Champagne and Burgundy lead boom - SwiftERM

Champagne and Burgundy lead boom. Liv-ex, the global marketplace for fine wine, released figures this morning to show trading volumes up by 70% compared to last year, as new categories of wine enter the secondary market for the first time, while established areas, particularly Burgundy and Champagne, enjoy rising sales.

Liv-ex director and co-founder, Justin Gibbs, said, “Last year was a positive year for the wine market, with all major Liv-ex indices showing gains.” While Bordeaux has fallen out of favour, this famous French fine wine region has seen its proportion of sales diminish but that’s due to increases elsewhere.

Bordeaux now has a share of trade less than half of what it was a decade ago, but that’s because the overall market has surged and interest in wines from Burgundy, Champagne, the Rhône, Italy and the US has grown rapidly. As a result, the fine wine marketplace commented that the secondary market is not just booming, it’s broadening.

The total number of wines – including different vintages of the same wine brands – was 8,735, up 72% from the 2019’s 6,367.

Liv-ex said that the surge has continued into 2021, with March 2021 closing on the biggest month of trade in Liv-ex’s 21-year history – 1,250 distinct wine brands were traded, of which 130 were newcomers to the secondary market. This means that more than £80 million ($109 million) of live bids and offers, are currently available on the market.

According to Liv-ex, “the most striking example” of the changing dynamics of the market is the Burgundy 150. This is an index that tracks the price movements of the most active Burgundy wines (mostly grands crus) in the secondary market, and it has risen 87% over the last five years, with Liv-ex saying that it had been the beneficiary of collectors putting their capital into a new category.

This part of the fine wine market has also enjoyed a recent fillip due to a sudden and significant influx of US buyers since the tariffs on European wine were suspended by the Biden administration.

Champagne and Burgundy lead boom

Meanwhile, Champagne has also enjoyed huge growth over the past five years, with the Liv-ex Champagne 50 (made up of the most traded prestige cuvées from Cristal to Krug and Dom Pérignon) up 58% over this period.

Such growth Liv-ex attributed to the “brand power of the grandes marques Champagnes, widely available stock, global distribution and accessible price points.” Indeed, in a discussion with db earlier this year, Gibbs said that the top Champagnes tend to offer a particularly reliable investment option for fine wine collectors. “Dom Pérignon, Cristal etc are like the first growths of Champagne, and their entry point is still relatively cheap compared to other fine wines, “ he said, adding, “While the drawn out release of the 2008 vintage created so much excitement from the trade and critics.”

Continuing, he described these top names in Champagne as a “rock solid” investment, saying that it was easy to sell stock back to the market, describing Champagne as “nice and liquid”. Explaining further the investment opportunity in Champagne he said, “The vintages are released ready to drink, and it takes 2-3 years for them to sink in to the market, disappear and be drunk, and they are extremely well distributed.”

This broad, global distribution helps, as he also noted that the volume of production of the big names is fairly large, with Gibbs estimating that Dom Pérignon makes around 400,000 cases in any single vintage, and Cristal around 15,000 cases or more.

Nevertheless, the combination of accessible pricing relative to fine wine, and reliable consumption patterns, means that Champagne prices tend to “go up 8-10% per year. “It is a market without bubbles; it never flies, but moseys on,” he said.

As for other areas of notable growth, Liv-ex picked out Italy, with the Italy 100 index seeing a rise of 45% over the past five years, “as merchants and collectors discover the relative value to be found in the great wines of Piedmont and Tuscany”.

Finally, the Liv-ex Rest of the World 60 – which includes the top wines of California, as well as Australian, Spanish and Portuguese wines – has risen 31% over five years. It noted that US wines in particular are attracting attention; in 2019, US wines represented just 2% of trade by value on the market, which shot up to 7% of total trade last year.

More generally, Liv-ex said that the growth in trading was being driven by technological innovations sweeping through the wine industry, transforming the behaviour of both wine businesses and buyers. Such a development has meant, believes Liv-ex, that “people are no longer anxious about buying or trading online.”

“These innovations in technology have had a significant impact on buying patterns,” said Gibbs. “As more of the wine trade go digital – with many enabling their customers to access the market using automation services – we are seeing increasing diversity in what is traded as collectors are put in the driving seat.”

In particular, automation through APIs like SwiftERM has enabled a seamless trading experience, while allowing consumers to purchase wines to be offered which are personalised to the tastes and budgets of each individual.

Finally, looking ahead, Liv-ex believes that the fine wine market is set to expand further. Since 2019, US collectors and merchants have been constrained by the US government’s tariffs on the wines of France, including Bordeaux and Burgundy. “The tariffs have had a singular effect on the fine wine market over the last 18 months, not least for Italy and Champagne whose wines were excluded from the extra 25% levy,” said Gibbs. But the recent lifting of the tariffs has had a marked effect on activity – leading to a strong kick in demand for wines of all regions.

There are also other reasons to believe that the fine wine market will both grow and diversify further. “The combination of low interest rates and massive fiscal spending suggests that asset inflation will not be confined to equity, commodity and property markets,” said Gibbs. “The fundamentals of fine wine will also be an attractive option to those with cash to spare,” he concluded.

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