The story of Champagne includes Romans bringing vines to present-day France, monks perfecting the carbonation process, and historically appealing returns for investors. In an ever more volatile stock market, alternative assets are becoming more popular. This includes fine wine and spirits such as Champagne.
Champagne has been the top-performing region over the past two years, gaining 59.0% (through January 2023) on the London International Vintners Exchange (Liv-ex) versus an S&P 500 return of around 4.4% through the same time frame. The names leading the way for this index include Dom Perignon, Bollinger, Krug and Cristal.
To understand the factors behind Champagne’s rise, you have to look at its changing place within the secondary market. According to a Liv-ex report, Champagne only amounted to about 2% of secondary trading a decade ago. As of September of this year, that share had climbed to 12.4%.
Overall, Champagne ranks third in Liv-ex secondary market share of trade, behind only Bordeaux and Burgundy. In fact on a weekly basis, Champagne recently surpassed Burgundy as the second most traded wine market. This is demonstrated evidence that demand and liquidity continue to increase for bubbly. When taking these factors into account, Champagne has emerged as an increasingly compelling investment category.
Scarcity is also a factor in younger vintages. The Champagne region of France has not had the most consistent of growing seasons, and not every year’s crop becomes a vintage. 2021 for instance had early frost, which damaged yields for many producers. While this was a major disappointment to wine lovers, it feeds into the supply and demand variables that drive wine prices on the secondary market. Factor in that 2021 also set a record for Champagne, with sales coming in 14% above pre-pandemic levels, and the implications seem positive for pricing trends.
Obviously, it would be ill-advised to think this asset will constantly outpace equities. A prudent investor must always diversify across multiple asset classes. The broader appeal of Champagne and other investment-grade wines lies in their non-corollary nature. Wine markets largely operate independently from traditional equity and bond markets. That’s why diversification into this asset class can provide a hedge against volatility for portfolios.
There is also a potential hedge for economic conditions outside of public market volatility. Champagne’s performance is led by high-profile names such as Krug or Bollinger. Because of the high-priced nature of these wines, there is a bit of a buffer against broad economic uncertainty. That’s not to say that wine markets cannot be hit by economic circumstances, but the pocketbooks of the consumer base capable of paying for these products are a little more insulated. This means spending power for collecting and drinking these wines stands to be less impacted by an economic slowdown.
If you reference the Liv-ex 100 index performance through two periods of major economic disruption, 2008 and 2020, you’ll note that price movements for the 100 most sought-after wines were either quicker to rally, or less impacted as a whole.
Simplify this down to the Champagne 50 index alone, and performance has been even more steady. If one notes 2020 and the pandemic, investment-grade Champagne prices were relatively unscathed relative to the stock market.
The prices of the most in-demand fine wines have continued to appreciate, causing the relative value of top champagne bottlings to increase dramatically. It’s also important to note the successful positioning of champagne as more than just wine, but as a luxury good. Major players in fashion and luxury, such as LMVH, also own some of the most prestigious champagne houses. Their marketing leverage is being used to great effect as global demand, secondary market activity, and prices are following accordingly.
Investing In Alternatives Like Wine
At one time, wine investing would have seemed like something only for collectors and those with industry knowledge. That is no longer the case. Alternative assets like Champagne are gaining more traction as it becomes easier for investors to get involved.