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Wine Investment: With Passion and Expertise! - Gabriel Matagne
WINE INVESTMENT: AND EXPERTISE!
The market trends of wine investment are increasingly complex, spreading well beyond the traditional and most acclaimed Bordeaux or Burgundy wines.
This market is driven by two main forces: a steady consumption of fine wines and demand from investors looking for a safe haven to diversify their investment portfolios.
• Is investing in fine wine and champagne a good investment?
• What is the dynamic and size of the investment wine market?
• How to select the best wine to invest.
A research report from Credit Suisse published in October 2020 estimates that the sales of fine wine represent approximatively $5 billion per year. The same report estimates that more than 70 percent of ultra-high net worth individuals invest between 2 to 5% of their wealth in tangible assets, ranging from sport cars to fine wine. The main reasons for this sustained investment in fine wine and Champagne are passion, social recognition, and profit.
Rare wines and Champagne are seen as investments that generate attractive yields. Top Bordeaux fine wine Château Mouton Rothchild 2000 was released on the market at £1,580 per case of 12x75cl in 2000 according to Decanter. Today, it reaches £13,500 per case (Wine Searcher). This represents a 745% price increase! According to Wine Searcher, the average retail price of a bottle of Champagne Krug 2002 in January 2020 was £267; in December 2021 the same bottle sold for £367. This represents a 40% increase in less than a year. Similar price increases can currently be seen across the top Champagne sector.
There are many success stories in the field of wine investment, but there are also some sobering exceptions too. Investing and drinking wine requires flair and, above all, moderation.
WITH PASSION
Typically, the fine wine investment market is driven by the imbalance between supply and demand, due to the consumption of wine. When stocks of any given investment grade wine disappear, their prices go up.
Not all fine wine can be an investment wine. Less than 0.1% of fine wine perform well enough to be considered suitable for investment. However, 0.1% represents a considerable volume of bottles! The combined production of the five top Bordeaux wines is approximatively 900k bottles per year. Top wines need to mature for at least 10 years. In the Bordeaux top five club, Château Lafite produces 190k bottles per year, and Château Margaux produces 120k bottles a year. On the right bank of the river Garonne in Bordeaux, the production of investment grade wine is smaller: Château Pétrus produces about 30k bottles per year; Château Le Pin in Pomerol produces only 7.2k bottles per year. Still in France, but in another region of the country, at the Domaine de la Romanée-Conti (DRC) in Burgundy, the production reaches 6k bottles in a good year. Because of its reputation as one of the very best wines in the world, the demand for Domaine de la Romanée-Conti overwhelmingly exceeds the offer. The imbalance between offer and supply is having its effect on price: the young DRC 2015 can be purchased at £25k per bottle. To put this price in context, a bottle of Château Pétrus 2015 only costs £3.5k. More affordable options including Château Margaux 2015, are at around £1k per bottle.
Wine pricing is affected by stock availability and the pressures of demand determined by the actual consumption of the bottles. In the wine arena, each bottle is, in the first instance, fighting to win the palate of wine aficionados, and not necessarily the wallet of the investor.
“EVERY WINE LOVER WILL HAVE HIS OR HER OWN LIST OF “MUST HAVE” COLLECTORS’ ITEMS." How to select the best wine to invest
Many people that enjoy fine wine and Champagne will at some point contemplate the idea of owning their own private wine collection. Every wine lover will have his or her own list of “must have” collectors’ items. However, when it comes to starting a wine collection for investment purposes, focusing on personal taste can be a fatal mistake. The product selection must be methodical, unemotional, and well-documented.
The one-million-dollar question is: What is the best investment wine? Starting a product selection requires a good understanding of the quality of the product, vintages, and market price. The tension between price and quality is instrumental to define the medium and long-term “price expectancy” of a product. Most agricultural commodities are easier to assess in terms of quality. For a sugar trader, for example, the quality of a particular lot of sugar is determined by what is included in a set of documents reflecting the chemical analysis of the product, its quantity and so on. The wine trader cannot rely on such objective criteria. As a matter of fact, it is impossible to establish objective specifications for the current or future taste of fine wine.
Assessing the quality of fine wine, and its appropriate price, is a pressurising exercise. No one can tell for sure what a wine sample will taste like in 50 years from now. Because the subject of wine is so extremely complicated and requires super-charged olfactive memory, most wine collectors and investors are using classifications and/or are following the opinions of experts. Product selection is indeed an old problem, which, in 1855, Napoleon III tried to solve by creating the 1855 classification.
The 1855 Classification
To showcase the very best of French wine at the Paris Exposition Universelle of 1855, Napoleon III invited all the French wine regions to select a list of their best wines. Only the Bordeaux Chamber of Commerce responded to this invitation. The selection included the red wine from the Medoc region, the sweet wines from Sauternes and Barsac, along with one red from the Graves region.
The products were presented in five categories ranging from outstanding top Bordeaux (First Growths) to great value Bordeaux (Fifth Growths). The 1855 classification has changed only once - in 1973 - with the introduction of Château Mouton Rothschild in the category of the First Growth, which contains only five top Bordeaux wines; Château Lafite Rothschild, Château Mouton Rothschild, Château Latour, Château Margaux and Château Haut Brion.
The 1855 selection is still a benchmark and many of the wines on that list are targeted by collectors and investors today, and not just the ones in the First Growths category. However, a profitable investment in wine is not as simple as buying the best vintage of the five top Bordeaux. For instance, at the peak of the financial crash, investors were desperately trying to limit exposure to financial and property markets. For them, top wine was a safe haven and they poured vast amounts of money into buying Château Lafite Rothschild 2010. That spike in demand turned the 2010 vintage into a highly speculative financial product. As a result, when the Château Lafite Rothschild 2010 was released, it reached the overheated price of £12k per case. Eventually, the price per case crashed to £5.5k in 2015. In July 2020, 10 years after its first release and when the wine was finally ready for consumption, each case was valued at £7k. Today, the case is priced at £11k. This odyssey with the price of Château Lafite Rothschild 2010 shows that all investment in fine wines must be linked to the intrinsic quality of the product and the reality of the consumer market.
The impact of the guru effect
Today, investment grade wine can originate from different wine regions and is not limited to Bordeaux or even French wines. The best combination between region/ sub-region and vintage are key to selecting a winning product for investment. The market follows closely the tasting notes of some of the most acclaimed wine critics such as Antonio Galloni, Neal Martin, Lisa Perrotti-Brown and Jancis Robinson. The results of the wine review tend to make their way into the graphs of wine trading platform Liv-ex: a good review will push the prices up and a bad one will push the prices down. Critics of the wine experts argue that this small group of influential people have a lot of power over the commercial value of a small investment grade wine pool that attracts $5 billion each year.
Until recently, the landscape was dominated by the legendary Robert Parker. One single wine critic shaped not only the trends in the investment market, but also the taste of the wine itself. Wine makers were rushing to create the perfect ‘Parker-pleasing’ wine so they could be awarded the highest mark of 100 points. However, the truth of wine excellence cannot be reduced to the opinion of just a few. Very much like an investigative journalist, any wine investor must cross-check and verify detailed levels of information – including wine critics’ reviews – before starting to build their investment wine portfolio.
Market information and data
As wine is increasingly seen as a type of financial investment, trading platforms and data have emerged. Two useful companies are Liv-ex and Wine Searcher. The graph, indexes and market analysis of Liv-ex are frequently used to document fine wine investment trends in the press. Based in New Zealand, Wine Searcher allows wine and spirit trading companies to publish their wine lists on their website that operates a wine search engine. Wine Searcher monitors the trade movements and updates price trends product by products over long periods of time. But as a result, biodynamic wines like Domaine de la Romanée-Conti are not equipped to face logistical hardship. Poor shipping and storage can simply be fatal and destroy expensive wine forever.
To avoid buying damaged wine, knowing the source is essential. It is estimated that up to 20% of the fine wine stock is fake, but an overwhelming majority of 80% of the stock is genuine. However, not all this wine has been stored in the same way. Wine investors should take all the necessary steps to ensure that they are buying great products. Having a clear understanding of the market, logistic and fraud risks are of paramount importance for anyone considering investing in wine.
For many historical reasons, the UK is still the biggest and most structured trading hub for fine wine in the world. The London wine trade has access to a large stock of good provenance wine that is kept in UK-bonded warehouses. International investors can benefit from storing and trading wine from a UK or even a European-bonded warehouse. If they decide to do so, there is no VAT payable at the time of purchase. Storing wine in a bonded warehouse also includes the benefit of having the stock insured at replacement value. However, remember that there are storage fees to be paid.
gabriel.matagne@ spiritsandchampagne.com
Wine is a vulnerable product
Although wine market analysis and data are important decisionmaking tools, investors should be reminded that wine is not bitcoins. It is a living product that is individually-priced based on the provenance, storage conditions, tasting notes and so on. In other words, one case of Chateau Margaux 2005 offered for sale in a shop in Malaga (via Palm Beach) and another one offered for sale in Bordeaux, might be perceived as exactly the same product, but in reality, they are not.
Wine and Champagne are complex, live products with a chemical structure that evolves over time. The best products can mature and age over many decades. The Champagne Salon 2002 has a theoretical “sell by date” set for 2060. There is no doubt that well-stored Salon 2002 will survive the year 2060. To develop well over time, wine needs to be protected from light, temperature variations, and vibrations. Poor logistics and storage conditions have a devastating impact on wine, yet the damages won’t be visible to the naked eye.
The wine industry created solutions to make wines resistant to the current low standards of wine logistics. This was mostly done by adding chemicals. However, certain top wine makers are limiting the use of these chemicals to the bare minimum.
Mark West
Mark West has been a dealer in antique glass for over 50 years and is renowned throughout the world.
He has written several books, including Glass (Miller's Antiques Checklist) which has sold over 40,000 copies and is available in three languages. He has appeared on the long-running TV programme Going for a Song and Four Rooms and used to have a 'phone-in’ programme on a national radio show.
Mark is a long-standing member of e British Antique Dealers’ Association (BADA) and was one of a select few Europeans elected a Fellow to the prestigious Corning Glass Museum in New York State.
He still actively dealing at fairs and online, and has sold to the V&A, the Corning Museum of Glass, the Royal Ontario Museum, the New York Metropolitan Museum, the St. Louis Museum and many others. He has also advised and supplied various TV and lm production companies on glass.
