Our Wine Market Predictions for 2020 – Full Transcript (Auto)

We’re very proud to announce that we recently launched our new podcast series The Cult & Boutique Show. Filmed at our offices in Richmond-upon-Thames and published on YouTube, Spotify and Soundcloud, the show aims to shine a light on the fine wine market, as well as speak with wine professionals and local businesses to discover their story and how they arrived where they are today.

 

In this first episode, Daniel Paterson speaks with our Head of Communications Spencer to see where the market is right now and where we see it heading through 2020. Please feel free to comment, either here on our blog or YouTube and if there is anyone you’d like us to speak with we’d love to hear your input.

 

Below is a transcript of the show, this is generated by an automated system so there may be a few errors in the text.

 

Cult & Boutique Wine Management: 00:00
Hi there. and welcome to the Cult & Boutique Show, a podcast based around the fine wine industry. I’m International Sales Director, Daniel Paterson. I decided to do this podcast as a way of reaching out some more people, with the aim to demystify the snobbery that is associated with the fine wine market. And more importantly, showing how this is a fun market for everyone and not just the politicians and the aristocrats. Now, don’t get me wrong here at Cult & Boutique, our doors are open, to all clients, including politicians, aristocrats, however, a fair portion of our clientele are everyday people from engineers, postman, business owners, entrepreneurs, architects, receptionists, civil servants and so on. Now, some of our future guests would include the aforementioned. They would also include people very much within the industry, from vineyard owners to wine makers, people who deal with the logistical side of the market, actual clients of ours, wine critics.

Cult & Boutique Wine Management: 01:02
Now, in the last decade or so, uh, that I’ve been involved in this market. It feels that I have witnessed that all from the Lehman Brothers collapse to Southeast Asia, dropping their import duties, most notably Hong Kong, who reduced their import duties down from 70% to 0% on all wines and spirits. Uh, so the ANSI gifts, crackdown by Chinese officials, the spectacular rise of burgundy, the Napa wildfires, and in more recent times, that annoying word that seems to go on everybody’s back. Brexit. Now with that in mind, Hey, what meets tonight to discuss the year that was 2019 is our Head of Communications Spencer Leat, thank you for joining me today. How would you summarize 2019 for the fine wine market? Well,

Spencer: 01:52
You touched on a few of the things that have influenced the market over the last a year, has been quite a turbulent year. the benchmark index for the wine market, which is the liv-ex 100 that actually showed a minus 3% negative growth in 2019 which on face value isn’t great. I mean, if you were a lay person looking at a newspaper and you saw that figure, you’d think, well that’s not very impressive. but that actually tracks the price performance of a hundred brands across the fine wine market. So what we really need to look at is to scratch beneath that. And there’s actually some really good success stories. If you like to give a few examples, there’s a Giacomo Conterno that managed to show 75% growth, which nobody would turn their nose up at that, and also a Chapoutier Hermitage, which showed just over 50% growth over the same period.

Spencer: 02:48
The double digit growth goes on. Really there’s a selection of champagnes that did very well. Other wines from Piedmont across Italy and a number of Burgundies that all show double digit growth. And, we’re very happy to say that we’ve dealt with, uh, the majority of those. But as you said at the start, Brexit, the US / China trade Wars and Hong Kong had a negative impact. luckily we’ve just heard today that the US has stepped back from the larger tariffs that they were about to impose, but the existing 25% tariffs on wine from the EU do still remain in place. luckily Champagne and Italian wines have had a bit of an escape route there. So that tied in with their recent performance makes them a real stand out area of the market to put some money into.

Cult & Boutique Wine Management: 03:43
No, definitely not. I think because you mentioned as well when we’ve seen the performance on the Liv-ex table with the Giacomo Conterno and with some other champagne brands as well. I believe Bollinger have performed exceptionally well towards the end of the year after that tariff announcement was made. Uh, we as a company think the whole industry including Liv-ex soul and even auction for that matter, saw a sharp increase in Psalms of the amounts of Italian wines and champagnes that were traded in the secondary market, which is something we’ve been advising our clients for, I believe, at least the last 10 years. Right?

Spencer: 04:18
Yeah. Existing clients that have been reading our newsletter would be able to contest the, we’ve been promoting diversification within the wine market for years now. And this change in the market hasn’t happened overnight. If you go back to 2010, Bordeaux share of trade was in the 90s, the night over 90%. but if you look at it today, it’s, it’s closer to 50% and it goes even below that month on month sometimes. So there’s been a huge shift, a sea change in the type of wines that people

are putting money into. And we’ve watched that, we’ve observed that for a number of years. It hasn’t some, it’s not something that’s happened all of a sudden, but it really is becoming more prominent now as time goes on. And that does really back up our strategy that you should look to spread your risk if you like, across many different regions.

Spencer: 05:10
The wine market does tend to perform on a regional basis and you see, for example, burgundy will have an uplift. It will have a, a great spurt of growth, but it will then stagnate for a short while. And while that stagnating, for example, California, we’ll see a growth spurt and it’s like any financial market, it works in cycles and as long as you are aware of that and can plan ahead and have a reasonable strategy to allow for those cycles, you should be able to see a very good return over five to 10 year period.

Cult & Boutique Wine Management: 05:38
No, absolutely not. Something that we, we have always professed is that medium to long term, five to 10 years when you can realistically see a much better return on your, investments. Uh, within this market of course, and as you stated quite correctly, Bordeaux dominated market for much

Spencer: 05:58
of 2010, early part of 2011 as well. However, diversification is key in any invests investments, including fine wine of course. And with the diversification we’ve seen from beyond board over. Got Bergen the, as you stated, there’s other regions, South Australia, some Spanish wines and so on and so forth. What would your predictions be for 2020? Obviously, I know it’s just been announced today that of course the terrorists are going to be frozen for now. But what are the premonitions for the year ahead? I would say in very basic terms, my personal belief is that, Northern Rhone is a good place to, to store some capital for the time being. That’s an area that we’ve been expecting some growth from for quite some time now and it hasn’t quite materialized in the same degree as it has in other regions. So we feel it’s still overdue. a growth spurt that I mentioned earlier on.

Spencer: 06:57
so I would say some of the top flight wines from the Northern Rowan would be a great place to look. but as you said as well, Italian wines, they have a great entry point. financially, if you’ve ever looked at the price of getting involved in the premium burgundy market, you would have balked at some of the prices and that really is the big boys, uh, area. But, if you like that kind of level of performance, you can see similar performance from Italian wines at a fraction of the cost. and that as you mentioned as well, champagne champagne is, is really coming into its own and it is a really popular uh, region with our clients mainly because they understand champagne. when you’re talking to somebody about a wine or red wine that costs thousands of pounds a bottle, it’s hard for our clients who in many cases are just ordinary people to understand what the cycle of that product is.

Spencer: 07:54
They understand it’s an expensive wine, but when do they ever see that being consumed? Whereas we’ve prestige champagne, people understand it gets consumed, they see it being consumed. In many cases they consume it themselves. So they understand that product cycle a lot better. And it’s just great to see that a region getting its prominence. there were some brands that were bumped up into the top 10 of the, of the live X power 100. Yes. So yeah, it’s a really good time to be looking at champagne. Definitely Italy for its entry level and its performance. And I’m not willing to give up on Rowan yet, so I’d definitely divert some of my funds towards Northern Rome. I agree with that. And as you mentioned as well with the, uh, with the champagne houses, there were free and losable ones in particular that we have dealt with for the last I believe at least six years. Uh, that being crew, which was in a number for Louis Roederer Christo number five, Moez Chandon I believe us linked because it has Dom Perignon wasn’t at number nine and SASA Kaia from Italy number seven.

Cult & Boutique Wine Management: 08:56
So it was the first time ever that any first grow from Bordeaux Mouton Rothschild, the feet rough child, Margo or Brianne were outside the top 10 in the 14 plus years live X been doing it, I believe the only one that retained his top 10 status washouts at at all. But, I also believe as well, Napa Valley is something that’s going to do extraordinarily well in 2020. I believe some of the statistics that live X fry Nava have proven that the Napa wineries, Ridge, Montebello, Dominous screaming Eagles to name a few have performed up surrounds I believe 78% or within that region within the last five years, our performance, some of the other sub indices for live X as well. Because of course we’ve, we’ve Napa, you’ve got the big scores, you’ve got the rarity and you’ve got the reputation and it’s something different. And again, it’s diversifying from beyond the tradition I suppose.

Cult & Boutique Wine Management: 09:55
Yeah. I mean, California wines are fantastic and their performance on paper is, is really staggering. One thing that we have to bear in mind is that that side of the market, the secondary market for California wines in the UK is still very premature. It still needs to develop, it needs to strengthen and it needs to become more, more liquid. but the wine market is all about looking ahead at what is to come and we believe that that market for California wines in the UK will strengthen, will become more buoyant. Yes. so yeah, I, I agree with, with that prediction. I think that would be a, again, another great place to put your capital and and don’t forget as well that we do deal directly with a lot of prestige us auction houses. So even though the market isn’t that developed in the U K we still have a very firm exit strategy for our clients.

Cult & Boutique Wine Management: 10:46
They’ve taken a position in those wines because we deal direct, I mean you’ve had a heavy involvement with that as well. Yes. Zachary’s for example, nailed a couple of really good auctions towards the end of last year 30 well, absolutely as well as a ACA and FM one, our view has been more familiar with Southerby’s who last year announced for the first time in their history had achieved the 100 million us dollar sale worth of wine and spirits, uh, in an auction calendar year, which again is unheard of. But the record for breaking records, they did. And again, we saw some extraordinary examples of, you know, there was that Mick Bossert and Macallan whiskey, a soul for closer, you know, 1.5 million pounds earlier in 2019 there’s one boss, sort of a domain, duller Romney consi sold for close to 500,000 pounds for one. Bustle just seems that the records are there to be broken. And I say that it’s very interesting times in 2020 I think we’ll offer a lot of opportunities for people who are already in the market and you know, the new to this market. So, but, you know, on that subject with people looking to get involved and for people who

Spencer: 11:54
may not be involved already, why are so many people already involved and what should people be looking for as to the sort of benefits that can get through investing in fine wine. Traditionally, people were always attracted by the non correlation of the fine wine market. So, any fluctuations that you saw in the currency market, for example, wouldn’t necessarily be echoed in the fine wine market. but also the tax efficiency of the market. it is, uh, you know, has a very low tax responsibility obviously for more details that speak to your tax advisor, but it’s not income bearing for example. So there’s going to be no income tax. but also outside of that, a lot of the things that you mentioned towards the start of the, uh, the call, the uncertainty that you’ve seen in other areas have made a lot of more traditional areas, investment, quite volatile and fine wines.

Spencer: 12:50
Performance does compare very favorably. if you, for example, layered up the performance of the fine wine market over the footsie over the last year, you were visibly be able to see that the fine wine market is a lot less volatile. Its movements are less extreme and less frequent. So it’s that kind of stability in this kind of chaotic financial environment that people seem to be magnetized towards. one of the best things about the fine wine market is many of the wines that we deal with are produced to a limited quantity, usually even limited in, in French terms by law. but in, in other areas it would be limited purely by the size of the vineyard because wines are produced geographically. there’s a French term terroir, which refers to the taste of the earth being being prominent through the vines and then obviously in the result of wine.

Spencer: 13:43
And because of that, if you have a fantastic warm of a, an international following collectability, there’ll be a limited area of land that you can grow the fruit on that’s going to contribute towards making that wine. So that in itself limits the production quantity. So you have a fairly static, supply line. Yes. Servicing an ever growing demand. the amount of people that are drinking and collecting these wines is growing year on year on year. So that in itself puts up a pressure on price. So for those who are new to the investment, some of the questions I’ve, I’ve had over the years as well, where do I store it? How, how’s it kept? I haven’t got room in my house. I don’t have a seller. How do we look after the client’s wines? if you’re looking to get involved in the fine wine market, you have to make sure obviously that your getting involved with a reputable company see that the company’s been around for a decent amount of time.

Spencer: 14:43
Ideally, are they members of recognized trade bodies? Have they won any recognized awards? Those kinds of things really do help to separate if you like. the good companies from the not so good. we recommend five years storage insurance in order for the wind to mature and for the secondary market to develop, et cetera. So in order to see that a company has the ability to show returns, you have to deal with a company that’s been around for, you know, a minimum of six, seven years to see that they’d been through that cycle with clients. but once you’ve, you know, you’re happy that you’re working with a, a company that that’s going to do the right thing by you. I would also make sure that your wines are stored professionally. Don’t store them at home. I know it’s something, you kind of mentioned it tongue in cheek, but to somebody looking at this market from the outside, they wouldn’t have an idea of how it works.

Spencer: 15:33
find wine longterm storage has to be within a certain parameter, temperature wise, not in any strong lights, et cetera. And there are bonded warehouses across the UK that are dedicated to storing fine wine. one of the world, definitely the UK, Europe, but, but probably globally. One of the most recognized companies for this is London city bond who we use. we use their Burton upon Trent facility called Vinoteca. It’s an old Victorian building and they have a S, uh, state of the art air conditioning system, which makes sure that the, the, the environmental conditions are absolutely perfect. The temperature, the humidity, if they fall outside of the parameters that are required, um, the management of the facility automatically get messaged so they can get straight on it and find out what the problem is. Um, also insurance. There’s um, a level of insurance that will always come or in most cases will come with your storage if you have your wine stored at a bonded warehouse.

Spencer: 16:34
But it’s worth checking that the, the level of cover offered by

that insurance policy matches the replacement value of your fine wine. Um, some of these warehouses can have a limit if you liked the amount of cover that can be offered. For worst case scenario, a bomb falls on the warehouse that wipes out every wine in the warehouse. There will be a limit to their cover. Um, we are cult and boutique. We take out our own, um, private policy. We have an independent company and that covers all of our clients’ wines at their replacement value. Not only whilst they’re Infinitech, but it also covers them whilst they’re in transit. If they’re being sent off to be sold at live X or if they’re being sent overseas to be auctioned. You have the peace of mind of knowing that your wine is covered and if anything, God forbid, were to happen to it, you would be paid out of this replacement value.

Spencer: 17:24
And the other factors to think about obviously is monitoring your, um, your investment. Um, a portfolio of wine can as it grows, become quite complex to track. Um, we are Colton boutique, have an online portfolio. So when you become a client here, you’re provided with login details to your own online portfolio. You can look into that from anywhere in the world where there’s an internet connection and that will give you, um, the price that you paid for your wine. It’ll also give you a market low, average and high. Um, and those figures are updated daily. We wouldn’t necessarily suggest that you check the value of your wine daily. Uh, probably monthly would suffice. But just for peace of mind, you know, you can log in and check that price and whenever you like. Um, and then once you’re happy with the performance you’ve seen, uh, to most of our clients, the, the most important part is obviously the exit strategy.

Spencer: 18:15
Finding the right time to dispose of your wine at a good price, using the right exit strategy for that wine. Um, getting back to, to some of the comments earlier, there are wines that didn’t too well, it didn’t do too well, for example, on the live X exchange in the last year, but we’ve been able to get fantastic prices for in the U S at auctions and we have staff here that would be able to help you through that, guide you through it, discuss your strategy and ultimately work out which of our exit strategies best suits the ones that you’re looking to sell.

Cult & Boutique Wine Management: 18:48
Brilliant. And you also made a couple of very good points that which is what people should account for when getting involved in the company. Could you shove our view is some of the accolades and achievements, uh, that costs boutique have won the awards and some of the governing bodies that we work directly with?

Spencer: 19:06

Yeah, well, we’re, we’re members of, um, live X, which is the London international vintners exchange. Um, it is an online wine trading exchange. Um, it’s a trade only environment, so it’s only open to wine merchants. Um, and also it’s an anonymous environment. So, even though we go on there and sell our wine, we don’t know who buys it from us and they don’t know who they’re buying it from. All they see are um, you know, offer prices and they bid against those. Um, that’s probably one of the more time efficient exit strategies for our clients. Um, we are also members of the London chambers of commerce. Um, the reason being they help us with all our export papers when we are sending wines overseas to be sold at auction. Um, they help us with the exportation of that, um, wine searcher, which is, uh, an online fine wine pricing database. So it links into literally tens of thousands of fine wine merchants around the world. We have one for the third consecutive year, their gold award for our new world selection of fine wines. And the award is also as, as they themselves profess very much linked to customer service. So it’s fantastic to be continued getting that Pat on the back from such a recognized body.

Cult & Boutique Wine Management: 20:20
Well, absolutely. And as you mentioned, wine, such a, in my opinion, probably the biggest search engine out there for fine wine prices. So the fact that we have received such an award three years on the trot consecutively, obviously speaks very high volumes. But, um, we’re almost out of time. So Spencer, I would like to thank you once again for taking time out of your busy schedules to be joining me on today’s podcast. Um, however, join us next as we will have a fifth-generation wine maker joining us here at Cult & Boutique in Richmond upon Thames. It’s going to be a very exciting time, hopefully as exciting as today’s podcast. And until next time, thank you very much.