Wine investment is not a new phenomenon – it is an investment strategy going back nearly a millennium. The concept of building a wine collection that could potentially lead to future financial success is not easy. For many, wine investment strategies surround the concept of diversifying investments in different portfolios – hence why ultra-high net worth individuals will invest in asset classes outside of the stock markets and other investment classes like art, luxury goods or wine.
In the past quarter century, the global wine market has exploded in popularity. From being dominated by traditional wine-making centres in France, Germany, Australia to North America and instead has gone global as these “historic links” to the winemaking aristocracy globalise. This experience has resulted in wine, as an asset class, seeing on average annual growth levels of around 12.5-15.3%.
How Wine Investment Works?
The concept of wine investing works on a very simple supply and demand principle – that decreased supply of vintage wine supplies (which occurs after being purchased in large volumes and consumed by the wider wine drinking market) creates a future increased demand (which will be seen as vintage bottle prices increase as supply dwindles.). This scarcity is even more prevalent as greater amounts of wine are being consumed globally – with fine wine markets in BRIC markets (Brazil, Russia, India, and China) growing as fast and sometimes even faster than more traditional markets in the EU, Asia and North American territories.
To invest in wine, you need to understand the winemaking ecosystem. This is a very small, interconnected marketplace that balances the “new” and “old” worlds. You will need to understand standards – for example the Bordeaux Wine Official Classification of 1855 created a superiority of red wines in the wine growing regions of France. The German white wine categorisation system is another classification model that you need to understand. The German Wine Laws of 1971 created a system of standardisation for quality and grape designation classification. Italian wines are also governed by standardised rules, the Denominazione di origine controllata e garantita otherwise known as DOCG. This is a government-led judgement panel that approves and ‘guarantees’ Italian wines, based on grape, minimum alcohol and ageing requirements.
Therefore, by understanding wine classifications and standards, understanding the supply and demand mechanics of wine consumption and wine investment, one can leverage these experiences to help identify an alternative investment experience that can lead to success. This is about getting the best possible price at or below the standard market rates – this best pricing can mean in the long-term your investment will yield greater returns. This is where partnering with a wine merchant can help enhance your investments.
There is one final area anyone thinking about investing in wine need to consider and this is the provenance and storage dynamics of their cellar. Professional wine investment requires professional support services – an at-home cellar is not always the best medium for storing your long-term investments. This is where collaboration with wine merchants who offer provenance and storage services can help – they will have the logistics in place to work with merchants and help care over the long-term for your investment-grade fine wines. Remember, there are investment and cost dynamics at play, for investment wine to be of investment grade – the wine must remain “under bond” which means it is exclusive of VAT, but to match this criteria it must be kept in bonded and secure storage facilities.