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My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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  • Writer's picturetim@emorningcoffee.com

Is fine wine a good investment?

HEALTH WARNING: This article is rather long and detailed, and is about fine wine as an asset class.  It might not appeal to all of my readers.

 

I am an investor in mainly traditional assets like stocks and bonds, but I also own a small portfolio of alternative investments including private placements and illiquid collectable assets, referred to as “passion assets” in some circles. Passion assets include things like fine art, fine wine, coins, luxury watches and handbags, vintage automobiles, etc., many of which are difficult to value because of their uniqueness and the fact that they trade infrequently. The collectables portion of my personal investment portfolio is small and includes only a few of the sub-classes mentioned above, one of which is fine wine. 


My fine wine history

I have been collecting fine wine since 2000, building a collection of principally Bordeaux and Burgundy wines, but also wines from the Rhone Valley, Champagne, Tuscany, and Piedmont regions. My fine wine collection has largely been built through purchases of wine en primeur, which I will discuss in more detail below. Most of my cellar is kept at a UK bonded warehouse.  Aside from drinking and enjoying wine, I also know something about the vinification of wines in that I have earned a Level 3 Award in wines from WSET.  As a collector of fine wines with some meaningful “skin in the game”, I monitor the value of my cellar to gauge how it is performing as an asset class. 


The “direction of travel” of prices of fine wine

Fine wine prices have performed similar to other luxury goods – including watches, art and handbags –  that were bid up to unsustainable levels during the pandemic and have sold off sharply since then.  It is fair to say that fine wine is now suffering a hangover of its own. The downward price action is visible in both the secondary market and more recently in the en primeur – or primary – market.   Aside from a pandemic bubble, I believe that the price of fine wine is under pressure due to other macrotrends, too, including the following:


  • People are consuming less wine as the effects of alcohol on various facets of one’s health become better known and understood.  I have no interest in delving into the science of this, but the graph below from the International Organisation of Vine and Wine (the “OIV”)  should give you an idea of the macrotrend of wine consumption, which has fallen rather consistently since 2017, and was down a further 2.6% in 2023 (vs 2022).

The graph above is from an OIV presentation (PPTX) dated 25 April 2024, which you can access here. It is very recent and captures much of what is going on in the wine industry as far as demand and supply.


  • Vinification – or the making of fine wine – has improved and has become much more consistent over time.  In a simple construct, wine-making is part agricultural (i.e. growing the grapes and dealing with the risks that that entails), part wine production, and part wine marketing.  Wine-making has become increasingly sophisticated because winemakers have honed and improved their skills over time, essential enabling them to produce good quality wines year in and year out even in “off” years when the quantity or quality (or both) of the harvested fruit might vary (e.g. due to extreme weather).  The result is that the quality of fine wines from vintage to vintage in a given region is not nearly as variable as it used to be.


  • The expertise in producing fine wines has expanded well beyond the traditional fine wine regions of countries like France and Italy, making global competition increasingly intense and affecting pricing in the global marketplace.  Don’t misunderstand me – there is undoubtedly a correlation between price and quality of wine, largely reflecting the long history of some well-known winemakers and the quality of the fruit often coming from old vines located in premium terroirs.  However, pricing of fine wine also reflects brand recognition as with most other luxury goods.  Increasingly, the reality is that the gap in quality between the most recognised wines and wines that are less-well known or originate from lesser-known regions or countries, is closing. As consumers trade down to less expensive wines, perhaps as a reaction to inflation, they are setting aside the bravado of the brand without making huge trade-offs in terms of quality.  Ultimately, this reality flows through to the pricing of wine.


  • Global warming, or perhaps more accurately “climate change”, is also slowly changing the global wine landscape. In essence, the fact that the world is becoming warmer is opening up new wine regions and perhaps negatively affecting legacy wine regions. The effect of this phenomenon beyond this simple observation is difficult to say at this point.


Valuing fine wine in the secondary market

I occasionally “mark-to-market” my own wine collection through a combination of monitoring prices from wine merchants in “bulk” secondary offerings, looking at specific wines I own on the website wine-searcher.com, or by following the results of auctions, such as the one last week sponsored by #Dreweatts the results of which you can find here. Liv-ex, an acronym for London International Vintners Exchange, is perhaps the definitive source of tracking secondary market wine prices. Liv-ex has been around since 2000. Access to the exchange’s extensive data base is available only to wine merchants at a rather considerable cost. Liv-ex has gobs of data available including wine ratings by a variety of critics, historical price levels of fine wines both en primeur and in secondary, etc. Although full access is very expensive, Liv-ex does make their general wine indices available for free, one of which I have included below: the Liv-ex Fine Wine 1000, containing 1,000 wines from seven sub-regions listed below the graph.

The graph above speaks for itself – the prices of fine wine across the board have fallen recently, experiencing a particularly bumpy ride since the pandemic bid faded.


The cost of buying, storing and selling fine wine

It costs to buy, store and sell fine wine.  Storage costs come into play if a wine collector / investor chooses to use a bonded warehouse for optimal storage conditions.  This is especially relevant for fine wines a collector might wish to “lay down” and age for years or even decades before drinking, or to later sell in secondary since the provenance can then be tracked.  The cost of storing wines can vary, but is normally around £12/case (x12 bottles)/year for storage in the UK. 

 

The bid-ask spread for wines is wide, ridiculously wide in fact.  Perhaps this is in line with other illiquid assets, although I am shocked every time I consider this when valuing my collection.  For example, if you had purchased a 12-case bottle of 2015 Lynch Bages en primeur for £890 (£74.17/bottle) and see it offered at a merchant (retail) for £100/bottle, should you mark your case to £1,200 to reflect the retail price?  The answer is “absolutely not”, because that price (£100/bottle) is an “on the table” retail price, not a wholesale price.  You might pay £100 to buy that bottle, but you could not sell your bottle for the same price.  If you choose to sell fine wine through an auction house, rest assured that the auction house will grab their pound of flesh, with the seller normally paying a commission of around 10%, and the buyer paying a “buyer’s premium” of as much as 24%.  This aggregate 34% really comes out of the pocket of the seller because the prudent buyer of wine at auction should be comparing the price of the winning bid (i.e. the “hammer price”) plus the buyers’ premium (i.e. the all-in cost), to the cost available of the same wine at a merchant.  I will cover this in more detail below. 

 

So as far as valuing your legacy cellar, it might be best to simply use a merchant aggregating website like wine-searcher.com to find per case prices in the secondary market.  I suggest using the lowest cost case of at least six bottles listed for the wine and vintage on the website offered “in bond”, meaning before the payment of VAT (i.e. sales tax) and duty.  (“In bond” is the way most fine wines are sold by the case via merchants in the secondary market or at auction.)   You can then make your own decision as to whether you use a retail bulk price like the one you will see on the website from a merchant, or if you discount that by some factor to reflect the likely transaction costs were you to sell the wine.  Carrying on with the 2015 Lynch Bages example used above, the best offer by a merchant of a 12-bottle case on wine-searcher.com is £986, a slight premium over the £890 cost of the wine en primeur.  If you wish to be conservative and carry the wine at liquidation value, it should probably be marked down at least £150 or even more to reflect hypothetical (but likely) transaction costs.  If you are really tracking returns, keep in mind that you will have also paid around £12 for every year that you have stored your wine in a bonded warehouse since 2017, when the wine was delivered to the UK.  To summarise, if you buy en primeur wine as an investment, you are likely to experience little if any appreciation over time, certainly less than has been historically available in the stock or bond market.  I am not going to delve into correlation in this article, which might support fine wine as a means of overall portfolio diversification. 


Drinking your fine wine (perhaps the best alternative)

If you buy wine en primeur and it goes to storage in a bonded warehouse upon delivery, you will have to pay sales taxes and duty on the wine if it is removed from storage, should you choose to drink the wine rather than sell it. In the UK, VAT is 20%, and duty is currently £2.67/bottle. I refer to the price after paying Duty and VAT as the “on the table” price, meaning the original cost of the wine plus around 23%. Using the example of the 2015 Lynch Bages above, should you wish to drink this very good wine now, you would need to pay another £210 to remove the case from bond. Therefore, the “on the table” cost of the wine – had you purchased it en primeur– would be £1,100/case, or £91.67/bottle. 


Buying wine en primeur

En primeur refers to buying wine after the grapes of that vintage have been harvested and the wine is in the process of being made.  At this point, the wine has not usually been bottled and is certainly not available for sale.  However, wine collectors and investors can buy the wine in the future via en primeur offerings through major wine merchants.  In essence, buying wine this way is similar to buying futures on any other asset.  Some of the best-known fine wine producers in the world offer wine en primeur including the best-known chateaus in renowned regions like Bordeaux, Burgundy, Rhone Valley, Piedmont, Tuscany, Resiling and so on.  As explained above, when wine is purchased en primeur, the customer pays the cost of the wine at purchase, but not VAT or duty.  The wine normally arrives to the UK to the customer’s bonded warehouse 18 to 24 months after purchase.  Often, wines that are later sold in the secondary market – including nearly all wines sold at fine wine auctions – are sold “in bond”, meaning that VAT and duty have not been paid by either the buyer or the seller yet (but the obligation becomes the responsibility of the buyer).

 

Fine wines available in opening offers (meaning en primeur) are often pitched by merchants as “must haves”, “amazing investments”, etc.  In reality, I don’t believe fine wine purchased en primeur has been a particularly good investment since the mid-2000’s, certainly not when the costs of storage and transaction costs associated with selling the wine are considered.  I will look at two specific examples in the following two sections which validate my views. 

 

However, my assertion does not mean that serious wine drinkers should forgo en primeur campaigns, particularly if they have favourite winemakers and / or wish to buy wines that they might have found difficult to acquire in the secondary market, either via merchants (retail) or at auctions.  And certainly if you are buying to drink fine wines in a few years, you should grab your favourites when they are most available, which is typically during the en primeur campaign. 

 

The current 2023 Bordeaux campaign

Currently, the Bordeaux en primeur campaign (2023) is just kicking off.   It is being touted by merchants, who are paid for selling the wines, as an excellent vintage that is on average likely to be priced 30% below the same wines offered during the campaign the year before (2022).   I suppose you can look at this two ways – the 2023 vintage represents “an amazing deal” or the 2022 vintage was wildly over-priced.  Since I bought in 2022, I gyrate towards the latter – I wildly overpaid.  As an anecdote as to value of wines en primeur,  I looked back at the new release price of a very well-known Bordeaux first growth – Lafite Rothschild – for most years back to 2001.  Next to the en premiur price in the table below, I also presented the current price of the vintage that I found on wine-searcher.com

As you see in the table, first growth Lafite Rothschild has been available via merchants in the secondary market at a price that is between 24% below (2006) and its original offer price every year since 2006.  The fact that the current en primeur price of the 2023 Lafite of £4,920/case is 31% less than the 2022 en primeur price matters little if the 2023 vintage can be purchased later for a similar price.  The history of Lafite’s secondary market price vis-à-vis its historical new offer price certainly suggests this will be the case.  The days of attractive new release prices that generated outsized returns over time seems to have ended nearly 20 years ago, at least as far as Lafite Rothschild. 


Selling (rather than drinking) fine wine

If you are a wine collector and wish to sell some of your wine, the avenues include:

 

  • Offer wines in a parcel through a retail merchant,

  • Sell wines through an auctioneer.

Sell wines via a retail merchant: In a good market, wine merchants will often provide a firm price for top-quality wine in your cellar, which they will then offer directly to their customers in their retail outlets or via a “cellar offer” to privite clients.  In a poor market (like currently), wine merchants might agree to buy your wine but only on consignment, meaning you get paid only if the wine sells to an end buyer.  The former scenario offers certainty, the latter does not.  However, the transaction costs tend to be embedded (if an outright purchase) or no more than 10% (if consignment), considerably more attractive generally than the auction path.    

 

Sell wines via an auction:  Selling (or buying) wine through auctions is an entirely different process, in that transaction costs would be considered usurious in most other markets.  Rather than get into the forest as far as details, let me summarise:

 

  • Potential sellers are provided by the auctioneer with a reserve price (i.e. the lowest price at which the wine could be sold) and a likely price for each case of wine to be sold, to which a commission of up to 10% would be paid by the seller on the hammer price.  My experience has been than the reserve price is often 30% to 40% below what you might find on a website like wine-searcher.com, so the downside risk is bourn solely by the seller although there is protection via a minimum sales price (i.e. the reserve price).


  • If the commission isn’t enough for the auction house (acting as intermediary), there is often a buyer’s premium that ranges from 20% - 25% of the hammer price.  At the recent Dreweatt’s auction, the buyer’s premium on most cases was 24% of the hammer price.  Although the buyer obviously pays the buyer’s premium, it essentially comes out of the pocket of the seller since most buyers add this premium to the hammer price to determine an all-in cost of the wine.

 

Two examples from the recent Dreweatt’s auction: Krug and Mouton Rothschild

Krug is a well-known champagne house that offers its rather expensive champagne in select vintages in good years, alongside a more regular offering of a mix of vintages (i.e. non-vintage cuvées) in a series of editions which express a “house style.”  The 170er edition of Krug was released en primeur just two years ago (in 2022) for £950/case (six bottles).  A case of this wine just sold at auction via Dreweatts for £650.  This means the seller received £585 for a case he had paid £950 for originally, while the buyer paid £806 (including the 24% buyer’s premium).  The seller clearly got burned, while the buyer paid a much lower price than he would had at offer in 2022, although time will tell if the price goes up or down. The spread to the auction house in this case was £221, or 34% of the hammer price.  One more thing to keep in mind is that the wine was sold in-bond, as are most wines at auctions. This means that should the buyer wish to drink the Krug 170er edition he just purchased, he would need to pay duty and VAT to remove the case from bond, an additional £222.  Hence, a hammer price of £650 for the buyer turned quickly into an “on the table” price of £1,028, or £171.33/bottle


A second example involves a Bordeaux first growth – 2019 Mouton Rothschild – one of five classified first growths in Bordeaux, and one of the most prestigious and well-known wines in the world.  A six-bottle case of this amazing wine sold for £1,794 in the 2019 en primeur campaign, or £299/bottle.  The same wine sold at the Dreweatts’ auction last week for a hammer price of £2,100, or £350/bottle.  The seller netted £1,890 (assuming a 10% commission), giving him a tiny profit on his investment, perhaps covering storage costs since the wine was delivered to the UK.  Before getting excited about breaking even, you should know that the prices of wines during the en primeur campaign of 2019 (and similar to the current 2023 campaign) were 30% lower than the 2018 levels.  As I showed earlier with the Lafite Rothschild example, in the best (meaning lowest priced) years, the best you can possibly hope for is to break even.  Looking at the other side, the buyer – inclusive of the 24% buyer’s premium – paid £2,604 for the case.  The cost of the same case on wine-searcher.com is £2,150, similar to the hammer price but well above the all-in price paid by the buyer at this auction.  It appears the buyer overpaid for the case, especially since the indicative range provided by Dreweatts was £1,400–£1,700 for the case, more in line with the price (including the buyer’s premium) currently offered by merchants. 

 

For what it is worth, I did not consider in either case the opportunity cost of “dead money” that is tied up in the wine (since there is no yield).

 

These examples suggest that although fine wine is often pushed aggressively by merchants as an investment, the returns have generally been poor for nearly 20 years.   During this period, history has shown that en primeur prices have been fairly- to over-priced, leaving little to no room for appreciation once storage and transaction costs are taken into consideration.  The current Bordeaux campaign is an indication that buyers might have had enough since clearly the bordelaises got ahead of their skies post-pandemic.  With prices down around 30% compared to the 2022 campaign, the chateaus recognise the imbalance, too, and are pricing their wine to ensure it generates sufficient interest from potentially disgruntled consumers / end buyers.  Perhaps this is a unique “buy the dip” opportunity, but I have my doubts because year in and year out, fine wines simply don’t seem to fluctuate widely from the new release price.  I no longer believe that well-known fine wines offered en primeur are an investment  opportunity. Instead, the opportunity might well be in identifying and buying good quality wines from up-and-coming chateaus / winemakers or from new regions or countries that might not have the brand cache, but offer a more compelling value-quality relationship.  


Conclusion

The global market for wine is slowly shrinking, and simultaneously, growers and wine makers (often not the same) are arguably still turning out too much wine although the market will right itself eventually and reach equilibrium.  There’s no doubt that well-recognised fine wines, largely earning their status through exceptional quality and getting an extra boost from branding, face greater competition from winemakers producing better-quality wines at more compelling pricing levels.  Some of these new “lesser brands” and up-and-coming wine regions are nipping at the heels of the best known wine makers and regions.  This dynamic is arguably not good for collectors, although there is the “escape hatch” in that collectors can simply drink their legacy kit rather than selling it, which serves the dual purpose of enjoying some excellent wine and being distracted from the poor returns that the wines generate.


I remain a wine snob, and believe many fine wines are worthy of their ranking and name. Some of these special wines have long family histories, and some have been made for hundreds of years from very special and exclusive areas. However, the pricing has simply gone mad, and I expect market forces will in due course adjust levels in the secondary market, and this in turn will filter through to en primeur and to retail prices.   Inflation and a cost-of-living crisis seem to be changing consumption patterns, causing consumers to be less brand conscience, and concurrently, the quality of more generic, lesser-known wines continues to improve.  In fact, we are already seeing this across the broad category of luxury goods, many considered “passion assets.”


Let me reiterate – there are reasons for wine lovers to purchase exclusive fine wines en primeur to eventually enjoy at their table.  However, I would recommend doing this in the context of buying what you like and expect to drink, not to hold and sell later in anticipation of appreciation.  Those days seem long past.

 


4 Comments


Guest
May 03

Excellent, comprehensive and well-researched article, Tim. The market dynamics you describe should continue to enable patient buyers to periodically purchase interesting, mature wines (stored at the expense of others) for current drinking. Those of us who were either too savvy or (in my case) too lazy to build sizeable collections seem to have been vindicated!

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tim@emorningcoffee.com
tim@emorningcoffee.com
May 06
Replying to

Largely true, history has indeed shown this to be the case since around 2004/05. The joy of course – at least as far from a drinking perspective – is to occasionally dip into something 2000 or before, available but pricey. Otherwise, it looks to me like most fine wines – even from stellar vintages – are available in the secondary market at or around their en primeur cost (since 2004/05), certainly when factoring in costs of carry and sale. Thanks very much for having the patience to read this article, it is indeed a passion of mine!

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Guest
May 02

Tim - really enjoyed your piece today. Would love to know what up and coming chateaus/ winemakers and regions your looking at.

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tim@emorningcoffee.com
tim@emorningcoffee.com
May 06
Replying to

Thanks for reading my article on fine wine as an investment. There are so many countries and regions I have not explored, and I consider myself particularly poor at providing advice on anything in the New World, since my focus has principally been on Europe. With that caveat, some ideas would be:


  1. As far as regions in Europe, I think Greek wines are up & coming, especially Assyrtiko (white, often from Santorini). However, these are gaining in popularity and are no longer cheap, although very crisp and good. Personally, I also like some of the Xinamarvro (red) made in Greece, but it can be fickle grower to grower. I would describe it as light similar to a Pinot Noir …


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