Can the fine wine market maintain its performance? | FT Wealth
Fine wine has proved a solid performer for investors over recent years but, as the FT’s Matthew Vincent explains, faces a variety of challenges. There’s little doubt that climate change will have an impact on wine’s premier regions, such as Burgundy and Champagne, while the threat of counterfeiting is moving to the forefront of investors’ minds
Presented by Matthew Vincent
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Few would argue that we aren't living in turbulent times. But today I've come to a particularly serene part of southeast England to find out how an evolving fine wine market is responding to an assortment of traditional and not so traditional challenges, ranging from long-term weather patterns to pandemics.
It's very strong. The market has moved from being a UK-centric type investment to right now, worldwide. And there are more platforms cycling up all the time.
In fact, the Live-ex 100, the leading industry exchange of the secondary market, has risen by around a third over the past two years.
They are very, very good at putting out information as to the state of the wine market in general. And they are saying that it's extremely robust.
Over the past 10 years, when it comes to luxury investments' performance, wine has trailed only cars and rare whisky, according to the Knight Frank Investment Index. But this global market is facing a global issue that could well affect investment values and prices in the longer term - climate change.
The major wine regions for investment are all on the same latitude. So you start off with Napa Valley in California, on the West Coast of the United States, through to Bordeaux, through to Burgundy. And of course, these regions are getting hotter and/or colder.
As our climate changes, it could make it harder to produce future vintages of the quality we're used to.
Climate change is going to play a part in the wine life. That said, with wine, if there is no more Bordeaux, then the wines that are held with customers are only going to increase in value.
Of course, climate change could eventually influence supply the other way by actually opening up new areas for quality wine production. The Champagne region of France, for example, is an area seen as being particularly susceptible to climate change, which is why famed champagne houses, like Pomeroy and Taittinger, are now looking to places they would never previously have considered for production.
Big international players have come into the English wine scene to invest in their own vineyards, put their money where their mouth is, and recognise how special the southeast of England is.
The effect of climate change will, of course, be gradual. But I have come to the UK's oldest wine merchant, Berry Brothers, founded in 1698, to learn more about how certain aspects of the markets are changing now.
Some good ordinary clarets, are they?
Yes, my favourite.
The company stores around £1bn worth of wine for private clients.
There may be a few thousand bottles here, maybe. I actually don't know the exact figure. In Basingstoke we currently have a facility for 9mn bottles.
Spending on fine wines actually increased throughout the recent pandemic. And sales for its en Primeur season, which allows collectors to buy the most recent vintage before it is bottled, were up over 40 per cent in 2021 compared with 2019. As sales grow, and with greater volumes being traded across the world, ensuring the origin and care of their wine is as it should be is becoming ever more important for collectors.
The bulk of what I do is looking to check that everything that we sell is absolutely as pristine as it should be, and that it's come from the right place so that the provenance is correct, that it's been stored correctly on the way into us.
In times of higher inflation, as we're seeing now, physical assets do have the potential to offer solid returns. But wine can entail higher costs than other investments due to factors like shipping and storage. It's seldom a short-term investment, and concerns about counterfeiting are also becoming more prominent.
It wasn't really an issue up until about 10 years ago. Now it's something which everyone asks us about.
Cases like that of Rudy Kurniawan, who in 2013 was convicted of wine fraud for selling tens of millions of fake wines, have thrown a spotlight on counterfeiting.
So how big of a problem is wine fraud nowadays?
The more common types of wine fraud is mass produced bottling of perfectly potable table wine with a more expensive label on it. And that's happening probably as we speak. Somewhere in the world, somebody is bottling something which is not what it says on the label.
Combating the frauds takes various techniques and technologies, both old and more recent.
Can you see the fluorescing lights and the fluorescing label there?
But there are two tiny little holograms in the shape of a cloverleaf. Their position moves with every vintage.
Other verification systems can range from nanochips to tracking numbers and even a system that matches a unique pattern of air bubbles under the cap to an image kept on file. One relatively recent development uses blockchain technology to help gain clarity over a bottle's condition and whereabouts across the supply chain.
When you've got a broken supply chain, actually, that's the best time, in my opinion, to commit fraud. So what we're doing is saying, actually, we may make 5,000 or 500, depending on what's going out of a QR code that will be unique to that bottle and that batch.
Can you show me how this sort of technology would actually work in practise then?
We're going to scan that code as so, and now we're going to go into temperature, humidity, and GPS location of that bottle.
Systems like Chainvine won't be for everyone. But in a global survey of wineries last year, blockchain technology ranked second of all technologies they saw as having the highest priority of importance to develop.
As for the wine investment market, if it wants to build on strong recent performance, it will have to adapt to the constant changes coming from both inside and outside the industry.