Investing in fine wine is no new phenomenon. The ultra-wealthy have long been familiar with profiting from fine wine by auctioning off their vast cellars – Alex Ferguson earned a huge £2m from the sale of his portfolio in 2014.
Over the past couple of decades however, savvy investors have discovered it as a lucrative haven from more turbulent investments, with often explosive growth.
Very simply, the wine market is based on a strict rule of supply and demand. Each high-end wine producer is limited in the amount they are allowed to produce of each vintage, known in France as, Appellation Contrôlée. This inevitably means as a particular vintage is consumed the supply inevitably goes down, thus increasing the demand and inevitably the price of remaining bottles.
Wine also, by its very nature matures with age, making it more sought-after to the drinker and collector as time passes. Prices of wine can go down as well as up but the increasingly dwindling supply of the finest vintages, coupled with an ever-increasing demand lends itself favourably to the latter.
Wine has increased 127% over the last 10 years and 6% in 2019 according to the Knight Frank 2020 Luxury Investment Index.
Most wine is classified by HMRC as a ‘wasting asset’, defined with a shelf life of 50 years or less, and therefore escapes Captial Gains Tax in the UK. However, Starling Wines recommend that advice should always be sought by a tax specialist.
Supply & Demand
Demand has grown immensely in the past decade as Asia established itself on the fine wine map in spectacular fashion. Hong Kong has become the center of the global wine trade, with more money raised at wine auctions there than in London or New York in recent years.
The face of global wealth is changing rapidly with Latin America and Asia expected to lead the way over the next decade, each with an 88% rise of High Net Worth Individuals (HNWIs).
In 2011 there were 180,000 HNWIs worldwide with a net worth of ￡30 million or more, that figure is expected to rise 50% by 2022.
As the demand in fine wine continually grows and supply of produce is capped, the future looks exceptionally bright for investors.
If for some reason a wine does not meet its financial expectations, it can still be enjoyed and will not disappear or become worthless such as high-risk investments. Starling’s method of wine selection has been developed over years of experience and is constantly evolving in-line with industry trends.
This proven method reduces the likelihood of any wine we chose dramatically losing its value.
The fine wine market does not need constant monitoring, such as stock and shares that can change hourly and, in some cases, wipe their entire value overnight. Historically the fine wine market has provided steady high-yield growth.
Maximising wine values
As the fine wine market has developed in recent years, and prices have risen, perfect provenance has become an increasingly critical factor in ensuring wines reach their maximum value at the point of exit.
This is illustrated by the success of recent ex-cellar chateau auctions, where wines across all vintages have achieved 50-100% more than their market value thanks to their proven immaculate origins. Therefore, it is crucial for investors to do all they can from the point of purchase to maximise the eventual sale value of their wines.
Storing fine wine in bond
The easiest way to prove unquestionable provenance is to store fine wine in wooden cases in bond (IB) in a bonded warehouse such as London City Bond or Octavian Vaults. Such bonded warehouses provide the optimum environment for fine wine storage, by carefully regulating temperature, humidity, and other microclimatic factors.
Bonded warehouses have often built up a trusted reputation over centuries in the UK and are also subject to strict rules, the result being an audit trail for every case stored in bond, which provides you with a solid method for tracing provenance. In addition, wines stored IB are not liable for VAT as they are considered ‘in transit’.
A case of IB wine may change hands multiple times without ever leaving the bonded warehouse which removes the risk of damage and disruption. As owner of IB wine you will hold certificates which prove your ownership of the wine as a physical asset- a significant advantage over non-physical assets such as equities which hold no inherent value, other than the paper they are printed on.
Annual storage costs IB are between ￡10-25 pounds to ensure this perfect provenance. Wine storage prices vary greatly depending on the location.
If you have wines in bond already, please contact us to see if we can arrange a better price.
Original Wooden Casing (OWC)
Wines stored in their original wooden casing (OWC) hold most market desirability and garner the best prices. Non-OWC cases sometimes are found in cardboard cases, or in original cases with replacement lids.
Duty paid cases
Wines that have been removed from bond, and thus have had the Excise Duty and VAT paid on them (DP), will generally command a lesser price than those which have never been removed from bond. From a buyer’s perspective, IB cases are far more desirable than DP cases as they can offer immaculate provenance
US strip label stock
Wines that have been imported into the US have an importation sticker placed on them by the relevant importing firm. Wines bearing this sticker have reduced desirability as they have obviously spent a significant period in freight, often without any significant assurances as to the environment in which they have been stored or records of their movements.
With cases of wine that are of a significant age, a certain degree of soiling or damage to labels is to be expected. Wine bottle labels yellow or wrinkle naturally over time whilst being stored at optimum temperature and humidity. Thus, if provenance is impeccable, soiling of this kind in aged bottles should not detract from value.
When purchasing fresh stock, one should ensure that labels and capsules are in mint condition, that wine levels are into the bottle neck (with some exceptions for certain wines in certain vintages), and that bottles come in OWC.
A number of the most desirable wine brands have been taking measures to battle the counterfeit trade that has sprung up as prices for their wines have soared. The Prooftag system has been adopted by some producers, including all the wines of Chateau Lafite-Rothschild (beginning with the 2009 vintage), a technology on all bottles that means that they can be traced and validated upon request.