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 ...in return for a Christmas hamper and vouchers to buy Christmas presents. The management, it seems, betrayed the trust of its vulnerable customers by lending £35m to sister companies which have since closed, taking Farepak with them and leaving 150,000 British families facing a miserable end of December.
Meanwhile, a smaller group of more well-off individuals are coming to terms with disappointments of their own. These are those who paid two firms, the Mayfair Wine Company and Uvine, an estimated £3m for fine wine which, since the separate failures of both during 2006, they are unlikely ever to see. At first sight there may seem to be little in common between Farepak and the wine companies. The Uvine and Mayfair customers were, after all, splashing out as much on a dozen bottles of wine – or for 2005 Bordeaux on a single bottle - as the Farepak victims spend on their whole Christmas. But, under slightly closer examination, there are several parallels. Farepak´s parent company, European Home Retail, was an apparently very solid enterprise whose chairman was Sir - note the title - Clive Thompson, former president of the influential Confederation of British Industry. Uvine´s chief executive was Christopher Burr, Master of Wine - note the title - and former International Head of Christie´s Wine Department. In other words, neither company carried any of the fraudulent smell associated with numerous firms that were deliberately set up to cheat fine wine buyers, and which have been so well exposed by British wine writer Jim Budd on his www.investdrinks.org website. Mayfair may not have boasted quite as illustrious a boss, but until it was discovered that the company secretary had quietly been selling off clients´ wine, no one would have had any reason to question the firm´s integrity.
Another parallel between the Farepak and Uvine sagas has been the question of why these companies failed to make money. Farepak took in money throughout the year and didn´t have to pay for its vouchers and hampers until the following February. Wine companies selling en primeur – as futures – work on a similar basis. Retail customers pay up front for wine that is bought on credit. Uvine´s initial business model extended beyond en primeur – it was a full scale wine exchange – but it was based on taking a margin from other people´s transactions rather than the risk of buying and holding stock. It didn´t work. As Christopher Burr admitted in September 2006, the company which used a computer system designed to handle £50m of trade a week, never managed to make a profit between its launch in late 1999 and its demise seven years later, despite the feverish activity surrounding the 2000, 2003 and 2005 Bordeaux vintages. Uvine only survived for as long as it did thanks to heavy early backing by dot.com players such as US hedge fund Moore Capital, |
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which enabled Uvine to buy another wine merchant called Michael Morgan in 2001, and by the ongoing reluctance of the wine world to acknowledge that its feet were made of clay. It would be good to be able to say that Uvine and Mayfair are unlucky exceptions to the rule, but they are not: there are far too many other firms, including some well-known names, operating at marginal profits whose retail customers would be in a similar position if the axe fell.
And so to the third and most significant parallel between Farepak and the wine en primeur business. Both operate in a strange no-man´s land that falls outside current legislation. Farepak was acting as cross between a savings institution and a retailer; en primeur merchants are in even greyer territory. They are simultaneously in the business of wine retailing, investment advice and wine storage; but, despite the fact that their relationships with individual customers run to tens and hundreds of thousands of pounds, they are not punishable by the laws that should cover these services. A group of UK merchants – Adnams, John Armit, Berry Bros & Rudd, Corney & Barrow, Lay & Wheeler, Tanners and Yapp Brothers – have come together under the heading of „The Bunch“ and drawn up a code of conduct. This provides for stock certificates, insurance and the identification of customers´ reserves, but only for wines on which duty has been paid. Bonded wines and wines that have yet to be delivered from the chateau to the French negociant or from France to the UK are not covered. In other words anyone who bought, say, £20,000 worth of 2003 Bordeaux and left it in bond, which is what most such buyers would have done, or recently paid a similar amount for rather less 2005 claret, is as unprotected as the poor folk handing over their £5 per week to the Farepak collector.
One result of the Farepak collapse has been a call for government legislation to cover all kinds of businesses that take money today in return for a product or service that will be delivered in the future. Airlines and holiday companies won´t be affected by any such move, for the simple reason that the travel industry has set up its own effective system of consumer protection. The UK wine trade has, so far, vigorously resisted the establishment of any such scheme. My guess is that it won´t be long before it will have no other choice in the matter. In the meantime, the only advice I would give, is to deal with a sizeable company like Berry Bros & Rudd that offers a guarantee scheme of its own.
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