The Market / History & Fundamentals
The perfect finite supply & demand scenario....
In 1855, the Bordeaux Brokers Union, at the request of Bordeaux Chambers of Commerce, drew up what is known today as the Bordeaux Classification (1855). Based solely on price, the list comprised of the most expensive to the cheapest, and for comparison sake was given the titles of ¨First-Growth¨, ¨Second-Growth¨, ¨Third¨ ¨Fourth¨ and ¨Fifth¨.
It was no coincidence, that at the same time, the French Government enforced a rigid control over the Chateaux, aptly named ¨Appellation Controlee¨. This enforced power controlled the total wine produced each harvest for each Chateau, and together with the 1855 Classification, created the perfect Finite-Supply-and-Demand scenario.
Ever-increasing circles....
On average, the Bordeaux harvest contributes 700 million bottles to the market every year, of which approximately 35 million (5%) are of investment purposes. In effect, this 5% of production provides an investment pool of some £2bn annually.
Traditionally, the demand by investors and consumers has been firmly established amongst North American and European countries. However, emerging markets have now carried the Fine Wine Market into a GLOBAL PHENOMEMAN.
It is estimated 40% of fine wine auctioned in London, now ends up in Hong Kong due to the abolition of the import duty late in 2007. This is on the increase with trends already being seen where ´High-end´ wines are not only being sold for investment, but the majority is sold for consumption. Wine imports have risen 88% since then, and forecasts of wine sales in Asia alone are set to grow to a staggering $27bn by 2017*. Of course these wines are not only Bordeaux, however these trends indicate the global potential and direction of the Fine Wine market.
The increasing demand fixed against the supply of each investment grade vintage (as the wine matures it is consumed) can only strengthen prices in this market.
Source: Liv-ex