Fine wine offers that magical combination of limited supply and great demand – but caveat emptor, writes JOHN WILSON
ALAN SUGAR MAY have been wise to turn down the opportunity to put his money into a wine investment scheme on the TV show The Apprentice. Contestant Tom Gearing was seeking Sugar’s assistance in raising £25 million (€31 million) for Cult Wines Ltd, a fine-wine investment company.
Wealthy people like to have the correct accessories – the car, the yacht, the clothes and other trappings. This is partly so they can enjoy them, but also so that the rest of us know they are rich, hence the clearly defined logos and labels. Wine certainly falls into this category; in the boom years, luxury champagnes such as Krug, Louis Roederer Cristal and Dom Pérignon were much in evidence on the tables of our fine-dining establishments. The best champagnes are generally released at a high price and, while some may increase in value, usually the (substantial) profit goes straight to the producer.
Other wine, quality red wine in particular, requires ageing. It also offers that magical combination of limited supply and great demand. Step in the investor, who buys young wine and sells it later at a profit.
Bordeaux is the traditional investment market. Unlike in Burgundy, most of the top properties produce reasonably large quantities of wine, enough to create a commodity market for buying and selling. The idea is simple enough. In late spring, the properties release a quantity of their wine en primeur, that is, still lying in the barrel. Buyers and journalists attend tastings of the unfinished wine and give their verdict on the vintage.
The most eagerly sought-after opinion is that of Robert Parker, an American wine guru who can make or break a wine. A Parker score of 95 or more out of 100 virtually guarantees an immediate increase in price; anything less than 95 is a disappointment. Other investors wait a year or two to see which wines are performing best, and then buy.
The Chinese market has provided a boom for luxury goods in recent years, and fine wine is no exception. Here, too, the wealthy want to be seen drinking the right beverage. Many, though, have little knowledge of wine. Everyone in the trade has stories of people drinking red wine chilled, with a soft drink to sweeten it, or simply of wine being drunk when it is far too young.
Château Lafite Rothschild has enjoyed the most spectacular success of all fine wine in China. Even inexpensive Bordeaux bearing the Lafite Rothschild logo sells at incredibly high prices. Last year the price of Château Lafite Rothschild took a tumble. But the price is still remarkably high.
Released in May 2009 at £1,950 for a 12-bottle case, the 2008 vintage was trading at £3,500 two months later. In January 2011 it peaked at £14,000 (although one enthusiastic buyer paid more than £21,000 at auction in Hong Kong in October 2010), but by January this year it had fallen to around £8,000 a case.
As interest in fine wine increases in China and other emerging markets, so the available pool of wine will diminish. Hence Gearing’s argument that a £25 million investment will result in serious returns as the market expands.
He may well be right. However, as Sugar pointed out, if these markets lose interest, the opposite will occur. As with any investment, what goes up can always come down. The 2011 vintage in Bordeaux met with a lukewarm response from investors, despite decreases in price of up to 50 per cent from the much sought-after 2010 wines.
Irish importers such as James Nicholson, Greenacres and Mitchell Son offer fine wine en primeur, but London remains the centre for dealing. In addition to the auction houses, which hold regular sales, a group of brokers buy and sell fine wine, as well as some wine investment companies. Many now have offices in Hong Kong.
For those considering investing in wine, a few words of warning. A number of companies have gone bankrupt recently, and in these circumstances it can be difficult for investors to gain access to the wines they have purchased. Banks, the revenue and other creditors often take precedence. Some companies were trading fraudulently; they took people’s money, often promising huge gains, but never actually bought any wine. I know a number of investors in Ireland fell foul of such schemes.
Anyone considering investing should only deal with established, reputable companies with a history of dealing with fine wine. You could consider storing your wine at home once purchased. However, this means you will be liable for excise duty and VAT at 23 per cent, thereby putting any future gains at risk.
We are speaking of wine as an investment rather than a beverage here. Wine lovers may be disappointed to see the prices of their favourites increase beyond their means. Fear not; there are plenty of good wines from other regions that do not yet attract the attention of speculators.
