Wine Investment - Market Review

Investing in wine is by no means a new phenomenon. Many years before fine wine became truly global in the mid-1990s, wily buyers would often buy more than they intended to drink, selling on the excess at a later date to fund new purchases.

If your are interested in finding out more about any aspect of fine wine please call or email one of our advisors at any time, although we would ask you to note that Berrys is not regulated and therefore has a strict policy on wine investment advice.

2009 Market Review 

Joss Fowler, BBR Fine Wine Specialist, looks at wine investment over the last year

This time last year was about the time that fear hit the fine wine market. We had seemed immune from the wider travails of the economy – 10 cases of 2000 Ch. Lafite-Rothschild selling at Christie’s for a shade under £11,000 per case just days after Lehmans filed for bankruptcy protection – but in October and November prices, notably those of the top 2005s, dropped off. 2005 Lafite, which was touching the £10,000 per case mark in the summer of 2008, could be picked up for £6,000 per case in November of that year. This was clearly an opportunity for the brave – Lafite 2005 is now selling for £7,500 per case and more.

A year on, and things are much brighter for those whose interest is in the price of wines going up.  The supply of the best wines is limited and this fundamental is now kicking in.

So what does next year hold for us?  Investing in wine has become increasingly popular: despite the falls of last year (and the big ones were restricted to a few wines) wine, on reflection, has performed well and is increasingly attractive to those with the long-term view and those who want to put their money into something tangible.  The increased investment in wines is not without its effect: more buyers push prices up in the same way that sellers pull them down and we may well see more ups and downs than we have seen in the past.  The wine market is relatively illiquid when compared to stocks and shares, though it is more tradeable than ever before.

The key driver of all the prices isn’t the investors, though: ask anyone in the Far East.  This relatively new market for fine wine is booming and this is just the beginning.  We may well have customers in the UK whose cellars are full but the cellars in Hong Kong and mainland China need filling and, sadly, one just can’t make any more Mouton, Lafite et al.

Simon Staples in The Guardian (21 Nov 09) on Wine investment, including his top tips for wine investment.

Which wine will be the best investment for the next 10 years? I strongly believe it will be Asia-focused and entirely red wine. The increased demand we have seen, particularly from Hong Kong, over the past 18 months is likely to spread to China's major cities, putting enormous supply pressure on certain Bordeaux chateaux. Bordeaux has an almost infinite market for a very small, finite product. To give you a feeling of size, the great Chateau Mouton Rothschild 20 years ago was producing twice as much as it does now as it, and all its peers strive for perfection by making a more concentrated, and therefore smaller, grand vin. In 2008 it made approximately 13,000 cases. Even at £2,760 a case this doesn't go anywhere – apart from more expensive – in such a potentially enormous market as China. I see the first growths Lafite Rothschild, Mouton Rothschild and Latour leading the pack over the next year or so with Haut Brion and Margaux following close behind.

Simon Staple's  tips are: 2008 Ch. Mouton Rothschild at £3,000 per case; 2008 Ch. Lafite Rothschild at £4,960 per case; 2008 Ch. Latour at £3,600 per case; 2006 Ch. Lafite Rothschild at £4,000 per case; 2005 Ch Lafite Rothschild at £8,000 per case.
(published in The Guardian , Jill Papaworth -Patrick Collinson, How alternative investments have performed since 2000 - Sat 21 Nov 09)

February 2009 Market Review

In the 1990s demand for the best wines from Bordeaux boomed. The ‘traditional’ market for the best wines, Europe and North America, was joined by the new markets of the Far East. Prices moved up and though the prices of some top Bordeaux châteaux dropped in 1998, due to the Asian economic collapse, the general trend in wine prices has been up. Whilst it is difficult to find totally accurate records and therefore data, it is fair to say that the prices for the very best wines have risen by an average around 15% per year over the past 25 years with quiet periods (e.g. 1998 to 2002) being more than balanced out by the busy ones (e.g. 2005 to 2007).

Although it is important to take a long term view, it is undeniable that the best wines have proved to be sound long term investments over the past twenty years. Whilst the fine wine market had an exceptionally buoyant couple of years from 2005 to 2007, and Berrys’ customers who bought top end 1996 and 2000 Clarets at the right time will have done very well indeed, wine prices are not immune to economic malaise and the global financial crisis did finally bite in October 2008 when prices, notably those of the top 2005s, dropped off from their early 2007 peaks.

The correlation between the financial and fine wine markets is small. Whilst prices for a few of the top wines have dropped, the market as a whole still looks very firm when compared with more traditional investment markets. The reason for this is that fine wine is a tangible asset, one deemed to be a luxury product enjoyed by an increasing number of people as the interest in and aspiration to consume the product grows. Of equal importance is the limits to supply; the production of any particular vintage of, say, Margaux, is constantly diminishing and, in the case of younger vintages, is constantly improving.

Key to investing in wine is buying the right wines (at the correct prices). The wines that have exhibited the best performance historically are the top thirty or so châteaux of Bordeaux. These are often best bought at their opening price en primeur, but because supply is so restricted at the moment selected older vintages are looking to be good bets for the next five years. To put this in some kind of perspective and illustrate the problem of supply and demand, Ch. Latour made approximately 10,500 cases in 2003. This production has to be allocated around the world. In the past around 20% of Bordeaux wine was imported into the UK, which in this case may have accounted for around 2,000 cases of this château’s production. 

This is already a restricted supply but the UK now takes a far lower proportion of Bordeaux’s production and less and less wine is released at opening prices. The opening price for 2003 Ch. Latour (if one could get hold of a case in June 2004 – this was available only on an allocation basis at most merchants) was around £2,250 per case. The wine currently trades (as at January 2009) at more than £7,000 per case, having peaked at more than £7,800 per case in the summer of 2008.

The practical advantages to wine investing are fairly straightforward. Wine is an easily transferable asset; there is an established fine wine market and a thriving auction market. There are no limits to wine investing, though the current prices of the top wines is such that one really should start with £5,000 to £10,000.

Whilst customers who bought well in 2005, 2006 and the first half of 2007 will have done very well indeed, it is very advisable to view any investment in wine as a long-term one. Experience suggests that a minimum five year term is a good benchmark but one should bear in mind that for the most part one will be buying wines with a lifespan of ten, twenty years and more and that their ‘financial’ maturity will be linked with their drinking maturity: 1996 First Growths are still young wines, for example.

Correct storage of investment wines is crucial for two reasons. Firstly, wines should be stored under bond to avoid paying excise duty and VAT on the wine, which cannot be reclaimed. Secondly, provenance is key to a wine’s future value: fine wine has to be stored in quite specific conditions. Professional storage with Berry Bros. & Rudd currently costs £9.00 per case per annum and this would be in our own, private, temperature- and humidity-controlled facility. This includes insurance at full replacement value.

The logistics of buying and selling wine are relatively simple, though it is important to note that the transaction costs are considerably higher than those for stocks and shares, for example. A merchant’s buying price for a case of fine wine will usually be between 10% and 20% less than its selling price; the actual margin will depend upon prevalent demand for the wine in question, the merchant’s stock position and the nature of the transaction. This a major reason for viewing wine as a long-term investment. 

Berry Bros. & Rudd are merchants, not brokers, and subject to market conditions we will normally make an outright offer to buy wines that are held in customers’ private reserves. Our customers are collectively one of our key suppliers and we are, of course, happy to buy wine back from our clients as we can be absolutely confident of its provenance. Customers are by no means bound to sell to us, and we can arrange delivery to an outside bond (with written instructions) if their wine is sold elsewhere. That said, experience shows that our buying prices are correct and our customers can be absolutely sure of our financial health (in short, we pay our bills). However, due to current market conditions we can offer a full broking service for your portfolio of wines.

Demand for fine wine is growing. The price rises that we have seen for the very best product, driven largely by the super-wealthy and the new markets of the Far East, and to a lesser extent South America and elsewhere, are the ones that have grabbed the headlines, but it is important to note that these are not the only wines that are selling. The number of potential new wine lovers, drinkers, buyers and connoisseurs in this increasingly globalised market is unknown but constantly growing.