Albany Portfolio Management
The smart way to invest in wine
The impact of China on the wine investment market.
Two words form the key to wine investment: supply and demand. However, supply of the very finest wines has always been painfully limited (and ultimately diminishing – very helpful), so what caused the outrageous performance of the market through ‘03 – ‘08, and why the sudden and dramatic pick-up of recent months?
The answer to this may be largely attributed to an exceptional increase in demand from countries such as China, Russia, Brazil and even India. The figures relating to China alone make astonishing reading…
Between ‘05 & ‘08 wine consumption increased by some 65% taking China to the sixth largest consumer in the world and equating to 10% of the international market. Consumption is set to rise by a further 31% by the end of 2011. The amount of imported wine (as opposed to domestic) being drunk is disproportionate again, increasing at a rate of around 125% per annum. Mindful that just 15 years ago the amount of imported wine was virtually zero, the figures are truly astonishing.
Yet the scope for the future, as China’s economy and her taste for wine continue to grow, is even more mind boggling: Current consumption – whilst enormous on an international scale – is miniscule on a per capita basis at just 0.31 litres per adult per annum; about 2 large glasses. In the UK we consume on average 27 litres each which pales against France’s 60 litres (interestingly the Vatican leads the chart at a whopping 62!). China is so vast that if consumption per head of capita reaches approximately 25% of the amount we drink in the UK, then ALL the wine currently produced in the world would be required to meet demand!
So what does this have to do with investing in wine?
Well, the Chinese are also drinking a lot – and we mean a LOT – of the most expensive, exclusive wines from Bordeaux, and these are the backbone of the investment market. Wine consumption in China may well be increasing at an inexorable rate, but the increase in wealth is even more staggering: In terms of the number of millionaires, China leap-frogged France in ‘07, pipped the UK this year, and now only sits behind Germany, Japan and the US. In 2006 it wasn’t even in the top ten.
According to the World Wealth Report, compiled by Merrill Lynch and Cap Gemini, it will take the "lead in wealth growth, surpassing North America by 2013... spurred by increasing US consumer spending and the extension of the autonomy of the Chinese economy, already sparking a new increase in consumer demand"
Notably, your average Chinese millionaire is considerably younger than his Brit counterpart; 39 and 56 respectively. In fact, even your average Chinese billionaire comes in at a mere 49 years. And these young, cash rich men (for the most part) are splashing out on conspicuous, high end luxury goods like never before. And in such an image conscious society, the big names in wine – Lafite, Petrus – are experiencing levels of demand that are forcing up prices at a staggering rate. Yet, it seems the more expensive these wines get, the more they want them. Bad for the consumer, GREAT for the investor.
So there we have it - inevitably decreasing supply and exponential increases in demand. As the old adage goes, the only way is up, baby!
OK, so now let’s talk about Russia……
So, why is the wine investment market doing so well at the moment?
By James Fletcher
Albany Portfolio Management
15 Oct 2009
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