Article by Thomas Heler
10 years ago this November, Fred Achom was contemplating his future, as well as the future and viability of the wine investment market. His newly formed wine investment consultancy Boington & Fredericks of London had just been suspended from trading by the Department of Trade and Industry for mis-selling wine as an investment. The idea of advising clients to bed down fine wine for investment and charging a premium for this service seemed to be somewhat farfetched to financial regulatory boards. ‘Back then we were selling Lafite 96 for £3,900 a case while ordinary merchants were selling at approximately £2,000 per case with no value adds. The promise of good returns seemed farfetched, to all and sundry it looked like a none-starter and the general opinion was that most would never see a profit’ says Achom, ‘today the Lafite 96 is worth in the region of £15,000 per case. It was hard then to prove the viability of the market, market data was hazy at best and there was little or no press in favour of wine investment, today there is an article every week’ he continues.
The faith that those like Achom have shown in the market have certainly been rewarded, with the wine market increasing from a £7 billion a year market in 2001 to today’s £14 billion a year valuation and continuing to grow each year. Industry figures show that approximately 2 percent of all wines produced globally are considered to be sufficient quality to rise in value and very few ever break into this tier. The ‘blue chip’ Bordeaux or first growths as they are called are the dominant force when seeking wines that can accrue value over time, they now account for over 60 percent of wine auction sales worldwide. With the emergence of the Far East and South America as major forces in the Fine Wine market and little or no real knowledge of wine, the need for advisory is today even more apparent. Wine advisors like Achom with their vast knowledge of wine and the financial benefits and principles are more in demand than they have ever been.
Today Achom is the founder and chairman of the offshore based Rosemont Group who amongst its portfolio of companies own majority stake in the London based wine advisory firm Bordeaux Wine Company in partnership with wine enthusiast Anthony Grant. Grant feels they have been vindicated by the performance of the market over the past decade. He says he feels proud to have stuck at it for so long and has been able to see the market flourish as he always thought it could, ‘i always knew it would come good’ he exclaims, ‘the fundamental principles of this market are clear for all to see and people have finally woken up and realised that wine is just as viable as any other commodity if not more’.Prior to the past decade the Fine Wine market has been a patient mans market and although the likes of Achom and Grant speak of huge returns of the last few years, it is still very much advise to look at this with a medium to long term perspective and abiding by a few basic rules should steer you clear of any potholes. Carolyn Holmes, senior wine specialist at Christies in London believes ‘any wine you buy for investment needs a good reputation and long track record of success’, while Enzo Giannotta MD at Cult & Boutique Wines who specialise in New and Old world wines advises to ‘take advice from those in the industry but make sure you stick to blue chip wines, the first growths, as they are consistent and proven; buy early, preferably en primeur but only from established merchants. Last but not least, store the wines in bond so they mature properly and have provenance which is extremely important when it comes time to putting it back on the secondary market’.
The principles on which this market is based seem solid and in a way have been tried and tested over several centuries. The best wines have shown consistent growth patterns and now compete with traditional equity related investments and commodities. Though very different products indeed, the principles that govern success when investing in commodities are still the same, short and finite supply battling against an ever increasing demand. This is a 200 year old market and looks to be gaining more and more supporters as its returns more and more profits to those that showed faith in the grapes.
What led you to get involved in the wine industry in the first place?
My father collected wine so i have always been aware of the joys of wine and especially the quality of Bordeaux wine, especially the 82′s as he was a huge admirer of the clarets from that vintage. With regards to fine wine investments, it was a market i had heard of on a social basis and had always been a little curious about, so when an old friend approached me about the idea of starting my own cellar for drinking purposes, like any shrewd business person i decided to do a little research. I analysed 3 decades of market trends and price shifts etc, looking for more information and advice i realised there was a gap in the market as advice was hard to come by, or at least advice one could comprehend! Although experienced investors were already doing this the masses were not aware of this market at all. Hence the idea to bring it to the forefront was born.
How has the market changed from when you first started?
My first involvement in the fine wine market was in 1999 and it was a real revelation, i couldn’t believe investors and especially institutions had not seen the potential in this market. We were offering a finite commodity of limited production and high demand. All the market forces were in favour of an upward trend; more millionaires and billionaires being created and therefore more buyers coming into the market, restricted production meaning limited quantity, more and more stringent selection process by the chateaux’s allowing for lower production but better quality wines, all of which would put an upward pressure on prices.
We were selling the product with a much larger mark up back then because we were a proactive advisory company with valued service add-ons usually only found in the traditional investment markets. It cost a lot more money back then to get new clients or speculators (as they called them at the time) to get involved. Today we don’t have the uphill task of persuading customers to trust this market but we do have a lot more competition which means our mark-ups had to come down somewhat in order to be competitive. The services we offer today are however, considerably more comprehensive so we are still different from the merchants who now also offer advisory.
Which wines are the best to bed down for investment?
The best wines for bedding down for investment are the same as they have always been, the first growths, the likes of Lafite- Rothschild, Mouton-Rothschild, Latour, Margaux and Haut-Brion. There are of course other classified wines from the lower growths and other appellations that are IGW’s (investment grade wines), such as Le Pin, Petrus, Cheval Blanc, Carruades de Lafite etc. But more importantly, sometimes the vintages can be the make or break factor.
Which Bordeaux vintages would you consider to be the best?
1982, 1986, 1989, 1990, 1996, 1998 (right bank), 2000, 2003, 2005, 2008, 2010 (en primeurs) but the 1982 is by far the best of lot. Will be a long time before we see a vintage like that again, though we have come close with the 2000 and 2005!
Are there other wines you would recommend for investment outside of the renowned French regions?
Though we only recommend Bordeaux, there are a few regions outside of France that are maybe worth considering. From the Californian greats of Dominus, Opus One and Screaming Eagle to Australia’s Penfold’s Grange, Henschke’s Hill of Grace, Torbreck’s Run Rig, Two Hands’ Ares and a few others. There are also a few from Italy such as Gaja, Sassicaia, Tignanello and Vegas Sicilia from Spain.
How can a potential investor begin a portfolio?
For a novice investor we always recommend doing a little of your own research on the market so you understand the basic principles. Bordeaux wine company have been dealing in fine wine for 10 years but have been offering en primeur (wines still in the barrel) for just over 7 years, so our clients are happy to buy en primeur from us and wait the 2 to 3 years it takes to be bottled and delivered. It is imperative you only deal through an agent or merchant with a proven track record of delivering the goods as some have been known to go under before the wines are bottled or delivered.
A portfolio can be started with as little as £5000. It is quite simple and straight-forward, at Bordeaux Wine Company we make it as easy and as trouble-free as buying stocks and share from a broker. It can all be done over the phone. You are also assigned your own account manager who is always on hand to help with queries, recommendations or market updates.
Is this another bubble?
Although the enormous rises in wine prices over the past 5 years are unlikely to be repeated any time soon, I don’t see this market as a bubble or a market waiting to burst because if you look back over the last 20 to 30 years the price rises have been steady and extremely consistent where other markets have faltered and some retracted even. We are still predicting that prices will increase even more over the next 5 years. One simple factor is the buyers from the Far East showing more and more interest in fine wine and they are not simply buying to bed down but to consume, this trend does not look to be slowing down. This will mean fewer wines on the market due to regular consumption. Second, the amount of IGW being produced by the Bordeaux Chateaux cannot be increased and if anything seem to be decreasing due to more stringent selection of grapes by the
