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11/09/2018

Champagne Investment: more fizz than froth (City AM column)

by Gary Boom (Managing Director)

One of the key themes in the fine wine market across the last decade has been the increased diversification of wines considered “investment grade”, i.e. those capable of delivering attractive financial returns. Last week we outlined how both larger production and smaller production wines can justify their place in a diverse portfolio;

of the former group, outside of the investment cornerstone of Bordeaux, Champagne has been one of the main focus regions.

Whilst traditionally Champagne has been considered a celebration drink, the finest examples (often referred to as ‘Prestige Cuvées’, and including names such as Dom Perignon, Krug and Cristal) have increasingly gained a reputation as serious wines which can be equally enjoyed – enhanced, even – through consumption in the context of great cuisine. This has certainly bolstered global demand and adds to a number of shared investment traits common with Bordeaux alongside some unique and particularly attractive characteristics.

Like Bordeaux, Champagne boasts true age-worthiness asthe best examples are capable of aging and, crucially, improving for at least 20-30 years from the point of release. Therefore it shares the same intrinsically favourable supply-demand curve: there is never more wine than at release, and as the product matures it becomes more desirable over time. Crucially, as with Bordeaux, despite the exceptional quality there is also sufficient volume available to provide real liquidity: production levels of even the grandest names mean that volumes in the market are such that there is enough liquidity to enable attractive trading spreads.

However Champagne also sports unique attributes which make it particularly useful for portfolio diversification. The first and perhaps most significant of these is a trend towards early consumption. Unlike the great wines of Bordeaux, the leading wines of Champagne are aged for around a decade before release so they are ready to drink as soon as they hit the market.

Concurrently, Champagne has extremely broad recognition as a luxury good: even for those for whom other fine wine is of no interest, Champagne will likely be included in this desirable category. Thus it finds considerable demand in the world’s leading bars, nightclubs, casinos, and luxury resorts, not to mention the private cellars and parties of the world’s wealthy.

As a result of these factors a significant portion of any new vintage (or premium non-vintage) release is consumed within 2-3 years of release, meaning supply-demand balance is skewed perhaps more than other regions. The price curve is therefore potentially steeper and reward horizons nearer than for more traditional ‘young release’ wines.

The Champagne market over the last 5+ years has been driven primarily by the increasing development of the demand pool through investment focus; general High Net Worth growth; and maturing Asian consumption-driven demand. As a result of these factors, it is estimated that secondary market volumes of Champagne are now 7-10% of total fine wine volumes, vs. 1-2% five years ago.

These market dynamics have generally led to attractive gains for those who have invested in Champagne during the last decade - indeed, conditions continue to be favourable for further value appreciation, with the maturing marketplace presenting more of an opportunity than a risk.

BI’s LiveTrade screen – the only platform in the market offering guaranteed two-way prices on top fine wines – lists over 40 investment grade champagnes, the majority in potentially executable quantities of up to 5-10 cases.  These include Bollinger, Clos des Goisses, Cristal, Dom Perignon, Krug, Pol Roger, Salon and Taittinger, with multiple vintages and often rosé as well as Brut cuvées.

See below our previous City AM columns:

1) Making Money Takes Bottle

2) Fine Wine Fundamentals: Bordeaux

3) Fine Wine Fundamentals: Beyond Bordeaux