The idea of wine as an investible commodity is not new. If people will bet on which of two fleas will jump the furthest there’s no reason to suppose they won’t speculate on the future price of wine. Until the 1980s wine generally tracked inflation, except for a few exceptional vintages and only from the best-known producers. However, as the number of middle-class consumers increased (mainly in developed-world Western countries) demand so outstripped supply that much higher future prices seemed certain.
Enter several wine investment funds that packaged blue-chip names (mainly from Bordeaux) and sold paper backed by actual cases of wine. This in turn led to the growth of wine storage facilities, vast underground cellars that were used by the funds but also by private investors and consumers (the latter because a decreasing number of homes offered appropriate cellarage). Other factors ― especially in Britain — fuelled the boom. The UK fiscus treats wine as a wasting asset, which reduces the capital gains tax on the profits. Retirement money flowed into the wine market, which nudged up the prices even further.
Now the boom in Bordeaux wine prices has ended and it’s wreaking the havoc of a long overdue correction. The Bordeaux trade has functioned as a forward purchase market for more than a century: the chateaux offer an important percentage of the new vintage via brokers in the spring following the vintage. At this stage the young wines are in barrel and, in most cases, have not even been assembled into a final blend. As long as the market was running strongly and the vintage was well-received the punters bought their allocations. In this way the chateaux financed the cost of production, as well as the bottles and packaging required when the goods were delivered to the buyers 15-18 months later.
As long as there were enough good vintages every decade, and prices kept rising, the system worked well for everyone. However, when the roller-coaster hit the wall, the impact was felt all the way back down the supply chain. By the end of the second decade of this century it was clear that little of what had been produced at the top chateaux in the past 20 or 30 years had actually been drunk. Now all but the best wines were starting to run out of life (this is why the UK tax authorities consider it a wasting asset, after all).
Meanwhile it was becoming clear that the baby boomer generation was slowing down (and dying out) and millennials and their successors weren’t as interested in wine as their parents. So the market was shrinking, consumption was declining, investment stocks were returning into the system and the chateaux (with the greediness of those who assume that higher prices are their birthright) were asking for above-inflation increases annually.
The last saleable Bordeaux vintage was the 2023. The 2024s elicited no interest. The 2025s (a small, well-reputed harvest) are coming to market shortly. The combination of reduced supply and high quality would normally guarantee commercial success. I doubt this will be the case now, certainly not with a full pipeline and a shrinking market.
Harbingers of this collapse in the Bordeaux market have become increasingly evident, though the early signs were already discernible 15 years ago. The 2009 Farr Vintners’ Bordeaux Primeur campaign saw nearly £60m sales in the first six months. For the 2024 vintage the number was about £2m. The very fine 2009 vintage is now selling for 7% less than it did on release. The even better 2010s are faring worse — 19% down.
This is not a tiny storm in some foreign wine vat. Wine drinkers in South Africa who are offered “investible” Cape wines should also pay heed: the best return the speculators who bought these great clarets 15 years ago can expect is the joy of drinking them.
First published in Business Day.
