The Economics of Wine: Value, Price, and Investment Potential

There’s an almost mythical stature given to the idea of vintage wine. More than just its rich, complex flavours and storied heritage, there’s a fascinating crossroads where luxury, culture, and economics all meet.

Despite the enduring fame and centuries-old allure of buying, storing, and investing in the finest wines from around the world, the general public still has very little understanding of the true dynamics behind the market and the value of these sought-after wines.

In this blog post,  we will give you all a better handle on exactly what is going on with the journey of vintage wine, from the vineyard to the cellar and auction house. Also the strategies you can employ for building your impressive cellar and potentially investing in this unique asset.

What Do We Mean by a Vintage Wine?

Officially, vintage wine simply refers to wine made from grapes harvested in a single specified year, with that year displayed on the bottle prominently. The idea here is that the wines made that year should reflect the unique climatic and environmental conditions of that particular growing season which, as we know, greatly influence the wine’s characteristics. Some wines are non-vintage, produced from a multi-year blend of wines. This happens most famously in Champagne. In reality, the vast majority of wines produced in the world each year are vintage wines.

But that’s not really what most people are alluding to when they talk about vintage wine. In fine wine circles, vintage wine is often associated with higher quality and distinctiveness imparted on the top wines of the best vintages. Winemakers, industry commentators and wine connoisseurs pay close attention to the best vintage years, where factors such as weather patterns, soil health, and vineyard management all come together to provide optimal conditions for the production of grapes in any one year. The allure of vintage wine, therefore, lies in the uniqueness of the best years and the wines’ subsequent potential for ageing, making them highly prized by collectors, enthusiasts and investors alike.

How Does a Wine Age?

Even people who aren’t wine lovers have heard the words “Fine wines age beautifully.” Any aged wine must surely be better than non-aged, right? In short, this is simply not the case. Not all wines are designed to age, in fact, most wines are not. Over 9 out of 10 bottles produced each year are designed to be drunk within 6 months after leaving the winery. Granted, that includes the big production, brand wines, but the point remains that it’s rare to have wines that are meant to age than those that aren’t.

So what is it within a wine that makes it possible to age? There are two things to look at.

1. The wine itself.
2. The specific conditions used to store the ageing bottles.
   

The wine itself

Those with ageing potential must have what is referred to as a balanced structure. That means it needs to have sufficient levels of acidity, tannins, and alcohol content which act as natural preservatives. The balance refers to the quality and respective levels of each structural component and how they integrate. Green and dry tannins or warming alcohol burn in a young wine will rarely, if ever, improve with age. Additionally, the wines also need higher concentrations of flavour and phenolic compounds to aid the ageing process. These will help the wine to develop over time, enhancing the wine’s depth, aroma, and taste, which can evolve into remarkable sensory experiences as the years progress.

Learn more about wine agieng in our blog post: The Science of Ageing: How Time Transforms Vintage Wine

The storage condition

The main things to consider are temperature, humidity and light. More so than getting a precise number, the most important thing for temperature and humidity is that the levels are consistent, somewhere between 10-15°C and 60-80% respectively. Darkness is also vital to prevent harmful UV rays from degrading the wine. Other than that, make sure the wine has a high-quality cork or screw cap (modern, high-quality screw caps are designed to allow wines to age), bottle size can also alter the speed and nature of the ageing process.

Learn more about wine storage in our blog post: The Best Ways to Store Your Wine

How Do You Price a Vintage Wine?

Whether buying as a collector or an investor, this is the key question. And sadly, one that by nature can never have a definite answer. Like all other illiquid markets such as classic cars or even property prices, it’s less about the intrinsic value and more about what the market is saying at any one particular time. On occasions when these wines come up at auction or traded on the exchanges, this can provide valuable benchmarks. There are several factors, however, that come into play including the wine’s provenance, history, authenticity, and storage conditions.

Wines from renowned producers or regions, such as Bordeaux or Burgundy, often command higher prices due to their established reputation for quality. These regions above all then play strongly on the idea of the vintage year itself, with exceptional vintages (those with favourable weather conditions) typically producing better grapes and, consequently, higher-quality wine. This inevitably drives up prices, such as 2005, 2009 and 2010 in Bordeaux, and 2005, 2012 and 2020 in Burgundy.

What Makes a Wine Worth Collecting or Investing In?

Quality of wine

The first consideration when buying wines for collection or investment is the quality of the wine itself. It all goes back to that. Wine professionals and critics spend their days travelling the world tasting these wines, whether already slightly aged or directly from the barrel before they’re even bottled. Look for critics or commentators, such as Jancis Robinson or Wine Spectator, that both you and the market in general trust and go with that.

Reliable source

If not bought directly from the producer or in the En Primeur markets, the provenance of the wine is crucial. You need to know its authenticity and storage conditions, these are crucial for maintaining value. The wine collection and investment world are notorious for highly publicised fakes. Even when the wine is the real deal but has been stored in a cupboard or under the bed, they will lose their magic. It’s important to buy wines from reputable retailers to minimise any potential issues.

Market demand

Market demand and rarity also significantly impact collectability. The limited availability of certain wines and vintages can create scarcity, which enhances their value. Chateau Latour averages around 125,000 bottles per year compared to only 5,000 bottles of Romanee-Conti Grand Cru on average, which is reflected in their price.

It is always worth making sure you are well-researched when it comes to professional ratings and reviews from wine critics and publications. Not only do they provide all the vintage information you might need, but they can elevate a wine’s price if it receives high scores or accolades.

What Transaction Costs Need to be Considered?

Apart from the wine cost, several transaction costs must be considered. These include auction or brokerage fees, transportation, storage facilities and insurance costs. Wine is an illiquid product that doesn’t trade too often. Bid or offer spreads of up to 10% are not unknown.

Wine is a living, breathing product, packaged in a rather fragile glass bottle. You will face storage fees for maintaining optimal conditions, and insurance premiums to protect against damage or theft. Additionally, transportation costs for shipping wine to and from storage facilities or auction houses can be significant.

What Does a Great Wine Collection Look Like?

When deciding what wines to buy for your own collection or investment portfolio, keep it to one very simple question. What do you actually like? If you don’t like sweet wines (other than the fact that you’re wrong, they’re amazing!) then don’t worry about picking up Sauternes or Tokaj for your collection.

Once you have a rough idea of the wines you know you do like, then diversity is as important in a wine collection as it is for an investment portfolio. If you like Pinot Noir, then buy Burgundies, German Spatburgunders and Oregon wines. They taste distinctly different in their youth and will age very differently too. Adding a range of styles, grape varieties and regions to your collection will keep you and your family and friends well-watered with incredibly interesting wines for many years to come. You’ll also avoid style-specific market bubbles giving your portfolio a more robust performance as the months and years progress.

This Blog post is written by Mike Turner
Freelance wine writer, presenter and judge

Mike is a regular contributor for The Buyer magazine and is a certified educator and ambassador for Bordeaux, Rioja, Ribera Del Duero, Barolo and Barbaresco, running trade and consumer events across the UK from his base in the East Midlands.

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