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¨.
After a series of devastating plant diseases and insect problems in the late 1800's, the French vineyard owners were replanting vineyards and rebuilding their businesses in the early 1900's. The shortage of wine at the time created tempting conditions for fraud. Much money could be made by bringing in wine from other areas and claiming it was from a premium region.
To combat this fraud the French Government began to create laws to protect the consumer and in 1936 created a rigid control over the Chateaux known simply as Appellation d’Origine Contrôlée or sometimes abbreviated as AOC or AC. These rules set about designating, controlling and protecting the geography and the quality of wines (as well as liquors and some food products, such as cheeses). This enforced power together with the 1855 Classification, created the perfect Finite-Supply-and-Demand scenario.
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 50% 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 doubled 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.