Increasing buzz around investing in wine.
It may be time to put your money where your mouth is.
Over the last two years, the fine wine market has exploded, even topping the Knight Frank Luxury Investment Index last September.
The best measure for this growth is the London International Vintners Exchange, or the Liv-ex. Think the S&P 500, but for wine. Between July 2001 and July 2021, the S&P 500 grew 60%. In the same two-decade span, the Liv-ex rose by 270%.
Why wine? For many, the answer is diversification. Fine wine’s value is based on a number of factors that have little relation to the performance of the economy, interest rates, corporate earnings, or conventional investor sentiment, thus providing investors an alternative avenue to spread and grow their wealth.
However, it’s not accessible to everyone. Fine wine investment comes at a high price point. Buyers must consider storage expenses, insurance, and shipping fees — not to mention the premium price tag that’s often attached to bottles and cases purchased through auction (currently the most popular route for purchase).
Why now? The fine wine market saw unprecedented growth in 2020 and 2021, and all signs point to that trend continuing through 2022. The COVID-19 pandemic means oenophiles are drinking more expensive wine at home at higher rates than ever before. Combine that with inflation and supply chain challenges, and it’s no surprise that demand is surging.
Do your homework. In a recent Forbes article, Jamie Ritchie, Global Head of Wine at Sotheby’s recommends three books to aid new investors: “The New Sotheby’s Wine Encyclopedia,” by Tom Stevenson, “Inside Burgundy” by Jasper Morris, and “Inside Bordeaux: The Châteaux, Their Wines and the Terroir” by Jane Anson.
These recommendations all provide an in-depth look at the industry and help potential buyers better understand the nuances attached to the evaluation of wine — including factors like vintage, reputation, aging potential, and scarcity.
- Vintage — Weather plays a significant role in wine production and can drastically shift a product (that has the same vineyard, winemaker, grape type, etc) from one year to the next. That’s why a wine’s vintage, or the year grapes were harvested, is the primary variable when estimating current and future prices.
- Reputation — Region and winemaker are also both reliable indicators of value. The wine industry has its own set of powerhouse wine regions (Sonoma, Bordeaux, Maipo Valley, etc.) often marked by similar climates and geographic features. And similar award records.
- Aging Potential — A number of factors can influence maturation including the type of grape, level of acid, and tannins. Investment-grade wines tend to mature around 10 years after bottling.
- Scarcity — Any good economist will tell you that supply is the true driver of price. Because of variance from year to year, wine supply has always been somewhat finite. However, the emerging climate crisis–causing drought, wildfires, and frost–has gone a long way to reduce output and drive up price over the last few years.
As fine wine becomes increasingly popular, new avenues have opened to invest in both primary and secondary markets — in-person and online auctions, wine exchanges (like the Liv — ex), and even wine funds.
Cult Wines, founded in 2007, promises to simplify the wine investment experience for its members. Interested parties dictate spend and risk parameters, and in turn, Cult will match them to product and even store it on their behalf in Cult’s bonded warehouse.
Many wineries have also begun to explore investment through NFTs, or non-fungible tokens. In her recent article for Bloomberg, Erin McCoy frames the digital assets as a way for wineries to gain publicity, connect with customers directly, and even trace their product.
Napa’s Trefethen Family Vineyard launched its own NFT experiment in December with nine cabernet bottles sporting one-of-kind, original art labels. Buyers were able to attend an NFT-only event, age their bottles on site for up to 10 years, and had access to a QR code that unlocked 3D art, as well as a virtual bottle that could be traded.
While NFTs have the potential to make trading wine faster, more secure, and more transparent, it seems unlikely that fine wine’s traditional stakeholders will be quick to embrace the trend.
However, blockchain’s entrance certainly confirms the landscape of wine investment is actively shifting. And will continue to evolve as interest increases, and investors become more diverse.
For those looking to expand their portfolios (and have the capital to do so) fine wine offers a unique investment opportunity. And the time to invest is now. The known challenges facing the industry over the next few growing seasons combined with the increased ease of access to buy and sell product only bodes well for investors willing to take a risk on liquid assets.
Danilo Diazgranados is an independent investor in the global food and wine, financial services, real estate, and the hospitality sectors.