Investing in wine has become a fashionable part of an individual’s portfolio over the last 20 years. It can be hugely profitable, it’s stylish and possibly even a little high-brow, and as such it attracts a global and growing audience.
As an annually produced agricultural product with limited production, (unlike spirits), scarcity, particularly as the wines begin to be drunk, makes it an attractive proposition.
Buying Bordeaux Futures (or Primeurs) is buying a wine when still in cask and up to two years before the wine is bottled and released to the world. Historically a Chateau would sell around 15 to 20 percent of a particular vintage through this channel, ostensibly to help with cash flow.
Wine shop and tasting room to open as part of Japan-inspired Depachika Food Hall
The buyers, on the other hand, were buying with savings of 40 to 50 percent against the final release price. Thus was born the concept of buying two cases of Chateau X, cellaring/storing for a few years and then selling one or both cases for twice the initial primeur price – basically getting a 100 percent return, or retaining one case for personal use at no charge.
All was well and good, but then two things happened around the early 1980s which changed things forever.
The most seismic shift was the coming of age of American wine writer Robert Parker. He brushed aside the British wine aristocracy who had presided over wine (Bordeaux particularly) journalism for decades and came forward with an engaging style and a new scoring system.
Previously top wines were given marks out of 10 or 20, or given stars of 1 to 5. Parker went centennial and scored everything out of 100. Journalists hated it and it was debated over and over in the press, but much more importantly, Jo Consumer absolutely loved it. It gave clarity and also caused much clamour for investors and imbibers alike to get their hands on 95+ point wines and of course the ethereal and exceptional few that were awarded the perfect 100.
As a young man joining the wine trade in 1983, this writer was in awe of Parker and what he did for Bordeaux, (and indeed other regions subsequently).
Linked to this extraordinary rise in consumer understanding, was the launch of the magnificent 1982 vintage in Bordeaux. Better winemaking techniques, more investment in the Chateau and vineyards themselves and a growing cycle that was blessed with splendid weather, gave the Bordelais the shot in the arm they had craved.
Investment wines exude from all corners now within France, including Burgundy, Rhone and Champagne
After the 1970s sputtered to the end, Bordeaux was desperate to get their famous wines back in the limelight. Remember, California had already done a fabulous stitch up job in 1976 with the fabled ‘Judgment of Paris’ tasting where many top wines from Bordeaux were put in the shade by the ‘upstarts’ of the Napa Valley.
1982 arrived, Robert Parker (rightly) lavished praise and the Bordeaux bandwagon hit the road and hasn’t stopped since.
Today however, Bordeaux does not have it all their way. Investment wines come from all corners within France, including Burgundy, Rhone and Champagne, and all offer alternate opportunities. But investment wines are also found in Tuscany and Piedmont in Italy, Spain with Ribera de Duero and Priorat. Further afield, Napa and environs in the US, Chile, Australia and so on.
Every serious wine producing country now has billionaire investors wanting to create their country’s wine icon. Some have worked – think Almaviva in Chile or Sassicaia in Italy, but many more have failed, at least so far.
Global warming and better farming practises and winemaking techniques have meant that Bordeaux vintages have, over the last two decades become more homogenised
Bordeaux, though, remains the epicentre, and most new world investment grade wines are traded through the Bordeaux Place (or wine bourse if you like). I launched the very first Bordeaux Investment offer in Dubai back in 2000. The vintage was tremendous, the wines were reasonably priced and there were upsides for both seasoned buyers of wine ‘futures’ and new recruits to this fun and generally profitable investment channel.
For those who bought a case of, for example, Chateau Mouton Rothschild, then priced at GBP2,000, would now have an asset currently being offered for sale by Berry Brothers in London at GBP19,000 per case.
As we head toward the 2020 Bordeaux Primeur campaign this coming April, much has changed in the wine world. Opportunities for investors still exist, but they’re much more complex.
The Bordeaux Chateaux now take much more of the margin for themselves, making buying futures from this region less interesting.
The monumental increase in sales of top Bordeaux to China has slowed, as the market there has matured and now appreciates wines from all over the world and not just Cru Classe from Bordeaux.
Global warming and better farming practises and winemaking techniques have meant that Bordeaux vintages have, over the last two decades become more homogenised. We never really experience ‘disaster vintages’ that we had in the past. If the weather is deemed poor for whatever reason, then selection is more rigorous and generally less wine is made. But what is made is still pretty good.
Finally, investing in wine over the last 30 years has attracted a lot of people who have no interest in the product itself and see wine as purely a commodity to invest in. This is perhaps the biggest threat of all to this traditional way of purchasing great wine, as, very simply, corks are not being pulled.
Merchants will not allow customers to simply cherry pick the top and rarest wines
If a Chateau produces 15,000 cases in a given year, one would hope within, say 15 years of production, that 80 percent has been consumed. The resultant scarcity of that wine, is a (or maybe the) key driver of investment value. If wines are simply shifted around the world as commodities, then we can no longer assume that value can be accrued in the years to come.
For those wanting to get involved in investing, firstly I would recommend that he or she has an interest in the culture, traditions and history of wine-making. A true appreciation and respect of the product accelerates insights and knowledge which go on to inform future investment decisions.
Secondly, find a wine merchant, with a proven track record, with whom you can discuss long-term cellar plans. Merchants will not allow customers to simply cherry pick the top and rarest wines.
With a trusted vintner, you will have your purchases cellared in optimal conditions in a bonded warehouse (for about GBP15 per case per year) and you will only pay duty and VAT at the prevailing rate when you take the wines out of bond.
If you sell them, and said merchant will help, then you don’t incur either of these charges anyway, but the merchant will usually take a percentage of the sale. Seen as a ‘wasting asset’ there are no capital gains taxes levied on wine.
There is much online to digest and finally, beware the dreaded wine investment funds. Often looking highly polished in presentation, there have been many that are simply scams.