Europeans are spending less money on wine these days, due to a change in drinking habits and the weakening economy, but strong demand in Asia is keeping the industry's growth story alive, according to M&A International, an M&A boutique.
Indeed, Hong Kong has even overtaken New York as the world’s biggest wine auction centre, bolstered by the removal of duties on wine in 2008. Much of the demand is driven by investment rather than consumption. Including wine in a portfolio is increasingly common as investors seek out assets whose price movements are uncorrelated to other markets.
The Liv-ex 100 Benchmark Fine Wine Investables Index, which measures the value of the top 100 investment-grade wines and is the industry’s leading benchmark, has increased by 77% since the end of 2008, outperforming the 45% growth in the Hang Seng index and 35% in the S&P500.
Wine is a liquid asset in more sense than one, according to John Kapon, the chief executive of wine auctioneer Acker Merrall & Condit, highlighting that it can be sold quickly and easily. “Even during the financial crisis, prices [of wine] had gone down by only 20%-30%, and just six months later they completely recovered,” he said. By comparison, the sell-off on the S&P500 was twice as big and the recovery to 2007 levels has still not happened. Wine prices are relatively stable due to the fact that people’s consumption of wine creates demand and thus supports prices.
The cellar-owning classes did not originally buy wine to sell, Kapon explained, but some collectors are now finding that their obsession has landed them with more Bordeaux than they could consume in several lifetimes. When prices go up, they take the opportunity to sell some of their excesses, which helps to keep a lid on prices.
Hong Kong wine sales have topped more than $232 million so far this year, including a 300-bottle Lafite-Rothschild collection that sold for $7.6 million earlier this month, and the market shows few signs of the misery affecting stocks — Acker Merrall & Condit is holding its 16th sale in Hong Kong on September 16 and 17, featuring 959 lots with an estimated total value in excess of $10 million.
Hong Kong might host the world’s biggest wine auctions, but consumption in the city is still quite low and offers plenty of room for growth, particularly in the restaurant market, according to Kapon. “If you go to a New York restaurant, wine is on every table,” he said. “If you go to a Hong Kong traditional Chinese restaurant, there is not a lot of wine on the table. More and more people [in Asia] will discover wine, and in big cities [drinking] culture tends to develop faster than in the countryside.”
