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Throughout this post we're going to take a look at some of the key factors that drive the fine wine market. Hopefully this will help you to understand why some wines are a good investment and some wines are not.
It's worth mentioning that while the following fundamentals of the fine wine market are crucial pillars in any fine wine investment strategy, past performance can never determine future success and the wine market, like most other markets, can be unpredictable at times.
Right, let's get into it!
1. Annual Production
Annual production of the finest wines will always be limited, because of unpredictable weather conditions, critical grape selection and the restricted land areas of the most prestigious vineyards. These factors create a unique wine every year from each individual vineyard and result in a harvest being a finite stock for that vintage which depletes from first release. It's this model of a supply and demand that primarily drives the fine wine market.
Fine wine will generally increase in desirability and value at the time of maturity in most instances, as more people will chose to buy, drink and enjoy the wine for pleasure. In addition to this new demand, consumption is higher and earlier than normal. It’s a well-known fact that fine wine matures with age, a process that enriches the quality and taste of the wine as it ages in the bottle, and each wine has an optimum drinking age when the wine reaches full maturity and is considered the best time to drink.
3. Critics Influence
Another contributing factor is the industries wine critics and their opinions which can affect popularity and demand for a specific wine dramatically. A wine that receives good reviews or scores by the leading critic will undoubtedly be in greater demand than others and this demand will have a direct impact on availability and values.
This is more significant if Robert Parker, the highly influential critic, awarded an exceptional score, as this wine will undoubtedly be in high demand from day one. In most cases a high Robert Parker score will drive the release price and the long-term value of such a wine up more rapidly and disproportionately to other wines of same vintage or similar standing.
4. Weather Conditions
In vintage years where weather conditions are extreme, excessive sun and heat or dampness and abnormal rainfall, there will be a significant reduction in production. These conditions seriously affect ripening of the grapes, the time of harvest and the vineyard’s grape selection criteria.
5. The Fine Wine Calendar
There are several prominent times within the wine calendar which can affect the value of an individual wine or the market overall. These are around harvest in August, September, October and November when a new vintage year’s harvest is dependent on weather conditions and determines the actual harvest.
March and April are also very significant months, as this is when tastings are conducted, scores awarded and previous vintages are re-tasted and given a new score or grade.
6. Emerging Markets
In recent years, a redistribution of wealth in emerging economies has significantly increased consumption and demand of these exceptional wines and champagnes, whilst production levels have remained static at the pinnacle of the market, resulting in a further depletion of already limited stocks.
7. Low Production Vintages
In these harvest years, production can fall to 30% of normal harvest yield which will cause release prices to be much higher. These vintage years are always good to buy, as grape selection is even more stringent than usual and the demand for these low production years is usually greater than production, from the day of harvest. Wine is a natural agricultural product, so the quality of the grape is largely dependent on growing conditions, in short, the weather, which is highly unpredictable, especially within a macroclimate like the Bordeaux region.