The future of the fine wine market - SwiftERM

The future of the fine wine market. Despite difficult times continuing due to the pandemic, fine wine is booming. As the world slumped past the somber first anniversary of the World Health Organisation’s declaration of an international health crisis, much of it amid a gruesome third wave, Liv-ex’s wider 1000 index appeared weightless, rising to its highest-ever level at the end of March 2021, beating its previous price record of November 2018 (fig.1).

The future of the fine wine market

Flying high

The Bordeaux first-growth index—the Liv-ex 50—and the Bordeaux-dominant Liv-ex 100 have followed suit, each rising by 10 percent since March 2020. The latter has more than recovered its losses through 2019 and the beginning of 2020, while Bordeaux first growths lag behind in relative terms, their index remaining just under its best-achieving month of the past three years (August 2018) at the end of the first quarter of 2021. Both indices are yet to fly above the point of their respective all-time highs achieved back in June 2011, but they nonetheless display a positive trajectory going into the summer of next year.

On solid ground

On the ground in the UK, fine-wine sales have stayed solid in 2021 thus far. Will Hargrove, head of fine wine at Corney & Barrow, said, “Demand for wines across regions has been very good.” Reflecting on the months that have passed since the pandemic began, he explains that while the first quarter of the year has seen buying patterns settle back “into the more traditional cycle,” the positive effects of Covid-19—namely, the willingness of customers to buy and try a wider range of styles—seem to persist.

He is pleased, too, that this continues to translate into the buying of back vintages for delivery, rather than collectors making significant dents in their stored reserves—a phenomenon that he and many of his comrades feared would slow down sales significantly when the health crisis first hit. He is not alone in reporting a strong start to the year. Matthew O’Connell, head of investment for Bordeaux Index, said, “We are seeing sales so far in 2021 just shy of the peak of 2011 figures—one of our best years ever.” He specifies, however, that “the demand pattern is much more sustainable looking ahead into next year.”

Disparate times

While it is a positive picture overall, the three-year performance of Liv-ex’s regional indices shows a slightly more turbulent journey for certain regions (fig.2). The Burgundy 150 is yet to reach either of its previous camel humps, seen during the last quarters of 2018 and 2019. Burgundy prices nonetheless appear to have been boosted by the successful en primeur campaign for the 2019 vintage, as the index rose 3 percent in the first three months of 2021 (equaled only by the Rhône 100 for pace).

Hargrove reports a very successful Burgundy en primeur campaign, with buyers willing to snap up wines at all levels—generic, village, premier cru, and grand cru—from respected producers. The longer regional performance retrospective also shows the Bordeaux Legends 50 index still flailing below its previous peak of October 2018, though its more comprehensive sibling fares better, sitting 1 percent above its 2018 high at the end of this year’s first quarter.

The future of the fine wine market

Land of the free

Bordeaux and Burgundy have likely benefited in the immediate term from an early act of Biden’s administration—the suspension of punitive US tariffs as of March 5 this year. Executive vice president of Total Wine, Jonathan Bennett believes that the full force of this positive pivot is still to come. He tells me, “A lot of retailers are now starting to bring in previously tariff-eligible inventory from négociants and, more generally, are focusing on Bordeaux stocks again.

With the US pandemic continuing, though, the global supply chain remains in disarray—it will take a while for these shipments to arrive and thus to feel the full effects of tariff suspension.” Though tariff removal means retail prices of these wines will likely decrease, stronger demand as a direct result could boost secondary market prices overall, heading into the summer and beyond. O’Connell suggests this particular consequence is already beginning to show: “We’ve seen a strong resurgence of Bordeaux and Burgundy demand from the US, given the suspension of tariffs. For Burgundy specifically, American buying has been particularly active on the top, blue-chip names.”

Variety show

Elsewhere, the rise of the Champagne 50 and Italy 100 indices continues into the first quarter of 2021, having both already increased by 6 percent over the course of last year. These two indices join the Rhône 100 as the top benefactors of a diversification trend, accelerated by collectors at the start of the coronavirus pandemic. Interest from an avid fine-wine-drinking audience exploring beyond fine wine’s most traded staples translates into both variety and volume.

The WFW Drinkers’ Index 50 registers its biggest ever jump, up from one quarter to the next between the end of 2020 and the beginning of 2021. Bennett confirms that, since March last year, “consumers were restricted as to where they could spend their disposable income, and much of this moved into the wine and spirits category”; even existing customers have been buying in higher volumes, but not to the detriment of quality.

The lockdown effect appears to be lasting, and fine-wine lovers today are willing to pay more, for quality across top regions, almost than ever before. Indeed, only one of Liv-ex’s regional indices falters heading into the second quarter of 2021: The Rest of the World 60 has stayed flat this year and has lost a token 1 percent of ground since March 2018.

Such widening of interest finds further evidence in Liv-ex’s market-share split. Bordeaux once again concedes space to all other regions apart from Champagne. After wavering in 2020, Burgundy’s market share shows a return to form, achieving its highest ever level to date, of 23 percent in 2021, now just 13 percent behind Bordeaux. Burgundy’s rebound is the possible cause of a slump in share volumes of the Rhône, Italy, and wines from the rest of the world, which, despite continuing their rise, do so at a much slower rate than was achieved between 2019 and 2020.



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