Fine Wine Investing
James Miles first became fascinated by fine wine in the mid 1990’s while working in Hong Kong as a stock market analyst. He purchased a case of Lafite 1990, and when it started to rocket in price, he sold it for a healthy profit. The experience caused him to develop a fascination about how the fine wine market worked, resulting in several years of research and exploration before establishing Liv-ex in early 2000 with colleague, Justin Gibbs. Today Liv-ex generates around $100 million per year in revenues, by offering a B2B trading platform for wine merchants to buy and sell wine in the secondary market. They also offer their customers a database of arguably the most accurate fine wine pricing in the world, as part of their vision to make fine wine trading more transparent, efficient and safe.
In a recent interview with Miles in his role as CEO of Liv-ex, he shared details about advances in the fine wine market with a focal point on wine trends and technology. Like many changes in the global business environment over the last two decades, the amount of wine products and information have risen exponentially, with technological advances helping to make sense out of the mountains of complexity.
“It is remarkable how the market has proliferated into tens of thousands of fine wines,” states Miles. “Fifteen years ago the secondary market for fine wine was only in ten brands: the five Bordeaux first growths, Petrus, Ausone, Cheval Blanc, Angelus, and DRC. Today we are trading 12,000 different wines.”
In order to be qualified as a fine wine and traded on the Liv-ex exchange, (London International Vintners Exchange), a wine must be “so in demand that merchants can’t actually buy it directly from the producer, and therefore it is traded on the secondary market” explains Miles. It also must be highly rated by critics, have a sense of scarcity, and customers ask for it by name.
“Critics are still incredibly important in the fine wine market,” continues Miles. “Parker was famous for Bordeaux and his coverage of Napa, but since 2013 when many Chinese left the market, Bordeaux has languished. The market has gone hunting, and critics have split off and focused on other parts of the world.”
So what are some of the exciting trends in the world of fine wine? Miles indicates that more and more fine wines are emerging from Burgundy, Champagne, Italy and California. In Burgundy, it started with Domaine Leroy, and has now expanded to many other producers. “The 2015 Domaine Leroy Musigny is now trading for $100,000 per bottle,” states Miles, “and it would have been released in 2017 on allocation for only $2000 per bottle.” Of course, part of the appeal is that only one barrel – 300 bottles – of that wine was produced.
In California, the trend started with Screaming Eagle and Scarecrow, and other fine wines from California are joining the ranks. Miles states that California wines now makes up 8 to 9% of the total exchange, with 3500 new labels from California since the beginning of 2022.
In Champagne the trend started with Krug and Cristal, but has expanded to new players like Jacques Selosse. In Italy, Sassicaia, Tignanello, and Gaja are leaders but critics are identifying other producers and regions as well.
“It’s all about demand and supply,” states Miles. “Wine is a finite physical product, and that makes it very appealing. If you know there are only a certain number of bottles produced in a top vintage from a reputable producer, then that is a decent place to park your money. People tend to chase these highly collectible assets.”
As part of their exchange services, Liv-ex has created several indices, of which the most famous is the Liv-ex Fine Wine 1000, which tracks 1000 wines from around the world. Available to merchants as part of their Liv-ex membership fee, individual collectors may have access to the database by reaching out to their local wine merchant. The Liv-ex indices show that fine wine has delivered 10.6% annualized returns over the past 15 years.
James Miles, CEO and Co-Founder of Liv-ex Wine Exchange
The wine industry has often been accused of being behind the times, especially when it comes to technology. This may still be true in some parts of the world where small family-operated wineries and wine shops may not be up to date on product or QR codes and cloud technology. However Liv-ex is working hard to help bring them online so their wines can be accessed by many more people.
“Wine is still a cottage industry in many ways,” states Miles. “However, Covid has helped to convince the wine trade to move their businesses into the digital age.” One of the big issues is lack of a standard description product code or number. This is especially challenging for the wine industry because each new vintage means a new product code, creating a much larger number of distinctive products and more complexity.
Liv-ex has tried to help solve this problem by creating Lwin (Liv-ex wine identification number). “It’s been adopted by Winesearcher, wine shops, warehouses, and other players because everyone in the wine industry has this problem of messy databases and systems.”
Now instead of listing a wine by name, which can be done in many different ways that a machine doesn’t understand – for example, CH Lafite, Lafite Rothchild, Lafite, etc. – there is a universal product code for Lafite with vintage added each year. The Lwin can also be embedded in a QR code.
One challenge, however, is that a small producer may not have the technology, time, or means to do this. “All of these beautiful handcrafted products don’t want to put a barcode on the back of a label,” explains Miles. Therefore the wine merchants often assist with this. To date, there are 150,000 labels in the Lwin database, and growing.
With the problem of product codes solved, cloud technology can be used more efficiently so that wine product data can be stored in the cloud and accessed using API technology. The different machines and databases can now talk to one another and understand which wines are available.
“These days we have a big group of people that spend all of their time collecting and analyzing data,” states Miles. “However, we still have people who have to input data. Not all of our merchants have API yet, so instead they tell us to look at their website or send us an excel spreadsheet.”
Despite these small set-backs, Miles and his team are still working hard to make their vision of interconnectivity in the fine wine world a reality. “I have this view that we are all going to be connected via technology,” he states. There may also be another reason that wine businesses may want to invest in technology, because a recent research report compiled by Liv-ex shows that wine merchants using digital services sell 250% more by volume at a 7.8% higher price.
Some Fine Wines from California
