Ditton Wine Traders’ fine wine blog

It seems the majority of fine wine buyers are currently in it to make money. With savings accounts generating next to nothing and stock markets still a bit uncertain, more and more people are turning to wine to generate a return on investment. Moreover, investing in wine somehow seems to have evolved from something reserved for the old boys network who are in the know, to savvy investors who take advantage of increased accessibility and transparancy.

Fine Wine, as measured by the widely quoted Liv-ex 100, is now up 10% for the year and climbed an impressive 4.6% in August (normally a quiet month due to holidays). Yes, this is after a big fall last year – the Liv-ex 100 still being down 14.2% year-on-year. But this only seems to add to the attraction.

I often wonder about the Fine Wine Market. It's such a niche market and the end-users are such an elite group. And yet is has a very loyal and growing number of afficionados. Wine lovers  (the type that buy to drink) hate the continual price increase, but private and corporate investors (who are in it to make money) love it.

To be fair, one can't blame investors to be attracted. Fine Wine historically has done well, outperforming stock markets. And it has a driving force that few, if any other investments have: ever diminishing supply. As long as demand is there, it's a sure bet: the wine gets consumed, it grows older, it get's better and more scarce, prices go up and there you go – a no-brainer.

A no-brainer indeed. As long as you can withstand severe price changes as we have seen in the second half of last year, where the top wines lost up to 30-35% of their value. Still better than the stock markets though... With wine, as soon as stocks had been offloaded, as soon as there was a sense of prices bottoming out, demand was back. After the evasive mood of "would you buy today, when there's a good chance that this particular wine would be cheaper tomorrow?" had passed, the fine wine market was a buyers market again.

This seems slightly odd. After all, in times of recesssion, luxury goods suffer. They always have. And they have in this recession as well. Bottled water manufacturers are suffering. Champagne sales are down more than 40% on last year. The average price of a bottle of wine as bought in the supermarkets is down. Most descretionary items – new cars, fridges, home extensions, luxury holidays etcetera- they are all experiencing difficulties.

Not Fine Wine though. Probably because it's not a "consumable" anymore. Demand is no longer aligned with the "real" economy, it's aligned with the investment markets. While demand for fridges et al. moves in sync with (un)employment, fine wine seems to move in sync with cash finding a save and profitable haven. With of course – as often commented on – the anomaly of Chinese demand for especially Lafite.  Fine Wine seems to have moved on into the realms of luxury items. Status is more important than the actual pleasure of drinking (alas). And believe it or not, there is an ever growing amount of people willing to pay GBP 8,000 or more for a case of wine.

Where does it go from here? Unless Fine Wine suddenly would not be "en vogue" anymore, I can't see anything else but onwards and upwards. Not all wine will see hefty price increases, but the fundamentals are as sound as ever, is my firm belief.