The evolution of fine wine investment

This report delves deep into the insights of industry experts discussing the evolution of the fine wine investment over the past decade. Each week, a new volume will be released covering topics such as fractionalisation and inflation hedging. The first volume covers democratisation and barriers to entry in the fine wine investment market.

Volume 1 | Democratisation and barriers to entry

How has the fine wine market evolved over the past decade? What role has technology played in this? Why do leaders in the space believe that fine wine investment is more democratic, and accessible, than ever?

These were some of the questions discussed by a panel of four key players in the US fine wine market. It was moderated by Michelle Erland of Colangelo & Partners, and featured: 

• Robbie Stevens – Americas Territory Manager at Liv-ex 
• David Parker – Founder & CEO of Benchmark Wine Group 
• Jim Silver – Managing Director of New Frontier Wine Co 
• Adam Lapierre MW – Director of Wine at Vint 

What’s the difference between collecting and investing in wine? 

Collecting is about purchasing wine that you intend to drink. Investing is about sourcing wine that you intend to sell later at a profit. It’s useful to understand this before diving into how wine investment has been democratised.  

David Parker, Founder and CEO of Benchmark Wine Group, offered a useful explanation during the webinar. He suggested a further distinction between collecting and investing, in that only a small proportion of wines are investible.  

‘There are only about 3% of wines in the world that have a secondary market on a regular basis, that are meant to age’, he said.  

Until recently, access to fine wine was reserved for a select few.

Michelle Erland

He added that it’s important to store – and look after – investible bottles correctly: ‘If you’re investing, you’re keeping those bottles in perfect condition. You are watching the prices that you buy, and that you potentially can sell at, very, very closely, and you have the information to do that’, he said. 

While wine collecting has been around for millennia, it has only emerged as an alternative investment asset more recently. A recent Liv-ex report explored the history of fine wine investment in more detail, explaining how it has become an attractive portfolio diversifier.  

Can anyone invest in wine? 

Today, anyone with an internet connection can invest in wine. The internet has made it easier for anyone to invest in wine for two major reasons: information is more accessible, and routes to market are more straightforward.  

Historically, it could be difficult to find information about wine – both basic information about the product, and about pricing.  

‘The consumer [found] it difficult to understand a wine, what was in the bottle, what was on the label’, Robbie Stevens said.  

Valuation information was also difficult to obtain, undermining confidence in wine as an investment asset. Transparency, as Liv-ex Chairman and CEO James Miles explained in an article on the role of an exchange, is widely acknowledged to stimulate a powerful virtuous circle of increased confidence, participation and volumes. 

Nowadays, questions about wine can be answered via a quick Google search. Investors can access in-depth data on fine wine pricing via their merchant; many provide independent valuation information as a complementary service. Subscription services like Cellar Watch are also available to all. This makes for a much more transparent market.  

‘I think the amount of information on valuation that’s now available makes that transaction more transparent as well as more secure for both the buyer and the seller. I think that’s been an enabling element of allowing the whole market to be more comfortable for people’, Parker says. 

The amount of information is now available (has allowed) the whole market to be more comfortable for people.

Dave Parker 

In other words, greater access to information has made fine wine investment a more democratic space.  

‘The internet has brought about transparency, which has brought around new consumers’, Stevens concludes.  

More straightforward routes to market 

The internet has also made it easier to buy and sell wine, another important factor in democratising the market. ‘When people talk about wine investment, they talk about the ease of both acquiring wine and then potentially liquidating it’, says Stevens.  

In recent years, it has become easier to sell wine, or liquidate your investment: ‘Traditionally there was only one way that people knew to liquidate their wine, and that was to take it to a wine auction. Maybe your retailer would buy it back, but in most states, that wasn’t possible. Now the number of different options is much, much broader’, says Parker. 

In fact, a recent study by Liv-ex revealed online platforms to be the most popular place for investors to sell their wine – an option that didn’t exist 15 years ago. Auction houses, brokers and merchants are also popular choices, highlighting the various options that investors have. 

As webinar host Michelle Erland suggested, ‘until recently, access to fine wine was reserved for a select few’. Thanks to greater market transparency, and wider access, this is no longer the case.  

Volume 2 | Technology and infrastructure

Technology has played a significant role in democratising fine wine investment, the panel agreed. This starts with the technology available to the trade, many of whom have transformed their businesses in the past decade.  

How are American wine retailers embracing technology? 

Fine wine merchants in the US have been ahead of the game in adopting new technology, Liv-ex’s Robbie Stevens suggested. 

‘US wine merchants that are members of Liv-ex have historically been more proactive in adopting technology and using it to increase efficiency’, he said, pointing out that merchants in other markets have not been as quick to take advantage of new technologies. 

An example of this is a US-based retailer who has been using trading automation since 2016. He uses it to automatically list guaranteed stock from Liv-ex for sale on his website. This enabled him to grow sales and attract high value customers while reducing inventory and staff costs.   

Others are connecting their stock systems to data suppliers and other partners such as Liv-ex. This means that they can find everything from pricing data to accounting information all in one place. It also enables them to generate valuation reports for clients automatically. Each of these themes is explored in depth in Liv-ex’s report, The Wine Business of Tomorrow. 

How is technology helping fine wine collectors? 

‘Wine names have been historically pretty difficult to understand’, said Stevens, referring to long and complicated naming conventions that have led to wines being mixed up. This can cause costly errors. 

LWINs, or Liv-ex Wine Identification Numbers, work quietly behind the scenes to make sure that data about fine wine is shared accurately and efficiently. 

An LWIN, which is like an ISBN for wines, assigns 7, 11, 16 or 18-digit codes to wines. This makes sure that everyone is referring to wines in the same way, and that no mistake will be made identifying them. 

‘We are seeing adoption [of LWIN] across the industry, which is allowing computer systems, warehouses, critics, and wine merchants, for example, to talk to each other,’ Stevens adds. 

Essentially, it allows computer systems to exchange information about wines accurately, making developments like trading automation and automatic valuations possible – something which is explained further in Liv-ex’s LWIN guide. 

During the panel discussion, Benchmark’s David Parker suggested that technology has helped democratise fine wine investment in two ways. 

It’s another way to market. It’s another way to be seen.

David Parker 

‘The first enabling technologies that really helped make the market were more transparent valuations – Liv-ex reports, and the Wine Market Journal’, he said, adding that the whole activity of fine wine investing would otherwise have been too opaque to grow in the way that it has.  

Today, around two thirds of collectors receive independent market data and trends from the trade to inform their investment decisions, according to a recent study by Liv-ex.  

Parker also pointed to the increased accessibility of the market: ‘Clearly we’ve moved on in 30 years, from having to sit at an auction, or walk into a fine wine shop – if you were so lucky to live near one – to being able to access that on the internet’, he said. As well as being ‘only a click away’, as Parker puts it, the number of products in fine wine retail and auctions has expanded considerably.  

Speaking from the perspective of a producer, Jim Silver added: ‘I like the idea of the democratisation of wine that we’re discussing, because I think it is yet another channel to reach a customer. And it’s another way to communicate. It’s another way to market. It’s another way to be seen’. 

The whole supply chain, therefore, has the potential to benefit from the democratisation of fine wine, which is accelerated by new tools and technologies available to the trade. 

Volume 3 | Trends and inflation hedging

Which are the most investible wines? How has this changed in the past decade? What influences price changes? And how engaged are US buyers in fine wine investment, versus fine wine collecting?  

The panel explored each of these topics, agreeing that the market has evolved considerably – and for the better – in the past decade. 

Which fine wines do people invest in? 

Only small number of wines are considered investment-grade. These typically come from classic fine wine regions, such as Bordeaux and Burgundy, but the market has broadened considerably in the last ten years. 

In 2010, 95% of wines traded on Liv-ex were from Bordeaux. In 2022, that number dropped below 35%, as the chart below shows.  

California has been a recent benefactor of this trend, increasingly finding a place in collector and investor portfolios. 

‘In 2019, on Liv-ex, we saw 2% of wine by value trade from California. And in 2021/2022, we saw 8.5 to 9% of trade for Californian wine’, said Stevens. 

‘As the world wakes up to a broader wine marketplace, it brings forward new brands that perhaps may have only been known on the domestic market, then they become globally known’, he added. 

Quite often it makes a good hedge to your other investments.

Dave Parker 

As such, Bordeaux has not been pushed out – it has simply been joined by an ever-increasing range of wines from other classic regions. 

‘Bordeaux has not actually lost any share in terms of absolute value’, explained Stevens. Rather, the investible or collectible market has expanded and broadened. 

Is fine wine a good portfolio diversifier? 

Fine wine is considered a good portfolio diversifier. This is because fine wine price movements show very little correlation to other asset classes. 

‘The dynamics tend to move, not necessarily contrary to the other markets, but independent of the other markets. So quite often it makes a good hedge to your other investments’, said Parker. 

‘We used to say, when the stock market goes up, the wine market goes up faster. When the stock market goes down, the wine market stays flat, or it goes up’, he added. 

This has proved true in recent years. The fine wine market has delivered welcome stability, outperforming major equities and commodities in 2022. Since the start of last year, the Liv-ex 100 and the Liv-ex 1000 indices have both performed better than the Nasdaq and S&P500 – evidence of the market’s robustness during challenging times. 

What influences the direction of the fine wine market? 

The direction of the fine wine market is influenced by a broad number of factors. These range from global political and macroeconomic events to ones specific to the world of wine. 

‘There are macroeconomic effects that can impact the market’, said Stevens, who points to the example of the 2008 duty reforms in Hong Kong. These led to increased demand for red Bordeaux from Asia, and subsequent price increases.  

Similarly, and more recently, the devaluation of Sterling following the Brexit vote made stock held in the UK significantly cheaper for buyers in other currencies. This led to a flurry of buying activity from other countries – particularly the US.  

It’s a very credible investment now. 

Dave Parker 

Other, more micro, events can also impact the wine market, Stevens points out. “Whether it’s a particular vintage being critiqued as excellent or poor; whether it’s yields… or whether it’s an influencer on Instagram talking about a wine that causes people to go out and buy it”.  

Is fine wine investment popular in the US? 

Fine wine investment is popular in the US market – but this hasn’t always been the case. US buyers have not had a long history of purchasing wine as an investment: “There were…a lot of collectors in the US who were acquiring wines because they were passionate, but not really thinking about wine as an investment opportunity”, said Lapierre. 

This has changed. Today, fine wine is the second most popular alternative investment among Americans, according to Parker. “It’s a very credible investment now”, he said. 

This shift is partly thanks to the increased transparency enjoyed by market participants, but it also goes back to the inherent artistic appeal of wine. 

“You have a tangible, beautiful thing in your hand, and that appeals to a lot of people as compared to a sterile investment, like a share of stock”, Parker said. 

This change has been reflected in buying patterns on Liv-ex. Today, nearly one third of purchasing is driven by US-based wine businesses, versus just 1% back in 2011. This is being supported by initiatives designed to help buyers navigate the three-tier system and gain greater access to the global fine wine market – something that the Liv-ex Americas team can advise on. 

The market, therefore, has broadened both in terms of products and players.

Due June 9 | Futures and fractionalisation

Due June 16 | The customer and the future