The ascendancy of this young, global, multi-million-dollar industry shows no signs of slowing. With the hegemony of UK-based websites dominating the scene, we interview four top industry leaders representing the country's largest online auction houses.
Scotch Whisky Auctions (scotchwhiskyauctions.com) has moved to its third Glasgow location in five years to meet their ever-growing requirements for storage space. “Back in 2010, Tam Gardiner had a wee whisky shop called Tam's Drams,” explains Bill Mackintosh, co-founder of the business, as he tells the story of their origins. “We got talking about what he really wanted to do, which was a whisky auction site.” No other company in the UK was running an online site. They initially assumed it would be illegal. “We made a couple of calls and discovered that it was legal, so long as we had an off-sales license [permits the sale of alcohol beverages for off-premise consumption].” They went into business, the first of its kind in the UK. “We used bottles from Tam's personal whisky collection and bought job lots from traditional auction houses to seed our first couple of auctions.” Within five or six auctions, people were knocking on their door laden with boxes of whisky to sell. The staggering number of lots they've handled tells of their success: in year 1 there were 2,762, by year 5, there were 34,121.
In Blackpool, England, Wayne Ormerod was the owner of a successful whisky shop well known to collectors. To source hard-to-find whiskies to sell, he would travel the country to visit traditional brick-and-mortar auction houses. “We would put on a markup of 20 to 30 percent, then wrap it with VAT [UK sales tax], and put it up for sale,” describes Wayne. Eventually, customers began to match up bottle numbers from their purchases with information on the Internet and drifted into sourcing their own bottles at auction. Wayne theorizes that awareness of his higher retail price would push up the realized auction price the next time a similar bottle went under the hammer. The downside for the retailer was trying to stay competitive, as he was always offering a higher price than the current auction value. As a professional appraiser of rare whiskies, Wayne realized he could deliver the best price for his customer and make more profit by offering the bottle in his own auction. Whisky Online Auctions (whisky-onlineauctions.com) was born.
Iain McClune developed a love for old whiskies while he worked for ten years at Royal Mile Whiskies. “Like many people, I started using whisky auctions to find bottles that I couldn't find at retail anymore,” says Iain. In Perth, he launched Whisky Auctioneer (whiskyauctioneer.com) in 2013. “With all this enthusiasm for iconic whiskies that you don't see anymore and the vintage years on the older bottlings, it became apparent to me that there was a gap in the market for more auctions.” Iain calculated they could attract a sizable market share by cutting rates for sellers. “We were the first to come down on auction commissions, but we still aim to be a premium business. Our attitude is that we can bring in the best whisky collections, and ensure our auctions are visible and accessible globally.”
Thirty miles away in Dunfermline, another whisky auction website was launched; a partnership between a couple of experienced whisky collectors and an IT specialist. That man was Graham Crane, the director of Just Whisky (just-whisky.co.uk), who was looking to start a business and envisioned room for an online auction site that did things differently. “At the time, there were no 5-percent auctions [the commission rate charged by the auction house; referred to as “seller's commission”] out there, which made a strong business case,” says Graham. “We must have had exactly the same idea as Iain in Perth, as they went live at a similar time. We thought it was viable to do lower commissions compared to Scotch Whisky Auctions.”
Graham Crane of Just Whisky inspects labels for authenticity.
The serendipitous decision by eBay to cease whisky trading on their marketplace after a particularly challenging case couldn't have come at a better time for the fledgling auction businesses. The only rival online whisky auction was based in Germany, so having a UK address made it much easier for all the collectors in the distillery areas to consign their rarities. Initially, traditional auction houses preserved their reputations as the safest place to sell the ultra-premium items, given the understandable apprehension of buyers about confidently paying four or five-figure sums on the basis of a digital image. The sensational wave of high-value Japanese whiskies sold at auction throughout 2015 swept away that last bastion of distinction from the traditional auctioneers.
“We now get £15,000 bottles sent through the post!” says Graham. “Customers have seen that online auctions are here to stay. They are not a flash in the pan: they are proper established businesses, professionally run, and everybody is doing a good job.”
Cyber Bidding Confidence
Online auctions offer all the excitement of a live auction, but it's served up a little differently. One offers a ten-day courtship with potential suitors vying to win the object of their affection, while the other is a knee-trembling affair lasting thirty seconds. At an online auction house, few people ever physically examine the bottles, so the descriptions, condition reports, and photography have to be exact. That's essential to give confidence to buyers bidding 24 hours a day around the world. Has it affected the existing live auction market in the UK? “No doubt at all,” affirms Bill. “Look at the number of lots that the traditional auction houses used to have, and look at the number they have now. There is absolutely no doubt in my mind.”
The specter of fakes and refills ensures that everyone is vigilant. “I've actually just opened up a box with two fake Macallan Anniversary Malts this morning,” discloses Iain. He can rely on his experience for authentication from handling bottles at Royal Mile Whiskies. An additional layer of protection is the digital community that follows each auction, which is willing to call out suspect bottles. “We take the issue as seriously as you would expect. It comes down to our own experience. We've been doing this for three years, but we're learning the best way to spot them. The Macallans stand out quite obviously, especially when there are spelling mistakes on the bottles!”
Scotch Whisky Auctions' warehouse
At Just Whisky, every bottle is handled by at least three people when it is booked in, photographed, and the description written for the website. “We're handling 1,200-1,500 bottles a month,” says Graham. “You're aware of what something should look like and feel like, and you become familiar with anything that doesn't look 100 percent. If we're not sure, we go to speak to the distillery or the bottlers. We've not found it to be a huge problem; they are few and far between. All the Scottish auction houses are pretty friendly, and we can pick up the phone if there are any concerns.”
“I'm not sure anyone could say that they've never sold a fake, but we've got a pretty good record,” says Bill reassuringly. Certainly, knowing that the auction houses communicate effectively to prevent fakes from getting listed is reassuring to all buyers. Bill has a proposal: “Tam and I are very keen to set up an association of online auctioneers so that we can share some of the information that we get, set some guidelines, and ensure there is a level playing field.”
Wayne believes the problem is more widespread and that not everyone is equipped to hold the line, “We're in a bit of a rat race now, as more and more of these auction houses are springing up,” he says, exasperated. “Just because you've got a piece of software doesn't make you an expert all of sudden. I'm not saying I'm an expert, but I've had plenty of experience and I'm always willing to learn. Without all those years of experience handling bottles, how do you know what it looks like and whether it's right or not?” he wonders. “Refills are a big issue. It's the provenance of the customers too, because when we go out to do valuations, we know if they are an ex-distillery worker, a big collector, or not.”
Variety, Volume, and Value
At Whisky Online Auctions over the past quarter of a century, Wayne has cultivated a following for older-style whiskies. “The idea was to bring variety,” he admits. “We're slightly more sensitive about those people flipping bottles, as we've always tried to source older bottles that have never been to market. The only reason you would want to have 5 percent [seller's commission] is to satisfy the people who want to flip. With the modern bottles, the first two auction houses that get them in will get the high prices. The next one, they fall on their arse. That's not what we wanted to build this auction house for. It's not a race to see who has the most bottles. Rather than thinking, ‘I need to get 10,000 bottles in this month to be recognized as a good auctioneer,' it's the unusualness that's more rewarding for us. We were sent a photo of an old dumpy Bowmore 12 year old with a £6 price sticker on it. We said, ‘Don't take that sticker off, we love all that type of thing,' as people can see where the market has been and gone.”
The trend for flipping bottles is disagreeable to many, both whisky drinkers and producers, but in reality, the percentage of bottles flipped is fairly marginal compared to the release volume. “The auctioneer is in control of what goes through,” Wayne reports. “The distilleries get bitter, knowing that people are queuing up at the festivals and then immediately listing the bottles on a website. People think if it's not doubled in price by the time they get home from the Islay whisky festival, it was a bad investment!” he jokes. “I've invested 25 years of hard work into the business, so I want a steady growth. These crazy runaway prices are dangerous for everybody, because the brakes will have to come on at some point.”
Iain McClune of Whisky Auctioneer adds a bottle to the inventory.
The auction houses may be based in the UK, but their customers are all over the world. Whisky collectors in Asia were quick to catch on, and the U.S. is the latest territory to get the auction bug. “One of our biggest growth areas is the U.S. because we can easily and legally get whisky to all of those states that are not dry,” says Bill. “Whisky won online on a Sunday night in Glasgow can be in your house in the U.S. by the next Wednesday or Thursday. More importantly, we are doing [attending] a lot of whisky festivals and high-end tastings in the U.S., and we're seeing more American whisky collectors and drinkers sending their bottles to us.”
Reliability of delivery and excellent customer service have been the key to greater engagement with online auctions for us in the U.S. (though they cannot ship to certain states and it is forbidden in Canada). “Our customers understand the difficulties of importing alcohol to the U.S., but we've not had any difficulties,” says Iain. “Unfortunately, the Customs website isn't particularly helpful, as it states you can receive it as a gift, and it's debatable as to how far that goes. Is it a gift to yourself?” he asks rhetorically.
The Japanese whisky craze has stabilized; values remain strong, but there are fewer bottles coming to market. What will be next? “I'm most excited about the emergence of a quality vintage market for American whiskeys,” says Bill. Graham agrees, “Within America, it's bourbon that's doing really well. It's really in vogue right now. Pappy Van Winkle has been strong for a while, but there are other good quality limited editions coming through.”
Online auctions have a lot going for them: accessibility, more frequent sales, greater convenience, more whiskies at all price points, lower commissions for buyers and sellers, quicker post-sale payments, and better customer service with faster international shipping to bring the bottles straight to your door. They have undercut the traditional auction houses, and now they are undercutting each other. Wayne believes they are in a race to the bottom, but in a contrary move, he put his own buyers' commissions up to 15 percent and hopes others will follow.
Overall, it seems like starting an auction house can be quite a rewarding occupation. “Every day is Christmas Day!” laughs Bill. “We get to open boxes that come from all over the world, and even though I've been doing this for a while, you don't lose that sense of excitement. It's a fantastic industry to work in, the people who work in whisky are pretty nice people, and the products they're selling are fantastic. It would be difficult not to be excited by the whiskies. It's an interesting industry too, never forced: if you want to buy an old and very expensive whisky, nobody is forcing you to do it. It's a lovely marriage of willing seller and willing buyer.”