Most wine drinkers don’t know much about wine investing or wine futures. But we do understand that wine represents more than just a beverage. It represents bragging rights, money, and status.
Ultra-expensive and rare fine wines are defined as Veblen goods, meaning that higher prices drive higher demand. In 1899, Thorstein Veblen, an American economist, called this concept “Conspicuous Consumption.” Other ways of expressing the same idea include:
- Luxury goods
- Keeping Up with the Joneses
- You Get What You Pay For
- Jumping on the Bandwagon
- The Snob Effect
Whatever it’s called, the idea underlies fine wine investing. Investment-grade wine is a tangible asset whose value is expected to appreciate over time.
Wine Investing as an Alternative Investment Strategy
You may have heard of Robert Parker’s famous list of Bordeaux wines from the 2009 vintage that he expected would appreciate because they were undervalued. By December 2020, only three of those wines lost value. If you bought and held those three, you might want to drink them. But the others increased, some tremendously.
The benefit of investing in wine is you can drink it. You can’t enjoy declining investments in the New York Stock Exchange.
Investing in fine wine offers other benefits like portfolio diversification, a low correlation with equities, and plain old fun. Wine investors tend to be passionate about wine and love drinking, sharing, and talking about it.
Today there are more ways to invest in fine wine and more knowledgeable buyers around the world. People are more sophisticated and technology savvy than ever.
But investing in fine wine is not straightforward. Traditionally, you needed lots of money and the right connections. With most investment-grade wines coming from top level Bordeaux (Châteaux Lafite Rothschild, Latour, Haut-Brion, Mouton Rothschild, and Margaux) gaining access challenges even the most savvy investors.
To understand the wine investment market, you need to be familiar with the quality, ownership chain (called provenance), scores, and scarcity. Many of these wines come from Bordeaux because of their high quality, ageability, high scores, and demand.
Finding out where to buy, at what price, for what cost, how to store it, and whether the wine is real or fake make the process fraught with risk. Selling the wine later has another set of issues.
Increasing demand for alternative investments due to self-directed and solo 401K programs, higher disposable income, distrust of the stock market, and increased financial savvy are leading to innovation and increased participation in the fine wine investment world.
Wine Investing Considerations
So, if you want to invest in fine wine, do your homework. You don’t reap profits until you sell the wine, and the many costs limit those profits. It’s not easy to find someone to buy the wine at the price you want.
Below is a (non-comprehensive) list of considerations:
- Expertise – You need access to the necessary expertise to invest in the industry. Do you have knowledge and understanding of wine and the business of wine?
- Scores/Reviewers – What are the scores and what do the reviewers say?
- Prices – Look into how prices move by vintage, region, producer.
- Provenance – The integrity of the chain of ownership is crucial.
- Costs – there are many costs associated with investing in wine:
- Base Price
- Storage and insurance
- Shipping (if needed)
- Duties, capital gains taxes
- Fees, commissions
- Exchange rates
- Opportunity costs (cost of not investing in something else)
- Reputation – of the producer and anyone involved in the transaction. Trust is everything in the wine business.
- Time in business/Longevity – Be sure whomever you work with will be there in the long run, an essential point when buying futures.
- Services – If you need other services such as storage, cellar management, or valuation services, how can you meet those needs at a reasonable cost?
- Time Horizon – Many investments require holding periods.
- Minimum Quantities – Many investments require the purchase of a certain amount.
- Regulatory Issues – Be careful when buying wine across state lines. Most US states only allow secondary wine sales through auction houses.
Wine Investing Sources
In the past, investing in wine was a game for the wealthy. Like in many other industries, though, technology is driving change, allowing consumers with limited funds and knowledge to invest in fine wine.
But each option offers different results and risks. It’s up to you to decide which is the best alternative to meet your investing needs.
- Direct from Producer – Buying directly from a producer is effective, efficient, and it guarantees provenance. But it can be challenging or impossible to get on allocation lists.
- Private Collectors – Most states prohibit alcohol sales between private parties. Know the rules.
- Brokers/Importers/Distributors – Working through a broker, importer, or distributor offers more access and expertise. Costs will be higher, could be up to 10% more.
- Auction Houses – Traditional and expensive auction houses offer expertise and access to hard-to-find wines that come on the market from private sellers. Costs can range from 10 to 25%. Newer online auction platforms may be less expensive.
- Investment Houses/Wine Funds – These companies allow investors to buy shares in a wine fund that pools investors' capital. Fees vary.
- Sommelier Capital Advisors Investment Fund - merges high-end wine with active professional investment. Only for Accredited (high-net-worth) Investors. Requires long-term commitment (minimum five years.).
- Noble Rot – Started in 2004 by the founder of Majestic Wines, this investment syndicate is active in En Primeur investing, buying wine direct from negociants and chateaux. Requires long-term commitment.
- Traditional Retailers – You can buy investment-grade wine from your local retailer. Selection may be limited. Retail pricing is higher, so shop around for the best price.
- Online Retailers (DTC) – Online retailers, like Big Hammer Wines, offer investment-grade wine, including en primeur (futures) wines. Prices are competitive, costs are lower, and choice is high.
- Blockchain-Based Wine Investment Platform – A new digital platform based on blockchain technology, Alti Wine Exchange sells tokens through IBOs – initial bottle offerings. Tokens are backed by wines stored in Bordeaux City. Available to non accredited investors.
- Apps/Start-ups – Costs can be fee-based or all inclusive. Assets are held in bond. It might be hard to determine value.
- Vinovest – Invest a minimum of $5,000 plus fees based on risk tolerance. The company offers algorithm-based portfolio balancing, storage, and insurance. You own the wine, so you can drink it if you want. An insurance policy guarantees provenance.
- Cult Wines – London-based platform started in 2007. For $15,000, you access a global portfolio. A $45,000 investment includes management services, valuation, advice, and access to en primeur allocations. Wine experts verify provenance.
- Rally – Rally accumulates funds from many participants, then buys collectibles (wine/art/cars/watches.) Investors buy “shares” in these asset classes with a low-cost point of entry. A partnership with Cult Wines verifies provenance. You can sell shares after 90 days.
Investing in Bordeaux Futures
Bordeaux is and always has been the top region for fine wine and futures investing. Buying Bordeaux futures has never been easier. By buying en primeur or futures, you can access wines while they are still in the barrel, up to 18-24 months before release.
Big Hammer Wines has created a trading platform that offers clients the opportunity to pre-purchase hard-to-access wines with limited allocations at reduced prices.
Learn more at: BigHammerWines.com/pages/bordeaux-futures-en-primeur
The company’s business model is Costco-like, efficient, and cost-effective. They combine early access, aggressive pricing, and secure escrow.
Pricing is cellar direct import pricing based on pre-release prices at up to a 20% discount. You can order larger bottle sizes that can be difficult to find. You take ownership, and the wines are shipped to you.
The company has long-term relationships in Bordeaux, a testament to its reliability and trust.
For the 2020 vintage, securing allocations through pre-purchase during the futures campaign may be the only way to get many of these wines.