The Cistercian monks who once grew grapes and studied winemaking were no strangers either to political and economic turbulence or to the whims of powerful people. Even so, it’s unlikely that the humble Burgundians could ever have imagined that their wines would command such colossal prices, or become an investment like gold or property.
And yet not only have the past few years seen a near frenzy around top Burgundy wines, but other fine wines keep rising in value as well. How long can it last?
The fine wine market in 2022
Liv-ex, the London-based fine wine exchange, released its annual report on 8 December, showing that fine wine had outperformed all major equities and commodities, except for oil.
As to what people are trading, Liv-ex said there had been a “seemingly relentless focus on Burgundy and Champagne.” Burgundy’s share of trade share rose from 22.0% to 26.2%, and Champagne’s from 8.8% to 13.7%.
Bordeaux, once the mightiest of fine wine regions, lost more market share in 2022, as did the wines of Tuscany, Piedmont, California and the Rhône, as collectors narrowed their focus. But this needs context: “The market has expanded by both value and volume since 2020, so although Italy and California have lost market share to the likes of Burgundy and Champagne, the total value of trade from these regions remains above that of 2020.”
The market loves Burgundy
Burgundy is a hot commodity in the fine wine market. In 2018, just 829 Burgundy wines were traded on the exchange. This year, there were 1,924.
“There has been a considerable rise in the number of premier cru and even village wines trade,” said the report. “This has the result of buyers seeking value but also stock, as rising global demand has coincided with a series of short harvests in the region.”
It’s not just red Burgundy changing hands—trade by value of Burgundy has hit an all-time high.
Trade by value of Burgundy has hit an all-time high.
This is true across the entire secondary market, and not just at Liv-ex. The London exchange, which has more than 620 fine wine merchants trading with each other, plays a significant role in the secondary fine wine market. But there are other places to buy and sell as well, including auctions.
“Burgundy has been the strength of the marketplace for the last couple of years,” says Jamie Ritchie, Worldwide Chairman, Wine & Spirits of Sotheby’s auction house.
He pointed to one of the biggest surprises of 2022—the extraordinary prices realised at the annual Hospices de Beaune auction in Burgundy, held in late November. The bids tallied more than €31 million ($32 million)—more money than has ever been spent at a wine charity auction, according to the organisers. The centrepiece of the auction, the Pièce des Présidents, a blend created to support one or more charities, also went under the hammer for an extraordinary €810,000.
The Champenois must be popping corks too, as there has been a fierce trade in their wines, particularly vintage Louis Roederer Cristal and Dom Perignon.
What’s driving the growth in fine wine prices?
According to the Liv-ex report, there are a number of factors, including the rise of trading apps, which have introduced the concept of fine wine trading to investors who are looking for alternative assets. They also say that the demographics of fine wine are changing, with more young men and more women beginning to trade.
Justin Gibbs, Deputy Chairman and Exchange Director of Liv-ex, says that as some people begin to get disposable income, usually around the age of 27 or 28, they begin to buy wine. “From there to peak earnings in the late 40s and 50s is the sweet spot for a collector. In their 60s and 70s—having bought more than they can drink—they become sellers.”
But while there have always been a limited number of younger people entering the fine wine market, things are changing rapidly. A combination of more market transparency, plus the rise of tech, has allowed more people to invest in wine, even if they don’t know very much about it. “You don’t need a relationship with a merchant—this brings in young and tech-savvy people,” says Gibbs.
As more people enter the market, there’s more money sloshing around, looking for places to go. “The market gets more interesting,” says Gibbs, speaking of the way the fine wine market has broadened to include more regions. “There are more players, and so you get the network effect. More members bring something different to the game—a different client base, a different specialisation.”
But perhaps the single biggest contributor to the turbocharging of the fine wine market is the growth in the number of super-rich people. While key workers like supermarket shelf stackers and nurses toiled through the pandemic on relatively low wages, the wealthy came out of the Covid era with their bottom line much improved.
“The wine market is relatively stable.”
“Unprecedented government stimulus packages, low-interest-rate environments, increased liquidity, stock market gains, and widespread COVID-19 vaccinations drove 2021 global economic resilience and accelerated the High Net Worth Individual (HNWI) population and wealth growth,” said the World Wealth Report.
A HNWI is defined as someone with more than $1 million in financial assets, and there are a lot more of them now than there were before Covid—the number of HNWIs grew by more than 13% in North America alone, largely on the strength of the tech sector.
This raises the question of how long this bull market in fine wine can last. Crypto has collapsed, the tech sector is laying off workers in large numbers, inflation is high, energy is expensive, and geopolitical turmoil shows no sign of abating.
Is a fine wine downturn on the way?
“What we can say is that pretty much all of our merchant members across all regions have reported slowing sales, which I think reflects greater risk aversion in the wine economy,” said Gibbs. “Of course, there has been a huge and widespread destruction of wealth to the tune of trillions in the equity markets, and that has to have an effect on the wine economy.”
But, he says, he doesn’t expect to see a “massive sell-off”, because “the wine market is relatively stable.”
This means anybody hoping to pick up a bargain bottle of Coche-Dury may be in for a disappointment. The super-wealthy trade wine “at the margins”, meaning it’s not their primary store of value. If they need money in a hurry, they’re more likely to sell their stocks and shares. So even if the market dips, they’ll probably do what they always do—wait for a better time to sell. Or simply drink it.
It's unlikely that fine Burgundy will ever be affordable again. But all is not lost—the Rhône looks like a bargain in comparison.
Felicity Carter was an editorial consultant to Liv-ex for six months in 2021.