Lively fine wine in a turbulent market

The premium wine industry is a go-to for people with high net worth looking for coverage.

© Shutterstock | The best wines in the world are constantly increasing in value despite unstable economic conditions.

The global economy has been on a stomach-churning rollercoaster this year, with higher-than-expected inflation, rising interest rates, and in the world’s three major economies: the United States, China and the euro zone.

No surprise, stocks are also tumbling: the S&P 500 fell 17.02%, the Dow Jones Industrial Average fell 13.29%, the S&P MidCap 400 fell 14.46%, and the S&P SmallCap600 fell 15, 53% from the beginning of the year to the end of August.

In many areas of the economy – real estate, housewares, electronics, personal care and appliances – sales are stagnant. But interestingly, good wine isn’t just in high demand, some experts say investing in good wine is an excellent hedge against the kind of turbulence we’re seeing right now.

Read on to get an idea of ​​how good wine is doing and why now may be the perfect time to invest.

The price of wine, on average, is remarkably stable right now, considering what is happening in other sectors of the economy.

Unlike, for example, the price of fuel (which has increased by more than 106% year-on-year in some places this year, according to the consumer price index), air fares (more than 37%) or men’s outerwear (up more than 22 percent), the price of wine as a whole is actually going down.

According to data from the U.S. Bureau of Labor Statistics, the average price of table wine in July 2022 ($ 13.33) fell 2.1% from its peak in April 2021 ($ 13.62 ).

Increase in premium sales

While wine prices overall remain relatively stable, the best-selling wines rank in the more expensive end of the scale.

Consider the Direct-to-Consumer Wine Shipping report, which combines data from SOVOS ShipCompliant and Wines Vines Analytics: Overall sales fell 9%, but value increased 3% to $ 1.95 billion a year on year. Sales of wine bottles at $ 100 or more increased 34.2% in value and 36.1% in volume, while wine sales at $ 30 or less fell 9.4% in volume and 8% in value.

Wine lovers were certainly spendthrifts when it came to Oregon and Napa wines. In Oregon, DTC shipments increased 18.7% in value, with an increase of just 12.9% in volume and an average price per bottle of 11.8% on average. In Napa, DTC shipments increased 18.8% in value and only 4.1% in volume, meaning the price per bottle was significantly higher year over year, according to SOVOS.

According to Enolytics and Wine Direct’s second quarter 2022 DTC report, luxury wines priced above $ 90 saw a 32% increase in sales, while bottles priced below $ 20 fell by 1. %.

“The more expensive the wines, the greater the share of male consumers in the boom,” says Chris Huyghe, co-founder and chief analyst of Enolytics wine data aggregation service. “Many of them tend to be collectors and are less influenced by economic factors. Low-priced wineries have a larger Millennial and female consumer base who have lower disposable income, which is therefore more influenced by economic factors.”

Individual small-volume wineries, such as the 1,000-case Wentworth Vineyard and Ranch in the Anderson Valley, have seen sales growth of 240% year-on-year.

“There is more demand for the wines I am producing than we have seen previously,” says co-founder Mark Wentworth. “Of course, my business is relatively young and there are many factors driving growth, including, most notably, I think the wines are very good. And the story of planting vines on raw land instead of buying grapes is intriguing for many, since it is our organic agriculture and support for conservation work “.

Wentworth, whose wines retail for $ 52- $ 114, notes that the strongest growth is DTC and wholesale channels through distributors.

For the 8400-case Seña, a collaboration between Eduardo Chadwick and Robert Mondavi in ​​Chile’s Aconcagua Valley, sales increased 25% year-over-year. Seña offers one wine: the Seña 2020, priced at $ 150 per bottle.

“We are seeing a very positive trend in the US and Asia,” says Michel Couttolenc, Seña’s vice president of sales and marketing. “We strongly believe that the US premium market has great potential for us and we are just starting to exploit it.”

Luxury that spends

The typical person who opts for a nice bottle of niche wine on a random Tuesday probably has more spending power than ever.

The gap between the ultra-rich and everyone else grew during the pandemic, with the 10 richest men in the world doubling their fortunes from $ 700 billion to $ 1.5 trillion during the first two years of the pandemic, a report reveals. by Oxfam International. (This represents an accrual rate of approximately $ 15,000 per second).

Spending habits, despite the dire economic outlook, are likely to continue apace. Sales of luxury goods, from high-end watches to bottles of Château Mouton-Rothschild, will increase by 5% this year, the consulting firm Bain predicts.

In addition to buying delicious bottles of RDC, the ultra rich are now looking to wine as a way to balance their holdings portfolio. (Investors with ultra-high net worth, or those with more than $ 30 million, have, on average, about 50 percent of their assets in alternative investments such as art, precious metals, real estate, and wine.)

Investors keen to avoid some of the stock market turmoil have sought alternative investments. Cryptocurrency has had its day, but interest in collectibles, such as art and wine, is on the rise.

© Baghera Vini | The 2009 Tache of the Democratic Republic of the Congo has grown in value over the past decade.

Wine offers consistent returns on investment grade wine, with a low correlation with overall market performance.

“When the stock market goes up, rare wine tends to go up more, and when stocks go down, rare wine can go down slightly, but not as dramatically,” notes David Parker, founder of the rare wine buyer and seller Benchmark Wine Group, which is headquartered in Napa.

Liv-Ex, the world’s largest wine stock exchange, has achieved an annualized return of 13.6% over the past 15 years, compared to an annualized return of 7.8% for the Dow Jones and 8.58% for the S & ; P 500. The LX1000, the broader index, has grown 22.9% over the past 12 months and 47.4% over the past five years.

There are several ways to invest in wine, Parker explains: through wine stocks or ETFs like LVMH, through wine investment funds like Vinovest, or through individual acquisitions of blue chip wines.

“Which you obviously want to buy at random,” Parker observes.

And for many, the interest in investing in wine goes beyond their profits.

“Most buyers of fine wines see their collections as both consumer goods and collectibles,” something that is increasingly attractive to investors looking for money to park somewhere, “says Justin Gibbs, vice president and director of exchanges of Liv-ex “. The first, because they are passionate about what is in the glass and like to drink it, the second, because they recognize it as a store of value. Its relative scarcity (which only grows with the passing of the years) and its tangibility distinguish it as a real alternative, for example, to stocks and bonds. It is therefore considered a portfolio diversification tool. Its tangibility becomes particularly interesting in times of inflation in which paper money loses its value over time “.

Exchange Bonus $

For people with high net worth in the US and Asia, now is a great time to start or complete an investment-grade wine collection.

“The weakness of the pound against the dollar means that the prices of fine wines are becoming more affordable for American and Asian buyers,” says Gibbs. “The dollar strengthened against the pound. In one year the GBP: USD exchange rate fell from $ 1.38 to $ 1.16. This decline is reflected in the prices of fine wines. Measured in sterling, the wines quoted on the stock exchange they are currently 15.9 percent cheaper for dollar buyers than in December of last year. “

During the summer, for the first time in two decades, the dollar and the euro also reached parity.

If you are considering investing in a wine collection, Asher Rubinstein offers some guidelines. Rubinstein is a trust and property attorney with Gallet Dreyer & Berkey in New York and advises high net worth individuals on, among other things, their wine collection.

“Not all wines will appreciate their value,” Rubinstein points out. “You want to make sure you invest in blue chip wines: Burgundy like Domaine de la Romanée-Conti, Champagne like Cristal, Tuscans like Biondi Santi Brunello di Montalcino, Bordeaux First Growths like Latour and Rive Destre not classified as Petrus. Some from Napa, like Harlan and Screaming Eagle. “

You want to buy multiple cases, have a tightly planned time horizon – typically five to 20 years – and plan to sell it within its time window. Assign funds for insurance, suitable storage conditions ideally not in your home, make sure there is a chain of provenance and paperwork from your storage facility explaining the temperature and humidity levels. When selling, likely through an auction house, be sure to report earnings when declaring taxes, he adds.

Rubinstein says he has seen his clients’ investments bring well over 20% return on investment, even after accounting for the costs and taxes you have to pay on capital gains.

“Investing in wine is slow and steady, while the stock market has so many peaks and valleys,” Rubinstein notes. “It provides diversification to your portfolio, but it’s also more interesting. I think investing in fine wine is attracting a whole new type of investor because it involves history, geography, climate change, aristocracy. And you can drink it if all. the rest fails! “

But. Good luck finding more cases of Screaming Eagle and DRC.

“Scarcity is part of the intrinsic value of good wine,” admits Rubinstein. “Most blue chips have waiting lists.”

However, working with rare wine retailers like Benchmark is an option.

“We have the largest inventory of investment wines in the country,” says Parker. “We have around 16,000 SKUs and a high case availability. We work directly with producers and can source rare wines from middlemen. In addition, we have a sales staff who can advise high net worth individuals on purchasing choices and storage. “.

As with any investment, fabulous returns are often the result of an unpredictable combination of smart forecasting, educated guesswork, market conditions, and stupid luck.

But it’s hard to ignore the steady outperformance of the fine wine stock market. As well as the staggering 888% return in 10 years on investments in unicorns such as La Tache of the Democratic Republic of the Congo, bought in 2009 for $ 693 a bottle and sold for $ 6,851 in 2020.

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