Investing in wine can be challenging but rewarding. It requires expertise, experience, and dedication throughout the entire life cycle. Thus, it may not be for everybody.
Still, with an estimated USD 5 billion in sales per year, according to the Credit Suisse 2022 Report “Collectibles amid heightened uncertainty and inflation,” the market for fine wines is a crucial collectibles category.
A peculiarity of wine is that it unfolds over time through bottle aging, often accompanied by increased value. Due to consumption, the already limited supply becomes even scarcer during the same period.
Only premium production is suitable for investment purposes; thus, a great demand faces a small supply. However, investing in wine is not straightforward since you must consider transport, storage, insurance, and market risks such as fraud and forgery.
Wine allows for combining enthusiasm for the product and achieving returns. The emotional attachment can thus outweigh volatility and sometimes liquidity constraints on the secondary market. Something that investors may not experience with financial assets.
Today, we speak with Tristan A. Berghaus, the founder of a German wine investment company, about the state of the wine market, what it takes to build a wine portfolio, how to mitigate risks, and his advice to wealth owners interested in wine investments.
Thank you, Tristan, for taking the time to chat with Centro LAW. What is the current state of the wine market, and how has it evolved in recent years?
I appreciate the opportunity to share my perspective. As a specialized wine investment company, our focus lies on fine wines. Looking at the fine wine market, it's evident that recent years have yielded impressive profits for many stakeholders.
Since the beginning of 2023, the global fine wine investment market has experienced a slight decline. A reduced trading volume mainly caused this.
Before, the global wine market demonstrated growth, fueled by heightened consumer demand for premium wines and a rising fascination with wine as a hobby.
However, it's essential to acknowledge that the market hasn't been immune to external influences, including economic fluctuations, trade tariffs, and the far-reaching impacts of the COVID-19 pandemic.
The disruption of supply chains, leading to observable price increases from the consumer standpoint, has been of notable consequence. Moreover, global financial market dynamics have reverberated through consumer prices.
For instance, consider Champagne production: potential cost hikes of up to 10% in grape expenses from the 2022 harvest could see basic rates for a kilogram of grapes reach around EUR 7.
This shift underscores how nearly half of the costs of producing a bottle of Brut Non-Vintage Champagne can be traced back to these raw materials.
Nonetheless, the overarching trajectory of the wine market appears favorable, poised for continued expansion in the years ahead. This growth trajectory owes itself to rising disposable incomes, population growth, and evolving consumer preferences.
According to data from Statista.com, the compound annual growth rate (CAGR) for revenue in the global wine market is projected to be approximately 5.52% up to the year 2027.
Where do you see the main opportunities for fine wine as an investment?
Fine wine has long been esteemed as a valuable asset class among investors, offering the potential for substantial returns, limited correlation with financial markets, and relatively subdued volatility compared to alternatives like stocks and real estate.
Our perspective identifies three prominent opportunities for fine wine within the investment landscape.
Firstly, climatic challenges are increasing in traditional wine regions. Previously, less frequent climate patterns have created substantial considerations for winemakers (e.g., summer hailstorms or higher alcohol levels).
Over the long term, these regions must navigate adaptation strategies, ultimately leading to increased rarity of wines from these esteemed areas. Such scarcity, in turn, augments the potential for future returns.
Secondly, the emergence of new markets holds immense promise. As regions and countries transition from developing to developed economies, the appreciation for fine wine expands among a broader population - viewed both as a hedonistic pleasure and a status symbol.
This developing interest from novel consumer markets augments the scarcity of exceptional vintages, further intensifying potential returns.
Thirdly, the horizon for wine investments appears to be broadening. A recent analysis involving 50 UK-based asset managers overseeing portfolios of EUR 100,000 and beyond spotlighted an intriguing trend: over 40% of their clientele engaged in wine investments, with estimated portfolio allocations at around 10%.
Although nascent in Germany, where wine investments remain relatively unfamiliar, we've garnered positive feedback from our financial industry partners who have introduced the concept to their clients.
We, therefore, see a lot of potential value that we can offer in the German-speaking DACH region.
How do you build a wine portfolio, and what are the key considerations when selecting individual wines?
Indeed, creating a wine portfolio demands a meticulous approach, hinging upon critical considerations.
Foremost, diversification serves as a cornerstone. Balancing risk necessitates investing across various wines originating from a diverse array of regions, vintages, and price tiers. This diffuses potential vulnerabilities.
A portfolio generally encompasses wines from four classic regions: Burgundy, Champagne, Tuscany, and Bordeaux. Each wine should be packed in its original wooden case (OWC).
For those aspiring to curate a portfolio featuring the "crème de la crème," a minimum investment of EUR 50,000 is advisable. If we were to recommend a minimum sum, we would recommend allocating at least EUR 5,000.
Moreover, the significance of provenance cannot be overstated. Opting for wines with impeccable provenance - indicative of appropriate storage conditions and verified sources - is pivotal in safeguarding quality and value.
Investing in wines bearing the hallmarks of high quality and extended aging potential is crucial for long-term appreciation. Factors underpinning such wines often extend beyond vintage quality.
They can involve the winemaker's reputation, employed vinification techniques, and influential critic ratings, which retain their status as robust price influencers in the fine wine arena.
Lastly, selecting wines characterized by limited supply and robust demand within the secondary market provides a pragmatic orientation. This tactful choice can make future liquidation easier if the decision to divest arises. Hence, it becomes imperative to delve into annual production quantities that can oscillate markedly between vintages.
Soft factors, though secondary, also warrant attention from some investors. These could encompass aligning the portfolio with personal preferences, like vintage years aligned with a child’s birth year or individual taste inclinations.
Our research usually identifies wines that harmonize with these soft parameters in such instances.
How do you assess the value of a wine, and what are some key factors that determine the price?
Assessing the "true" value of a wine is nuanced, often intersecting with emotive motivations that might drive individuals to pay a premium. In practice, supply and demand remain paramount influencers of wine prices.
Wines boasting limited production volumes, characteristic of small, prestigious wineries, invariably command higher price points than their more abundantly produced counterparts.
Our valuation process combines insights from various sources. This entails comprehensive perusal of price lists proffered by our trusted sourcing partners, real-time prices from platforms like Liv-ex, recent auction outcomes, and the prevailing average market values exhibited on wine-searcher.com.
By triangulating data from these channels, we arrive at a pragmatic approximation of a wine's indicative market value.
What are some of the risks associated with investing in wine, and how do you mitigate them?
Investing in wine carries inherent risks, necessitating proactive steps to safeguard investments.
A pivotal consideration revolves around optimal storage and preservation, which is crucial in preserving a wine's intrinsic worth. Inferior storage conditions, characterized by excessive heat or humidity, can precipitate deterioration and corresponding loss of value.
Embracing solutions such as professional storage facilities is a prudent bulwark against this risk.
Mitigating the specter of counterfeits hinges on investing in wines authenticated by reputable entities or procuring wines from established dealers with sterling reputations. Although not exhaustive, these precautions offer a shield against the counterfeit wine risk.
The variable value of wine within the market, subject to ebbs and flows dictated by supply and demand, necessitates diversification as a countermeasure. The impact of market fluctuations is mitigated by judiciously introducing varied wines and encompassing multiple regions.
Liquidity, a factor of paramount importance, is addressed through strategic choices. Selections from recognized regions, wineries, and vintages confer enhanced liquidity to investments.
Additionally, our network of global partners engaged in active fine wine trading amplifies the liquidity avenues available to our clients.
How do you store and maintain the wine in a portfolio, and what are the associated costs?
Our approach to ensuring optimal storage and maintenance is underscored by the secure sheltering of client stock within a bonded warehouse.
This facility provides a controlled environment with a constant temperature of 13.5 degrees Celsius and a relative humidity of 70%. Notably, this temperature regime, set slightly lower than often used 15 -16 degrees Celsius, fosters a slower maturation process, thereby extending the wine's longevity.
Storage costs vary depending on the warehouse's location, climatic conditions, and the extent of service offerings. Wine investment firms typically encompass management fees to defray these costs.
What advice would you give to wealth owners considering investing in wine?
Several guiding principles should be considered for those embarking on the captivating journey of fine wine investment.
Foremost, the counsel of experts assumes paramount importance - particularly for newcomers. Seeking guidance from reputable dealers and industry professionals during the initial stages helps navigate the intricacies of wine investment effectively.
The pivotal role of proper storage cannot be overemphasized. Given wine's perishable nature, diligent storage and preservation are crucial to sustaining value.
Dependable dealers play an essential role in ensuring that wines arrive in an impeccable condition and endure their maturation phase unscathed.
Exercising patience constitutes a tenet of enduring significance. Wine investments are unequivocally a long-term endeavor, warranting a measured and patient approach without haste.
The wise management of investments requires the understanding to discern the opportune moment for divestment.
Lastly, it's essential to recognize that individual taste preferences may not necessarily align with the optimal composition of a diversified wine portfolio.
For instance, my personal inclination leans toward wines from lesser-known regions in the Loire Valley or Jura. Remarkably, these distinctive terroirs continue to present noteworthy bargains (good for me), but the historical investment data of these regions is pretty much non-existent (insufficient for plannable investment decisions).
About Tristan A. Berghaus
Tristan Berghaus is the Co-Founder and CEO of a fine wine investment company headquartered in Cologne, Germany, that specializes in sourcing, cellaring, and reselling fine and rare wines to private clients and investors.
Tristan has been involved in the wine industry for over half a decade and is considered an expert in fine wine investment. He is a regular guest speaker and commentator on the subject.
He has been featured in various online media channels discussing the wine market and the opportunities for investment in fine wine.
Tristan is certified by the British Wine and Spirit Education Trust and holds a degree in Business Administration from the University of Cologne.
17-09-2023