Luxury Drinks Investment
Although the thought of luxury drinks as an investment may seem a fairly new concept to most, shrewd individuals have been reaping the rewards of this market for many years. Years ago collectors would buy more wine cases than they intended to drink and then once the wine had fully matured, sell the excess cases enabling them to drink theirs for free and normally have surplus capital to start the cycle again.
Currently, the luxury drinks market is witnessing unprecedented demand, driven mainly from the “BRICs” (Brazil, Russia, India, China – and Asia more generally) who are becoming increasingly educated in the virtues of fine wine, whisky and Cognac.
Why Luxury Drinks?
Increased volatility is now a common factor in today’s financial markets and the need for diversification and alternative investment solutions has never been greater.
With more and more wealthy people around the world drinking fine wine, including many people from the emerging markets, prospects for this type of investment are looking stronger than ever. There is greater absolute demand from a growing number of consumers who are increasingly spread throughout the world.
Wine producers in regions such as Bordeaux and Burgundy in France are restricted to how many cases they can legally produce each year, this can be less than 100 and up to 40,000 cases, depending on how much land the vineyard owns (177 cases per acre). These numbers are incredibly small even at the highest, considering the ever-increasing worldwide demand for luxury goods. This makes investment-grade wine a finite commodity, which if stored correctly, improves with age and becomes more desirable, but becomes rarer every time someone enjoys a bottle.
With wine being a tangible asset, if for some reason it does not meet its financial expectations, it can still be enjoyed and will not disappear or become worthless such as some share certificates.
Wine has outperformed almost all other investable assets in recent times. Even in times of economic downturn, wine tends to remain more robust than many other investments, with little correlation to the volatility of other asset classes.
"While it is hard to find totally accurate records and therefore data, it is fair to say that the prices for the very best wines have risen by an average 15 per cent a year over the past 25 years"
Joss Fowler, a Fine Wine Manager at London merchant Berry Bros & Rudd.
Fine wine investment is exempt from duty and VAT (when purchasing and storing in-bond) and profits can be exempt from Capital Gains Tax if managed correctly. Please note that we advise you to consult a tax expert for clarification.
The luxury drinks market does not need constant monitoring, unlike other markets and historically it has provided steady high yield growth.
Supply and Demand
Any market where demand exceeds supply will prosper and prices will rise. Demand for luxury drinks is constantly increasing across the world, yet wine producers in Bordeaux and Burgundy have drastically reduced yields over the last twenty years with a methodology that less is more and concentrating on quality rather than quantity. As the demand continually grows and supply is systematically reduced, the future looks very bright for investors.